There is a propensity to fear investment in foreign countries, at least there once was. Britons of course have been accustomed to investing in foreign countries for centuries, given that they funded the development of Africa, Australia, NZ and an array of other colonies. Of course for most of those times they also controlled the governments. In modern times, all investors are coming to grips with the benefits of foreign investment. With respect to mining stocks the benefits are:
1. A new global order which has resulted in a decline in governments resorting to expedient, populist, fascist policies like nationalisation of mines. The consequence of this has been a diminished risk of foreign stakes in mines being nationalised. The only case I can recall in modern times is the nationalisation of oil assets in Venezuela by a populist President Chirez. Union Res had dispersions caste upon its equity in a Iranian base metals mine, and a few projects are facing insurmountable delays getting title in some of these Central Asian states. The bigger the project, the greater its strategic importance, and the greater risk of nationalisation. That said large companies have more power to bear upon these rouge governments.
2. More prospective exploration areas in foreign, third world countries because the land is basically only had slight work undertaken, so any resources are likely to be near-surface, and potentially larger, otherwise they would have been more evident.
3. The development of a mine can be faster or slower. It depends on how supportive the local govt is for the project.
4. The costs of doing exploration are usually lower because of the low cost of labour. Capital items are usually more expensive because of lack of infrastructure. But some areas already have well-developed mining scenes, with plentiful skilled labour and power nearby. It depends.
Sovereign risk thus is less likely to involve nationalisation of assets. In the case of Democratic Republic of Congo, there are guerrillas occupying the border who can exhort money for guns. In PNG, there is the prospect of local tribal landowners attacking mine camps and destroying property. In these infrequent cases, a worker might be killed by gun or spear, but they tend not to disrupt operations too much. The governments are often quick to offer security. The Bougainville mine seizure in the 1980s was a different case because it was associated with a political coup. The massive mine closed permanently.
The latest example of sovereign risk is perhaps no worse than we might expect from Western governments. The government of Ghana has opportunistically decided to raise the royalty it imposes on gold mines from 3% to 6%, at a time when gold prices are on the rise. In defense of Ghana, its revenues might have been impacted by the recession, and third world countries have a lot of difficulty collecting taxes on citizens, so they levy import duties and resource royalties. The ugly side is that investors want to retain the upside of an investment, and they don’t want to share with governments on the basis of unexpected tax imposts. It is not a serious increase, but then its a bad precedent.
Such issues are considered in our Mining Fundamentals report.
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Andrew Sheldon www.sheldonthinks.com
1. A new global order which has resulted in a decline in governments resorting to expedient, populist, fascist policies like nationalisation of mines. The consequence of this has been a diminished risk of foreign stakes in mines being nationalised. The only case I can recall in modern times is the nationalisation of oil assets in Venezuela by a populist President Chirez. Union Res had dispersions caste upon its equity in a Iranian base metals mine, and a few projects are facing insurmountable delays getting title in some of these Central Asian states. The bigger the project, the greater its strategic importance, and the greater risk of nationalisation. That said large companies have more power to bear upon these rouge governments.
2. More prospective exploration areas in foreign, third world countries because the land is basically only had slight work undertaken, so any resources are likely to be near-surface, and potentially larger, otherwise they would have been more evident.
3. The development of a mine can be faster or slower. It depends on how supportive the local govt is for the project.
4. The costs of doing exploration are usually lower because of the low cost of labour. Capital items are usually more expensive because of lack of infrastructure. But some areas already have well-developed mining scenes, with plentiful skilled labour and power nearby. It depends.
Sovereign risk thus is less likely to involve nationalisation of assets. In the case of Democratic Republic of Congo, there are guerrillas occupying the border who can exhort money for guns. In PNG, there is the prospect of local tribal landowners attacking mine camps and destroying property. In these infrequent cases, a worker might be killed by gun or spear, but they tend not to disrupt operations too much. The governments are often quick to offer security. The Bougainville mine seizure in the 1980s was a different case because it was associated with a political coup. The massive mine closed permanently.
The latest example of sovereign risk is perhaps no worse than we might expect from Western governments. The government of Ghana has opportunistically decided to raise the royalty it imposes on gold mines from 3% to 6%, at a time when gold prices are on the rise. In defense of Ghana, its revenues might have been impacted by the recession, and third world countries have a lot of difficulty collecting taxes on citizens, so they levy import duties and resource royalties. The ugly side is that investors want to retain the upside of an investment, and they don’t want to share with governments on the basis of unexpected tax imposts. It is not a serious increase, but then its a bad precedent.
Such issues are considered in our Mining Fundamentals report.
-------------------------------------------
Andrew Sheldon www.sheldonthinks.com
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