The word “cartel” has never had a pleasant ring about it, and no more so now than now does it have particularly ominous narcotics overtones.
There has been sporadic coverage in the general business media about what is happening in Mexico, with the latest development being the big crackdown regarding iron ore shipments by the country’s drug cartels. Meanwhile, in Colombia the defence minister has called for all gold produced in the country to be sold to the government to prevent the proceeds being collected by the drug barons.
I’ll come back to this story in a moment. But, while the drug gangs give a new meaning to the term, the suggestion of cartels of the old-fashioned sort still abound. Indeed, BHP Billiton this week denied that it, Rio Tinto and Vale were working as a cartel to dominate the iron ore business and, through lifting production, force out the new generation of mining competitors.
The Canpotex consortium of North American potash producers can get very shirty if you refer to it as a cartel. Well, they’re not in the real sense of the word: there is Belarusian, the Belarus-Russian potash group (also frequently called a cartel in the business media) which has a large chunk of the global potash business.
Again, not correctly defined as such given the existence of Canpotex (and another big producer Israel Chemicals). However, as with the iron ore Big Three, there is definitely a desire to keep out any new parties.
Just look at what Belarus did when Russian company Uralkali tried to go its own way: one can only imagine what being banged up in a Belarus prison is like, something the CEO of Uralkali soon found out about.
One of the most successful cartels was the diamond Central Selling Organisation. Then in 1929 there was formed the International Tin Cartel (unabashedly using that publicly as their official title) after producers in Bolivia, Nigeria, Malaya (now Malaysia) and Dutch East Indies (now Indonesia) united to control the market. And it worked: between 1931 and 1933, even in the midst of the Great Depression, the tin men managed to get the price up from 104 pounds per tonne to 230 pounds per tonne.
In the 1970s there was a uranium cartel. As explained 1977 by the Washington Post, the cartel operated outside the US at a time when Americans were prohibited from importing uranium. That rule, enacted in 1966, closed off 70% of the then world market for uranium and the price fell significantly.
So in 1972 Canada began to set up the cartel. But, as the paper explained, the cartel fell into disuse “after 1975 with prices soaring far higher than the cartel had tried to set”
In 1977, then Canadian Prime Minister Pierre Trudeau suggested Canada also form a nickel cartel to support the metal’s price.
But now, as mentioned, we have a different type of mining cartel – the drug cartels that have entered the business.
Last year, the cable business channel CNBC reported that the Los Zetas drug cartel “are the most technologically advanced, sophisticated, and dangerous Mexican gang … now, they may be that country's most feared energy producer, too”
The gang had gone into the business of coal mining. It bought mines in Caohuila state as a means of adding a legal revenue stream.
Meanwhile, Colombia’s Defence Dinister Juan Carlos Pinzon has proposed that all gold must be sold to the country’s central bank to prevent illegal armed groups’ involvement in profitable illegal mining operations.
Rebel group FARC, drug cartel Los Rastrojos and neo-paramilitary group Los Urabenos have all been accused of involvement in the informal mining business by either operating mining projects, renting equipment to informal and artisanal miners and protection racketeering.
Fake gold paperwork is also used to cover sales of drugs, with export income citing gold sales more than four times the amount produced by the country’s mines.
The latest development is that four Chinese ships (and 95 crew members) are being held in Mexico as the government there cracks down on the drug cartels using shell companies to mine and export iron ore. Mexico is the world’s No. 14 iron ore producer.
Earlier this year government troops moved into and closed one iron ore mine after it was found to be run by the Knights Templar drug cartel which, as one report put, went into iron ore to “diversify from cooking crystal meth”. All up, more than 100 mining operations (including copper ones) have ben shut down due to the control by drug operations.
Give us the old fashioned mining cartels any day!