Executive Summary
The purpose of this research is to provide a comparative overview of the two United States-based gold mining companies, which are Pan American Gold Fields and Freeport McMoran. The companies are listed among the tenth largest international mineral exploration companies. The both are headquartered in the United States of America, with their respective excavation sites located in South America. Additionally, Freeport McMoran operates several gold excavation sites in the Democratic Republic of Congo.
This report focuses on providing a comparative analysis of the companies’ financial performance, operations, environmental impact, taxation and current position on the gold and copper markets.
Operations
Pan American Goldfields Ltd. is actively involved in the exploration of gold, silver, diamond and copper mines in South America. Its excavations sites there occupy more than 824 hectares, making it one of the largest players in the market there. In Mexico, it is registered as a wholly independent subsidiary of its United States parental company. The primary markets of Pan American Goldfields are the United States and Canada, though starting from 2009, the firm has been actively trying to establish strong presence on the Eastern Markets, mainly in China and India.
A notable feature of Pan American Goldfields is the firm that completely relies on its own resources in the entire cycle of supply chain management. From the excavation site to the store the business processes are operated and management by the company internal units, without contracting any third party provider.
Freeport McMoRan Inc., commonly referred to as FMCG specializes in the same market segment. Today, the company is the largest international gold and copper excavation and supplying company. Headquartered in Phoenix, Arizona, the company exercises its operations through the network of legally independent global subsidiaries. The largest affiliated companies of FMCG are PT Freeport Indonesia and South American FMCG, which are focused on excavation operations in the Asian and South American regions respectively. In contrast to Pan American Goldfields, a significant share of the company excavation sites is located in the United States, mostly in Arizona, and Colorado. The firm also has productive units in Europe (Atlantic Copper in Spain), as well as it is one of the American companies operating in the Democratic Republic of Congo (currently, the site there excavates copper and cobalt only Freeport McMoRan, 2015; SEC, 2015)).
The company focuses its sales activities mostly on the United States, European and Gulf countries markets, though it has significant market shares all over the world.
Freeport McMoRan is almost five times as large as Pan American Goldfields is. Thus, by the end of the fourth quarter of 2015 the first company employed almost 29,000 full-time corporate and field workers. Pan American Goldfields had a total workforce of 5,000
Financial Analysis
Financially, the both companies demonstrate comparatively stable performance:
Generally, it is inferable that the both companies are struggling financially. Declining demands for the gold prices, emergence of the new market players, excavation difficulties in the Latin American and African countries made the situation slightly worse from the economic standpoint, than it was several years ago.
However, the both companies were in a far graver situation during past years. In particular, comparing with 2013 financial figures, the profit margins of the both companies increased on 6% (FreeportMcMoran) and on 11% (Pan American Goldfields) respectively (Freeport McMoran 2015; U.S. SEC, 2015). It is also noteworthy mentioning that for the first in several consecutive years, Freeport McMoRan declared negative net profit balance. The main reason of this situation is large-scale investments into the research & development of Ojos del Salado mine in Chile and Tenke Fungurume mine in the Democratic Republic of Congo.
Taxation Environment
In addition to the corporate tax, which is payable by the both companies both in the United States, and in the countries where these companies conduct excavation operations, the both firms also pay a special mining levy, which is proportional to the amount of gold or other mineral resource excavated. The companies are exempted from paying tax for the gold, which was sold to the medical institutions.
In general, the least favorable tax rate for the both companies is the United States of America, which, coupled with the federal tax rate is 35.7%. Simultaneously, the companies have to pay 13% mining royalties for gold, excavated on the territories of the United States of America. In contrast, the taxation regime in Mexico, Chile and Democratic Republic of Congo is the most propitious – the local governments provide significant tax reductions and for the foreign companies (McMoRan, 2015).
Main Trends in Mining
Several trends have been particularly notable in 2013-2015. Firstly, the mines in the United States of America have been almost depleted up to date. Thus, the local companies have to focus on the American, African and Asian excavation sites.
Secondly, the technology becomes immensely important for the mining industry. Although the industry has been traditionally resistant to brining technology, the practice shows that to stay in line with the global trends, the gold mining community has to make its operations innovative.
Lastly, geopolitical uncertainty remains one of the most topical issues on the gold mining agenda. In particular, the government of the Democratic Republic of Congo, where the largest excavation sites are located, face serious difficulties in waging a military campaign against the local rebels. Because of the ongoing armed hostilities in the region, logistics and supply chains of the mining companies became more complicated.
Environment Impact
Gold mining industry is one of the most heavily criticized in terms of its environmental impacts. Thus, the both companies are subject to heavy criticism of the environmental activists. Among other issues, they argue that gold mining leads to erosion of soil, degradation of the local biodiversity systems, contamination of the underground waters, as well as change of the chemical composition of soil. In the most serious cases, these situations lead to landslides and collapses of biodiversity systems because of eradication of the natural habitat of many species (Holland, 2014).
Conclusions
In the meantime, the common difficulty faced by both firms is technological obsolescence in excavation. In order to stay competitive in the future they have to renovate their business process in this field.
References
Freeport McMoRan. (2015). Freeport-McMoRan Copper & Gold Inc. Reports Third-Quarter and Nine-Month 2012 Results. News Release.
Holland. (2014). Value creation in gold mining. Available at: https://www.goldfields.co.za/pdf/presentations/2014/20140918_kpmg_mining.pdf
United States Securities and Exchange Commission. (2015). Pan American Goldfields Ltd. Form 10-Q filing.
