Armed robbery of more than $10-million worth in gold from McEwen Mining's El Gallo mine is 'part of doing business'

OAXACA, Mexico – The recent theft of $10.7 million worth of gold from a mine in Mexico has cast a spotlight on the risks of operating in the country.

The armed robbery of McEwen Mining’s El Gallo mine in Sinaloa State follows several other large mine robberies in the past five years, including multimillion-dollar heists at Pan American Silver and First Majestic.

“That’s a part of doing business in Mexico,” says Andrew Kaip, a research analyst at BMO Capital Markets. “It happens a couple times a year; a couple of these producers get hit. In most cases it’s covered by insurance.”

But it’s not just theft that’s plaguing mining companies in Mexico.

They’re now dealing as well with kidnappings and murder. Last month, four employees from Canadian-based Goldcorp were kidnapped while heading home from the mine site in a personal vehicle. One was freed, but three were later found dead.

And in February, four workers at Torex Gold Resources, also a Canadian company, were among 13 people kidnapped near the company’s Morelos gold project. All of the victims in that case were eventually freed.

Also in February, Belgium-based Nyrstar closed its Campo Morado mine indefinitely, citing “systematic intimidation” of its workers. Last year that mine produced about $124 million worth of gold, silver, copper, and zinc.

Both the Goldcorp and Torex kidnappings happened in Guerrero state — the same jurisdiction where 43 students disappeared last year and are now presumed dead.

Organized crime is thought to be behind most of these incidents, spurring fears that the security issues in Mexico will worsen in light of changing dynamics within cartels.

Alejandro Schtulmann, head of research at the Mexican risk analysis firm EMPRA, says Mexico’s large cartels are fracturing, leading to the creation of hundreds of smaller organizations that are in conflict with each other.

“Where I see the most danger is where criminal groups are fighting each other and where they might extort mining projects in order to get cash to meet their objectives,” says Schtulmann.

“My concern is that we’ll see more of what happened in Guerrero, with the kidnapping of personnel,” he says. “That may escalate into more kidnappings, and higher level personnel or managers being kidnapped to extort the mining companies.”

The Mexican government has been boosting security across the country to try to make industry safer. Last year president Enrique Peña Nieto introduced a 5,000-strong police force tasked specifically with protecting industry.

But there hasn’t yet been much of an impact, so mining companies still feel the need to fend for themselves as many of them boost spending on private security.

Last year, Great Panther Silver had to contend with locals sneaking into its mine and making off with high-grade rocks. A tense standoff ensued, leaving one illegal miner dead. The company has responded by investing more heavily in security.

“We have beefed up our security quite a lot in the past year,” says Bob Archer, chief executive of the Vancouver-based Great Panther.

When the company took over the mine in 2005, he adds, the security budget was “practically non-existent.” But it now spends roughly $1.5 million a year on armed guards, cameras, fencing and dogs trained to work underground.

In the wake of recent robbery at McEwen Mining, chief executive Rob McEwen vowed to make El Gallo as “impenetrable” as Fort Knox via more security spending.

But company security only extends to the property gates. Beyond that, McEwen admitted last week that his company consults with the cartels before working in certain areas, and that he generally has “good relations” with them.

McEwan has since backtracked on his statement, clarifying that the company has no relationship or regular contact with any cartel members. But he didn’t deny that his company has at times consulted with the local cartel.

Other mining executives on the ground say talking to cartels is necessary.

“The last thing you want to do is head out wandering through the mountains and come across some activity where you’re not welcome,” says Archer of Great Panther.

“So it only makes sense to have some kind of dialogue if you’re very active in an area, just from a safety standpoint. That’s not to say there’s any collusion or cooperation, but that’s just the reality in a lot of areas.”