American Mining Company

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HRM 410
Group- A

BACKGROUND
AMC Moves to Colombia:
AMC was one of the leading coal mining company in America for a long period of time and it was among the top 300 largest private companies in America before it shifted to Colombia. AMC had a reputation of providing high quality coal, reliable delivery and excellent service. AMC told its workers that the company would not transfer its operations to abroad but they did eventually. AMC moved to Colombia because the country provided some very crucial advantages. Among the advantages posed by Colombia, one was that the labor cost was much cheaper compared to that of America’s. Wages for Colombian mine workers ranged from $500-$1,000 a month wheres U.S mines workers recieved over $3,000 monthly plus benefits. Also, AMC did not have to put up with the strict rules and regulations of the U.S. mine union like limited working hours and mandatory safety conditions. In Colombia, workers were willing to work for much longer hours and in more dangerous conditions. Another advantage for AMC to move its operations to Colombia was that the country held world’s third largest reserve of coal. Its natural resources generated some of the highest quality thermal coal compared to anywhere in the world. Finally, the advantage which was like icing on the cake was that Colombian government was extremely eager to provide AMC with lucrative investment incentives because the government was hit by enormous high public debt and was feeling pressured to privatize its national industries and attract foreign investment in order to meet International Monetary Fund (IMF) loan conditions. The incentives offered by Colombian government included tax-free operations for the first ten years, extremely cheap land holding Colombia’s best coal reserves, and subsidized infrastructure development. The seaport with capacityto move 10 million tons of coal per year would be for the exclusive use of AMC. Over 500 soldiers of Colombian army would be continually posted for the protection of company’s operations and workers.

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HRM 410
Group- A
With these incentives, AMC began construction on its Colombian mine in 1994. By 1995, the company began initial production capacity of 3 million tons per year. AMC controlled every step of the production and shipment process. Planned expansion by the year 2004 would increase production to more than 10 million tons per year. Reserves proved to be plentiful and allowed AMC’s significant expansion plans.

Few investment restrictions applied to foreign companies wishing to start business operations in Colombia. 100% foreign ownership was permitted for most sectors with exceptions for national security, hazardous waste product, and some real estate developments. State-owned industries were being privatized significantly since the early 1990s. Noteworthy changes to the country’s accounting and legal procedures had also taken place, making business transactions relatively more transparent. In addition, Colombian President Andres Pastrana was pro-U.S. investment. Under Colombian law, 80% of a company’s employees were required to be Colombian national. AMC exceeded this percentage minimum. The mine and seaport workers were exclusively locals. Coal was Colombia’s third largest export in terms of revenue. The government expected private investment within its coal industry to reach U.S. $2 billion by 2006. The majority of the country’s coal deposit lay within the Guajira Penninsula on the Carribean coast. The state owned coal company Carbones de Colombia (Carbocol), was expected to be fully privatized by 2006. Carbocol had a 50% stake in the Cerrejon Norte Project, which was Latin America’s largest mining operations and one of the world’s largest pit mines. AMC expressed interest in acquiring Carbocol’s 50% equity in the project.

For the thirty years previous to 2000, Colombiawent through a bitter civil war between various rebel groups spread through out the country. President...
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