State foils $175 million Mexican investment in Timna copper mines and 2,000 jobs
The world economic crisis is worsening, another wave of layoffs is on the way, and Mexican mining and steel giant Altos Hornos de Mexico, which had planed to invest $175 million and employ 600 workers to develop the Timna copper mines near Eilat, is on the verge of shuttering the project. Altogether the project will provide employment for over 2,000 people in the region.
The reason is not the crisis, but rather the state's footdragging and bureaucracy: AHMSA says it has lost a $35 million government grant promised orally for its Israeli subsidiary Arava Mines. "You are worse than a banana republic," said Carla Garcia-Granados, the CEO of both AHMSA Steel (Israel) and Arava Mines.
The story began in 2004 when a member of Mexico's Ancira family, which is the controlling shareholder in AHMSA and operates mines all over the world, was on the way to Eilat and noticed a mine entrance on the way. He stopped to take a look at the site, known as King Solomon's Mines, and decided to reopen the copper mines there.
AHMSA, which has annual revenues of about $2.5 billion, sent Garcia-Granados to Israel to carry out the project.
The state welcomed the initiative with open arms, and the infrastructure, finance and industry ministers all blessed the project. Everyone involved praised the enterprise with statements like, "You are exactly what we were looking for: An investment in the periphery, a new foreign investor, exports and a long-term investment."
The Law for the Encouragement of Capital Investment entitled the $175 million investment to a $35 million state grant, plus another 10% for locating the project in the far south.
The Investment Center in the Industry, Trade and Labor Ministry conducted the required economic feasibility study, and determined the project was a worthwhile investment. At the same time, AHMSA started conducting land analyses and began preparing to mine.
"I thought that if everyone was praising the project, we could start investing even without official grant approval, as in any case we would receive it later," said Garcia-Granados.
But AHMSA's representatives did not know that Finance Ministry officials were planning to scale back the Investment Center grant program.
While Arava Mines was still trying to find out when the grant approval committee would be meeting, in August 2008 it received a letter stating it would not be receiving any such grant. The Finance Ministry had rewritten the rules for grants, and disqualified mining companies as well as other large-scale investment projects.
The Finance Ministry confirmed the story, and noted the company is not entitled to a grant under the new criteria.
The Industry, Trade and Labor Ministry responded that the company meets all the legal criteria, and that all the Finance Ministry changes were temporary for 2008.
"The government is saying to you clearly that they do not want you here," said Garcia-Granados. AHMSA decided to appeal the decision, but it quickly became clear the committee was not meeting at all - since the finance and industry ministers had not yet appointed its members.
"The grant was part of our business considerations," she said.
The director of the Investment Center, Hezi Zaieg, said the grant should be approved since the company is promising to employ more than 2,000 people in the region, both directly and indirectly. Zaieg expects the grant to be approved by the appeals committee, whose members were finally appointed last week. However, due to a lack of funds, the cabinet will have to approve this exceptional grant.
"It is unimaginable that at such a difficult time for employment, the state is pouring billions of shekels into the economy but not approving this project," said Zaieg.
"We can invest money all over the world, such as in Tanzania and Congo. It is cheaper to produce copper there, since we do not have to dig deep. The world economic situation is not good, and the company needs to decide where it should best invest its money," said Garcia-Granados.
She flew back to Mexico to tell the company about the letter she received last summer, and in October 2008 AHMSA's management decided to freeze the project.
"This means the project will be closed, since we are costing the company over $1 million a month. We asked in the meantime that the project not be suspended, and we received an extension until February 2009," she said.
"After the state changed the criteria, the company is afraid to continue investing here. The feeling is that one day the state could take the [mining] concession away from us. It is easier to work in a banana republic. There you at least know that a minister's word is sacred. Here a minister's word is not worth anything, with all due respect," said Garcia-Granados.
In addition to the 600 jobs, the project would would support another 1,500 service providers. So far, the Mexican company has invested between $60 million and $70 million in Israel, though at the moment, only a few dozen Israelis are working in the mine.
Garcia-Granados says attempts to find a local investor to take the place of the government grant has not succeeded. In addition, AHMSA had pro-Palestinian protesters demonstrating outside its Mexican headquarters during Operation Cast Lead in Gaza. "Stop exploiting Palestinians in King Solomon's Mines," read some of the placards.