June 17, 2010 / 12:47 PM / in 8 years

REFILE-UPDATE 3-Gammon halts Mexican mine ops; fires union worke

(Refiles to fix typo in paragraph 6)

* In process of filing criminal charges vs 7 union execs

* Says it has fired almost 400 union workers at El Cubo

* Gammon shares down 9.3 pct on Toronto Stock Exchange (Updates with union comments)

By Euan Rocha and Mica Rosenberg

TORONTO/MEXICO CITY, June 17 (Reuters) - Canadian precious metals miner Gammon Gold GAM.TO said on Thursday it has fired 397 of its unionized workers and indefinitely suspended operations at its El Cubo mine in Mexico, sending its shares down almost 10 percent.

The company said it is also in the process of filing criminal charges against seven union executives following a dispute over a profit-sharing agreement that it said led to union workers disrupting operations at the mine.

Halifax, Nova Scotia-based Gammon earlier this month said the union’s actions at the mine were illegal and that it would use all avenues of legal recourse. [ID:nN03258588]

The union denied any wrongdoing and says the company refused to agree to a profit-sharing agreement for 2009.

“There was no willingness on the part of the company to recognize the hard work of the miners,” union spokesman Javier Zuniga told Reuters.

Zuniga, who was traveling to Guanajuato state in central Mexico, where El Cubo mine is located, said the union is looking into its own legal options to challenge the shutdown.

UNION GIRDS FOR FIGHT

Gammon said El Cubo is a modest-sized operation with the potential to be reasonably economic, but that its viability has been wholly undermined by the unacceptably low productivity of unionized workers.

“The ongoing challenges caused by the relentless distractions of union labor 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,” Gammon Chief Executive Rene Marion said in a statement.

Gammon said that since 2008 it has invested in new equipment, introduced more efficient mining techniques, launched a more effective work schedule and significantly improved the mine’s safety performance.

“Nonetheless, this investment has not delivered the anticipated productivity improvements due to the continued resistance of union workers,” the company said.

UBS analyst Dan Rollins said he believes that Gammon’s actions represent a strengthening of its resolve to improve the viability of the mine.

“We don’t believe Gammon is ready to walk away from the operation at the moment given the ... potential for El Cubo to be a reasonably economic operation and its location in a highly prospective mineralized region,” Rollins said in a note to clients.

Rollins noted that El Cubo represents 14 percent of the company’s net asset value and 24 percent of its gold equivalent production for 2010.

The union’s Zuniga said the miners are determined not to allow the company restart operations with contract workers.

“One option is take control of the mine -- to not allow the company continue working there. If they fire us we are not just going to go to a corner and cry ... we will defend (the mine),” he said.

El Cubo’s shutdown comes after hundreds of Mexican police helped Grupo Mexico GMEXICOB.MX regain control of its Cananea copper mine -- Mexico’s largest -- breaking a nearly three-year strike. Zuniga said the labor ministry’s support of Grupo Mexico in that case has emboldened other miners to take decisive action against the union at other mines.

Gammon shares were down 11.2 percent at C$6.89 at midday on the Toronto Stock Exchange. ($1=$1.03 Canadian) (Editing by Peter Galloway)

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