Mining goliaths, once riding on the steady profits stream attributed to high commodity prices, are now bickering over contracts with resource-rich countries that are no longer getting the levels of revenue desired. Mining firms and the exchange traded funds (ETFs) that track them may stumble as commodity prices remain in the trough.
There is a growing conflict between resource-rich countries and mining companies over production, and in some places, countries are seeking to rewrite contracts or even reclaim property, reports Robert Guy Mathews for The Wall Street Journal. For example, Rio Tinto (RTP) was chastised by the Guinean government for not moving along its $6 billion project fast enough and the country stripped and gave away the rights to develop 50% of the mine to another company.
During the bottoming of the commodity market, companies become less interested in investing in risky projects and countries begin to impose additional taxes and covenants on existing mining ventures to make up for lost revenues. This scenario would shift mining interest away from lucrative but politically risky countries and would consequently reduce money flow into poor countries.
Mining companies mostly fear the possibility of losing billions in investments if governments decide to nationalize the companies’ assets or change contract stipulations.