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.
Word on the Street

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 " nationalization is going to play out ... the pie has gotten bigger and so the perception is that they should take the larger portion of the pie."

Although South America has been getting the most press, Christensen names West Africa as the region with the biggest risk -- bad news for Randgold Resources ( GOLD), which operates exclusively in the region.

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Randgold CEO Mark Bristow is completely unconcerned. "If you're Barrick Gold ( ABX) in Tanzania and you've delivered on none of your promises and you don't have anything to offer and everyone hates you, you're in the ****. But if you're in Mali where we represent 22% of GDP with AngloGold Ashanti ( AU) and we've delivered on everything and we've paid $1 billion of taxes since 2001 and created 7,000 brand new jobs" then it's a different story.

Christensen says Randgold is relatively insulated from the nationalization risk, although higher taxes are a given, because Bristow has done such a good job of working with the local communities. "We don't deal with governments. We deal with the country, we don't pay bribes, we deal with the company and its people and the government happens to represent them."

Randgold's corporate tax holiday for its Tongon mine in the Ivory Coast runs out in 2015. The company has been paying royalties but no duties and corporate tax. Once that grace period expires, the company will have to pay out 25% more in taxes. Bristow was unfazed not only because he is expecting it, but also because his tax holiday in Mali just ran out and that increase was even steeper at 35%.

Newmont Mining ( NEM) CEO Richard O'Brien thinks nationalization is a trend but that "it's part of life." He says Australia started the trend by pushing for higher taxes and that other countries are now saying 'what about us?' It should be noted that South African miners have had to deal with this problem for years, which is why local miners like Harmony Gold ( HMY) have been trying to diversify out of the country, but now the rest of the world is catching up.

"I think there is a point where you push too far. People can't make investments or they won't make investment or they chose to go somewhere else,' says O'Brien, who added that the company is working with governments to communicate the benefits of mining. Since Newmont is a global miner with projects in hot-button tax areas like Australia, Peru, Ghana and Indonesia, O'Brien has his work cut out for him.

Barrick Gold, the largest gold miner in the world, has the same problem as Newmont. "The encouraging thing is that in most countries where we are operating," said CEO Aaron Regent, "there has been a constructive dialogue between the industry and the government."

Regent is not concerned about outright nationalization and thinks the tax situation should stay in check as long as governments are open to working with the industry.

Silver Standard ( SSRI) has one operating mine in Argentina and is prepping for higher taxes and a potential export tax. "There is always going to be a tension as countries try to deal with their debt issues we will help them pay for that," says CEO John Smith, but "I believe that we are paying more than our fair share and we're committed to spending that locally with the people around our mine and with the federal government."

The company has a fiscal agreement with the current regime which could be in jeopardy following the presidential and legislative elections in late October, especially if the new leaders implement a tax on Argentina's $4.5 billion export industry. "Anything more than the fiscal stability agreement is an impact on the money that we make and the money that we return to shareholders ... any new tax is not a good tax."

Silver Standard is particularly vulnerable to higher taxes because it only operates one mine. The company has a plethora of projects in Mexico and Peru but those mines won't be in full-blown production mode until 2015.

Two companies that are relatively protected from the threat of nationalization are Silver Wheaton ( SLW) and Royal Gold ( RGLD). As royalty companies, they give money to miners in exchange for gold or silver but carry no production and execution risk.

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"When it comes into increases in taxation," says Silver Wheaton CEO Randy Smallwood, "they have no impact on our business. They are the responsibility of the operating partner." Silver Wheaton gives money upfront to a miner and then buys a percentage of silver at a fixed cost of $4 an ounce over the life of the mine.

Royal Gold has that type of streaming royalty but also has other arrangements where it can put up a lot of cash upfront for a portion of gold production over the life of a mine or it can take a percentage of the miner's profits. Profit royalties, as they are called, could be hurt by a higher tax rate although Jensen says he hasn't seen that yet.

Jensen also tries to stay in less risky areas. Ninety seven percent of the company's reverses come from the U.S., Canada, Mexico and Chile -- although Chile could see more tax reform -- and 80% of revenues come from those countries. "In all our business interests we have we don't have any kind of concern right now that nationalization might be on the forefront of any of those."

Smallwood says that some of their streaming royalty contracts might even protect them against nationalization "we've got, in some cases, corporate guarantees pertaining to ownership and such," meaning that in some cases its contract would pass over to the government.

"There is just such a long track record with nationalization," says Smallwood, "and as the information age gets broader and broader and that history is out there for everyone to understand that option just has less and less strength behind it" Smallwood sites the tax reform in Peru as a good example of government leaders being reasonable about taxes (if 50% of operating profits can be considered reasonable) "I think that anyone that was concerned about Peru has to be a bit humbled in terms of how positive it has actually turned out."

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NovaGold could actually be the biggest winner of increasing nationalization fears. Van Nieuwenhuyse was one of the few CEOs to highlight the nationalization trend during the Denver Gold Forum last month, as many ignored or dismissed it, and he made sure to use it to underscore the safety of NovaGold's properties located in British Columbia and Alaska. Shares are down more than 40% year-to-date and the company has received a lot of bad press recently due to rising capex budgets, so any kind of positive news is like a lifeline for the company.

International Tower Hill Mines ( THM), also trying to shift from explorer to developer in Alaska, is relatively insulated from volatile regimes and higher taxes, but CEO Jim Komadina says over regulation from Washington still gets in his way.

"Regulation is really strangling the business," says Komandina, "let's have common sense regulations ... the way we are headed right now ... these are very stringent standards and they're exceedingly hard to meet." Meeting standards might force the company to put up more cash to "fix" problems. Although it might be a one shot cost versus a continuing tax, it does goes to show that no one is safe in the gold mining industry.


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-- Written by Alix Steel in New York.

>To contact the writer of this article, click here: Alix Steel.

>To follow the writer on Twitter, go to http://twitter.com/adsteel.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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