The Positive Shift for Mining in Europe
Alena Mikhan and Jeff Clark of Casey Daily Dispatch bring us:
Europe has a long mining history and to this day still possesses a sizable chunk of the world's natural resources. Over the past few decades, however, EU countries have mostly imported their resources. This was easier, cheaper, and avoided most environmental conflicts. But now the trend seems to be reversing, due in no small part to the dragging economy and the real benefits of jobs and tax revenue that mining brings.
It's positive, of course, that the political climate in Europe is at least in theory becoming more supportive of mining. Industry players also see new opportunities here: encouraged by high commodity prices, many mining companies have reopened abandoned mines and are explored ignored parts of the region.
Gold Mining in Europe
Within Europe there are three main zones of metallogenic significance for gold: the Iberian Pyrite Belt; the Carpathian Arc; and the Baltic Shield. The first crosses from Portugal through southern Spain. The second stretches from the Czech Republic through Hungary, Slovakia, Bulgaria, Ukraine, Romania, Serbia, and into Turkey. The Baltic Shield traverses from western Russia through Finland, Sweden, and Norway.
Europe's gold mining contribution is approximately 1.2% of global mine production (though demand from the EU is roughly 15% of worldwide totals). Sweden, Finland, Spain, and Bulgaria are currently the largest gold producers in Europe. They mine about 640,000 million ounces of gold annually. Other countries with operating gold mines are Greenland, France, Greece, Romania, Portugal, Slovakia, and the UK.
The gold mining sector in Europe represents 16,000 direct and indirect jobs, as of 2009. Among the gold companies operating in the region are Eldorado Gold (EGO) in Greece and Romania; Agnico-Eagle (AEM) in Finland; and Gabriel Resources (T.GBU) in Romania, as well as other majors and juniors across the continent.
Nordic Countries – The Nevada of Europe
2011 was a banner year for European mining. Exploration expenditures were estimated to reach approximately €400 million (US$490 million), an all-time high. The largest share of those exploration dollars was concentrated in Sweden, Finland, Norway, and Greenland. These countries, together with Poland, accounted for €288 million or two-thirds of total exploration expenditures last year.
This is even more impressive when put into historical perspective. As you can see in the chart below, Nordic exploration spending has grown almost four times in just ten years.
Both local and international companies are active in this region. Further, junior companies are expanding rapidly; Euromines reports that in Sweden, for example, juniors account for some 50% of total exploration dollars being spent. That's particularly impressive when you remember that junior company budgets are typically smaller than the majors'.
Why has the attractiveness of the Nordic countries increased so dramatically?
- The area is largely underexplored, and its geological similarity to Canada, Australia, and West Africa makes the Baltic Shield a highly prospective place for new discoveries.
- These countries have well-developed infrastructure (roads and railways) and telecommunication.
- Experienced staff to support projects during all phases of mining is widely available.
- The attitude of both the public and politicians toward exploration and mining is generally positive, especially in the northern parts of the region, though anti-mine protests still take place. Since the area is not densely populated, the NIMBY (Not In My Back Yard) factor is largely absent.
Green Europe vs. Mining
Europeans tend to be very concerned about ecology, so environmental issues are closely watched and strictly regulated. Though most responsible miners make concerted efforts to reduce their impact on the environment, miners in Europe focus on this to a high degree.
The divide between miners and environmentalists has shrunk over the past few decades due to advances in technology. But a bigger reason for the cooperation is the eroding economic situation. To a certain degree, politicians have been forced to find a more reasonable balance between conservation and the economic benefits mining can bring.
Spain, for example, has its economic back to the wall, starting with a record unemployment rate of more than 24%. Enter Astur Gold (V.AST). The company is working on getting the Spanish Salave gold deposit into production (which a previous company failed to do in 2005). The jobs it will bring no doubt add to the appeal; the company has received over 6,300 job applications. Management has received two of three environmental permits and hopes to finalize the third by year end. If the project is fully permitted, the economic impact on the area will be both immediate and dramatic.
Pros and Cons of Mining in Europe
The biggest threats to mining in Europe are resource nationalism, significant skills shortages, and infrastructure access in certain areas (see first news item below). However, even on these issues, Europe is in a better position than many other areas. The continent has a strong tradition of transparent and stable laws, along with respect for private property, leaving few in support of outright nationalization. Western European countries also usually have well-developed infrastructure and an educated and skilled labor force.
On the other hand, bureaucratic procedures, overregulation, and a dense population outside of the northern countries have worked to keep massive mine development across Europe from accelerating as it has elsewhere.
Still, the carrot dangled by the mining industry looks awfully juicy…
If Romania approves Gabriel Resources' Rosia Montana gold mine, for example, the project is estimated to bring some US$30 billion of economic benefits to the country. The company hopes to mine 9.6 million ounces of gold and 51.5 million ounces of silver over 16 years. Eldorado's Olympias and Skouries mines in the Halkidiki region will produce about 350,000 ounces of gold annually beginning in 2015. Management is spending €1.3 billion to develop the projects, which will create 1,800 jobs in a country where unemployment is close to 20%.
Overall, the atmosphere for gold mining in Europe appears to be improving. Its importance is recognized in Brussels; even though only a few clumsy steps have been taken, the general attitude is making a positive shift. With the benefits mining can bring – more jobs and greater revenue – we think there will be fewer objections overall, especially in the more desperate countries. It won't solve all their problems, but there's no doubt it would relieve some of the fiscal pressure.
From an investment point of view, it's a region to watch. We fully expect to find increasing opportunities here.
July 16, 2012 (Source: Casey Research)