Rio’s Mongolia Copper Dream Awakens 20-Year-Old Nightmare

Rio Tinto Group (RIO)’s Mongolia copper and gold mine looks a dream location sitting next toChina, the biggest market. Yet, Mongolia’s bid for more control of the project draws comparison with a Rio mine that went badly wrong.

Mongolia’s government is ratcheting up criticism of Rio’s management of the $6.6 billion project, the landlocked country’s single biggest investment. Lawmakers have argued for a bigger share of profit, while President Tsakhia Elbegdorj wants more management control. He faces elections in June with a fifth of the nation’s 3 million people in poverty despite world-beating economic growth of 17.3 percent in 2011.

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“In Bougainville the community felt, rightly or wrongly, they weren’t compensated adequately for the various impacts of mining they were having to absorb,” said Jeffrey Neilson, a senior lecturer in economic geography at the University of Sydney. Governments in emerging economies “have to be seen to be taking a strong stance and making sure that the benefits of their resource wealth are being shared.”Rio has refused government overtures to rewrite the agreement on the mine known as Oyu Tolgoi, raising tensions and comparisons with another Rio copper mine more than two decades ago. That project known as Panguna on the island of Bougainville in Papua New Guinea was shut by local protests and is still the subject of a U.S. court case.

Mining companies also need to consider wealth distribution in countries where they invest as a matter of course, said Michael Bush, who now heads credit research at National AustraliaBank Ltd. and formerly worked as a geologist at Triad Minerals Inc.

‘Fingers Burned’

At Panguna, which was closed in 1989 after protests turned violent, the company “got its fingers burned more than many” of its peers, Bush said.

The unrest at Panguna, led by Francis Ona a former Bougainville mine worker, revitalized an independence movement on the island. That prompted the Papua New Guinea government to declare a state of emergency and send in troops in a conflict in which thousands died.

Bougainville landowners later filed a U.S. lawsuit alleging Rio conspired with the PNG government in acts of genocide, human rights abuses and environmental damage. Rio lost anappeal to have the lawsuit thrown out on Oct. 25, 2011. In November the same year, Rio sought to appeal the ruling to the U.S. Supreme Court. No decision has been made, according to the court’s website.

‘Serious Risks’

The company has argued that as the case has no connection whatsoever to the

Gold Headed for Longest Slump in Over a Year

Gold Hammered to 7.5-Mo. Low on Technical Selling, Bearish FOMC Minutes

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Gold prices ended the U.S. day session sharply lower Wednesday, and then extended those losses in the afternoon following a bearish FOMC minutes report. Prices hit a fresh
7.5-month low as the precious yellow metals bulls are presently reeling. April gold last traded down $43.50 at $1,560.90 an ounce. Spot gold was last quoted down $44.90 at $1,560.50.  March Comex silver last traded down $1.017 at $28.405 an ounce.

The Federal Reserve’s Open Market Committee in early January said U.S. economic conditions are improving to the point that its massive asset purchasing program (quantitative easing) may have to be changed. The FOMC will further address the issue at its next meeting in March. Worries the FOMC minutes would indeed be bearish added to the technical selling pressure Wednesday morning. These minutes in the past few months have been market-movers, just like Wednesday’s. The U.S. Treasury markets, with their recent rising bond yields, are also hinting that the Fed’s very accommodative monetary policy of the past few years will start to wind down in the not-too-distant future. That’s yet another underlying bearish factor for the raw commodity sector, including gold and silver.

Wednesday’s price action on the daily chart for April Comex gold futures saw the 50-day moving average cross below the 200-day moving average, to produce what is called a “death cross.” This term has become somewhat popular in recent years, partly because it sounds so ominous. However, the technical significance of this particular moving average crossover signal is not major. In fact, a Dow Jones report Wednesday said that Schaeffer’s Investment Research analyst Ryan Detrick did a historical analysis of the death cross on gold, and he found that on average gold prices actually rebounded somewhat in the weeks and months following the death cross.

Another major bearish factor for the gold and silver markets in recent weeks has been rallying stock markets worldwide, which shows investor risk appetite is on the upswing—at the expense of demand for safe-haven assets like gold and to a lesser degree silver. The recent strength of the U.S. dollar index is also an underlying bearish factor for the precious metals markets. Recent developments coming out of the European Union paint a picture of improving financial and economic conditions, to suggest the EU has turned the corner toward recovery from its sovereign debt crisis. That’s also a bearish underlying factor for the safe-haven gold market.