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Canadian company fires 397 workers at Mexican mine, seeks criminal charges

HALIFAX - A Halifax-based gold company has fired nearly 400 workers and shut down a mine in Mexico in a labour dispute that reflects growing tensions affecting Canadian miners that operate in Latin America and abroad.

HALIFAX - A Halifax-based gold company has fired nearly 400 workers and shut down a mine in Mexico in a labour dispute that reflects growing tensions affecting Canadian miners that operate in Latin America and abroad.

Gammon Gold Inc. (TSX:GAM) said early Thursday it has "terminated" 397 union workers at its El Cubo mine and is filing criminal charges against seven union executives.

Operations at the mine in Mexico's Guanajuato state have been suspended indefinitely while the company weighs its options.

Investors reacted negatively to the moves, pushing the value of Gammon stock down more than nine per cent on the TSX. Gammon stock dropped 72 cents to close at $7.04 in trading of more than 3.3 million shares.

In its statement before markets opened, Gammon said it experienced continued illegal labour disruptions at the mine and financial demands from the union that the company described as "untenable."

The two sides have been in dispute over use of contract workers and profit-sharing arrangements.

The company said the mine also has "unacceptably low union productivity" as well as an "outdated collective agreement and an interfering union executive."

"Although the company continues to believe in the potential of this property, given its location in one of the most prolific mining districts in Mexico, the board and management have a fiduciary responsibility to invest in operations that provide a positive rate of return for its shareholders," said Rene Marion, president and CEO of Gammon.

"The ongoing challenges caused by the relentless distractions of union labour disruptions and sub-optimal performance have rendered the El Cubo mine uneconomic and any further investments, including management's time and effort, are not justified."

The union was not immediately available to comment on Gammon's moves or complaints.

Gammon's troubles in Mexico, a country where Canadian miners and mineral developers are key players, reflect growing pressure on Canadian resources companies operating abroad.

Toronto-based gold giant Barrick (TSX:ABX), the world's largest gold producer, has come under fire for waste dumps at its Porgera mine in Papua New Guinea. Meanwhile the company has also been criticized by native groups who say they have not been consulted about the company's proposed Pascua Lama project on the border of Chile and Argentina.

The native groups hold title to the land of the proposed mine, as well as other areas Barrick is exploring.

Another miner, Goldcorp (TSX:G) has been accused of violating human rights at its Marlin mine in the indigenous community of San Miguel Ixtahuacan in the western highlands of Guatemala.

Gammon is headquartered is in Halifax and has executive offices in Toronto but all of its mining operations are in Mexico, where it has mines and development projects and employed about 600 people at the end of 2008.

Its flagship property is the Ocampo mine in Mexico's Chihuahua state.

In its release, Gammon said its management and directors "have concluded that there is a need for the Company to take a firm and decisive stance with the union."

Gammon's statement didn't say what types of criminal charges it is seeking or identify any of the individual union leaders that it's targeting.

A senior mining analyst in Toronto said Gammon has struggled for some time with "unacceptable" work practices at its El Cubo operation.

"I think Gammon has taken a very hard line. And it's probably an appropriate hard line," Barry Allen of Mackie Research Capital Corp. said in an interview Thursday.

"The mine was not the most efficiently run mine, it historically had not been."

The latest action puts the pressure back on the union executives, he said, without causing immediate concern among investors.

"The market does not tend to get too fussed about it (because) the actual value does not disappear anywhere. The resource is in the ground."

The company said in March that it expected to produce between 150,000 and 180,000 ounces of gold from all sources this year and between 6.1 million and 6.85 million ounces of silver (equivalent to 260,000 to 305,000 ounces of gold).

According to a 2009 reserve estimates, the El Cubo mine contains the equivalent of 596,000 ounces of gold — compared with Ocampo's 626,000 gold-equivalent ounces.

 
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