Should You Invest in Precious Metals Miners Anymore?


The contrasts couldn't be more stark: At a time when demand for physical possession of gold and silver has rarely been higher, the companies charged with extracting the yellow and gray metals from the ground are encountering more opposition. As valuable as precious metals are, perhaps the time has come to stop investing in the mining companies.

While South America is proving to be a particularly divisive front in the battle to expand and exhume the metals from the ground, we shouldn't forget that it's a global effort to stop miners from mining. At the least it's a bid to wrest more money from them.

Freeport-McMoRan is facing the possibility of a month-long strike at its Grasberg mine in Indonesia by some 1,100 construction workers looking for more pay. A few years ago, operations were crippled there by a three-month strike and work didn't resume until Freeport agreed to huge wage hikes. And it was violent, deadly clashes last August at Lonmin's South African Marikana platinum mine where 44 people were killed that have halted operations at one shaft until investigation into the deaths is completed. Africa has long been home to strikes and violence that have plagued miners from Harmony Gold and Gold Fields to Implats and Aquarius Platinum.

Unfortunately the unrest that's plagued South American miners is now reaching up into Central America, with violent protests breaking out at Tahoe Resources Guatemalan Escoabl silver mine. One protestor was left dead and some seven members of the Guatemalan National Police were being held captive causing a state of emergency to be declared.

For too long the miners operated with willful abandon, ignoring the environmental harm they caused and the disruption to the lives of the local peoples whose land they exploited. The strikes, protests, and violence were the outgrowth of having ignored those realities.

Now they must deal with constant and often escalating strife that they've brought on themselves, strife that is hurting their profits enough that investors should question whether it's worth it to throw their money in with the miners.

Of course it's the potential opportunity that makes the industry so attractive. Although Goldcorp has lost 40% of its value since last September, hurt by the falling price of gold, it still anticipates production increasing as a result of improving grade quality at Penasquito and Alumbrera just as commercial production gets under way at Pueblo Viejo.

Even so, it posted a 35% drop in profits, while Barrick Gold saw earnings fall 18% and Newmont Mining witnessed its first-quarter profits tumble 36%. Certainly the lower price of precious metals has hit their bottom lines, but higher expenses and the delays they've suffered are affecting them as well.

Despite the potential for growth, the miners haven't satisfactorily resolved the negative impact they've created and the disruptions are only likely to grow more pronounced. For me, I'm still trusting in owning actual gold and silver rather than the paper stock of the companies that bring it to the surface.

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Motley Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. 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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