Editor's note: As part of our partnership with PBS's Nightly Business Report, TheStreet's Alix Steel will appear on NBR Tuesday (check local listings) to discuss nationalization in the gold mining industry.
NEW YORK ( TheStreet ) -- Skyrocketing gold prices have captured the attention of the world's governments, and they're turning up the heat on the gold miners doing business within their borders.
"Ernst & Young had a report out on the mining industry," said NovaGold (NG)'s chief executive officer Rick Van Nieuwenhuyse, "and they identified the number one issue for the mining industry is nationalization, whether it's in bite sized pieces by taxing you to death ... or it's taking a bigger piece of the pie or the whole pie. They usually don't take the whole pie until you've invested your capital."
The fears are warranted. Mongolia recently announced that it was thinking about increasing its stake in the Oyu Tolgoi project in South Gobi. Ivanhoe Mines, which is almost 50% owned by Rio Tinto (RIO), owns 66% of the project and the government 34%. According to reports, the government might try to increase its share to 40% and will also target Peabody Energy (BTU)'s Tavan Tolgoi coal project.
Hugo Chavez in Venezuela did something similar by announcing that all the gold mined in the country had to be sold to the government and that 55% of gold miners belonged to the state -- companies have 90 days to make that joint venture.
Australia announced a rent tax in July 2010 with an effective rate of 22.5% , but state royalties are deductible. Peru also just hiked taxes. Mining companies will now be taxed on their operating profits on a sliding scale basis by 1%-12% and must pay a windfall tax of 2%-8.4% on operating margins. This tax increase was actually considered a victory by the mining industry due to the fact that newly elected socialist leader, Ollanta Humala, didn't get more aggressive. Brazil is next in the hot seat, with the government preparing to vote on three new mining bills by mid-October. Under consideration will be bills that could double royalties, change the way royalties are calculated (naturally not in favor of the mining companies) and a special participation tax based on profits. The good news for most miners is that discussions tend to start out as big threats but the result is nearly always a water downed version, but the fear is here to stay. David Christensen, CEO of ASA Gold and Precious Metals (ASA) said "
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