Is South America Losing Its Luster for Miners?

After Barrick Gold became the latest miner to have a development project halted in South America, investors need to ask whether the continent will lose its sheen as an attractive haven for mining.

A Chilean appeals court ordered Barrick to stop development at its Pascua-Lama gold and silver project on the Argentinean border after approving complaints from local indigenous groups until it addresses their environmental concerns.

Mining collapse
Last year, Newmont Mining saw its Conga gold project in Peru brought to a standstill after environmental concerns were also raised. The government says it's on the "back burner" now and with most of the locals opposed to it going forward, a project that was once estimated could yield some $2 billion annually in gold is now collecting cobwebs. Vale abandoned an iron ore project in Argentina after the country's fiscal policies caused costs to soar and government and labor unions made untenable demands while Yamana Gold previously had operations suspended at its Agua Rica project in Argentina after violent clashes with locals and suspended export sales -- since restarted -- from Alumbrera after the country adopted revenue repatriation laws.

Sticker shock
Barrick, as the world's biggest gold miner, had been looking to the $8.5 billion Pascua-Lama mine to carry it forward, but under development for a decade, the cost and scale of the project has escalated beyond its ability to control it. It subsequently outsourced much of the work to engineering and construction firm Fluor following the successful completion of its development of Pueblo Viejo, a joint venture between Barrick and Goldcorp.

Yet there's trouble brewing there as environmentalists contend Barrick is violating the law against mining on or near glacial areas. Ejecting the gold miner from the country completely would not upset the groups arrayed against it.

Sic semper tyrannis
In the end, it becomes a question of whether the cost of doing business in South America is worth the risk. As many industries saw in Venezuela during strongman Hugo Chavez's rule, and as they're witnessing now under his protege Cristina Kirchner, livelihoods will be expropriated on a whim or the cost of doing business will be raised to such a degree as a result of ruinous fiscal policy that it no longer makes economic sense to do business there.

Investors will not only need to question what the price of gold and silver will be in determining whether Barrick or Yamana or Goldcorp is a worthwhile investment, but considering geographic risk will become just as big a component of one's due diligence.

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Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of Fluor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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