On Monday, Canada’s McEwen Mining announced that it is still on track to meet its annual gold production target despite an armed robbery of 6,350 ounces from its El Gallo mine in Mexico on April 7. The thieves, which the firm’s CEO implied had inside help, stole concentrate containing an estimated $8.5 million in gold.
The mine produced 15,243 ounces of gold in the first quarter ended March 31, so it lost over 40% of its output. The firm said its insurance policy was not large enough to cover the entire loss, so the heist was a major blow. The only good news is that no employees were seriously injured, and the mine’s facilities were not damaged, so full production is continuing. And El Gallo is experiencing better grades of ore (yielding more gold), so its annual target of 50,000 ounces of gold is achievable even after the theft.
Despite the Mexican government’s renewed efforts to provide security for foreign companies, dealing with the country’s powerful drug cartels is a persistent element of doing business there. Cartels have diversified their sources of illegal income, and the government’s targeting of the cartels’ leadership and their large-scale trafficking has led to many smaller groups breaking off, with unintended consequences. Either lacking the capacity to traffic or wanting to diversify their sources of income, these splinter groups have also turned to targeting companies.
“The cartels are active down there. Generally we have a good relationship with them,” CEO Rob McEwen admitted on the Business News Network. “If you want to go explore somewhere, you ask them, and they tell you, ‘no,’ but then they say ‘come back in a couple of weeks, we’ve finished what we are doing.’ … They might be harvesting [drugs].” So the robbery came as a surprise to McEwen, who subsequently vowed to make El Gallo as “impenetrable” as Fort Knox by doubling security spending.
The cartels have indeed robbed and extorted other multinational corporations. Belgium-based Nyrstar indefinitely closed its Campo Morado mine (which produced about $124 million worth of gold, silver, copper, and zinc last year) in February, citing “systematic intimidation” of its workers. And employees of two Canadian mining companies, Torex Gold Resources and Goldcorp, were kidnapped in February and March, respectively. According to the Global Post, some company insiders concede there are additional incidents they do not report for fear it will hurt their public image and share prices.
But while troubling, the security situation has not deterred new major investments from multinational corporations — notably in Mexico’s relatively safe zones. (The El Gallo mine is located in Sinaloa state, home of the Sinaloa cartel, and the Torex and Goldcorp kidnappings occurred in Guerrero state, which has been wracked by unrest and protests.) Automakers in particular are investing investments in huge new factories, like the $1.3 billion factory Audi is constructing near Puebla. The two most recent FDI headline-grabbers were in April, when Toyota announced it will build a $1 billion factory in the state of Guanajuato, and Ford announced it will spend $2.5 billion to build and expand factories in Chihuahua and Guanajuato.
No investments are without risk, and in particular natural resource extraction firms tend to accept higher operational risks from insecurity and political instability than those of other industries. After all, McEwen Mining is only reinforcing its commitment to Mexico.