Mexico 7

first_img Mexico 7 Chile 7  Country    Number of votes US 4 Chile 4 The mining industry is facing more challenging times than ever: increasing costs, commodity price fluctuations, ever more burdensome regulations, and “not in my back yard” attitudes, among many other factors, have made things very difficult for the whole industry. But there’s one threat to mining that trumps them all: political risk. It’s true that the current report on mining risks by Ernst and Young ranks “resource nationalism” #3, down from #1 last year, but that doesn’t mean the problem has actually subsided. More likely is that companies are simply avoiding the hot spots. The fact is that cases of rising taxes and royalties to the state, unnecessary environmental regulations, onerous requirements for consultation with local interest groups, legislated government ownership percentages, and the restriction of mineral exports have become more prolific than ever, even among formerly pro-mining jurisdictions. Consequently, we decided to survey our XL honorees, asking them to share their opinions on the best and the worst mining jurisdictions. If anyone knows where it’s safe and where it’s not, it’s our XL honorees. The answers we got were as surprising as they were interesting, and we think you’ll agree. The Data We addressed two simple questions to our XL honorees: We asked which countries they like the best for mining, and which the least. Predictably, Canada and US gathered the most votes for best mining jurisdiction. It was interesting to us, given all the negative press coming from the place recently, to see Chile tied with Mexico for the next two spots. And given our renewed interest in the country, it was nice to see Peru taking the last spot among the top five jurisdictions. Argentina 11 Mexico 8 Country Number of votescenter_img Canada 11 Peru 3 Peru 6 US 10 Many other countries got one or two votes: Australia, China, Turkey, Nicaragua, Burkina Faso, Guyana, and Sweden. So far, no major surprises. But have a look at the “winners” for worst mining jurisdiction: Apart from Argentina, which we agree is one of the most rapidly deteriorating mining jurisdictions, it’s actually the same set of countries. Granted, the votes in favor of the popular North American jurisdictions far outweigh those against, but it’s quite a striking result. Other worrisome  jurisdictions included Colombia, Indonesia, South Africa, Brazil, Puerto Rico (which is not really a country), Russia, and Ghana. What does this mean? Part o f it probably has to do with perceived changes in some of these countries, as opposed to some sort of absolute magnitude of their “goodness” or “badness” as mining jurisdictions. We suspect, however, that the greater variable among our Explorers is that some simply prefer stability over all in picking mining jurisdictions, causing them to favor places like the US and Canada, while others prefer the frontiers, where mineral concessions are less picked over, causing them to shu n the very same places other Explorers prefer. Be that as it may, let’s have a closer look at each of these top vote getters, for better and for worse. Canada The survey results reflect the country as a whole. However, Canada consists of many provinces with their own rules and laws, so each of them may have its own score. Indeed, Quebec, as a reliable jurisdiction, was mentioned more often than others. In general, Canada has stable laws, little corruption, qualified labo r resources, and other factors that make it competitive on the world stage. On the other hand, there are issues that cause concern : While Canadian jurisdictions remain competitive globally, uncertainties with Aboriginal consultation and disputed land claims are growing concerns for some. (Fraser Institute’s Annual Survey of Mining Companies 2012/2013) Ron Netolitzky expressed the same fears when revealing his opinion about Canada’s regions in relation to the question on worrisome states: British Columbia has unresolved First Nations issues and has been known to expropriate assets. The Yukon has high energy costs and is remote with infrastructure issues. Quebec has had recent political stupidity. United States The US is at the top of the rank for practically the same reasons as Canada. And, as in Canada, different states with their own legislation are great mining destinations, while others are quite problematic. Many of our respondents named Nevada as a reliable place, which falls in line with Fraser Institute’s data. According to their research, Nevada is one of the three US jurisdictions ranked in the top 10: Wyoming (5th), Nevada (7th), and Utah (10th). But there are signs that this state may be lo sing appeal. Simon Ridgway shares his insight: Nevada tax payers are presently stuck with clean up bills in the region of a half- billion dollars due to mines that went broke without sufficient bonding in place. Plus there is presently a big federal push for mining royalties. I think in the coming year or two, both the bonding requirements and royalties in Nevada could become burdensome. In terms of title, rule of law, transparency, and taxation, the US and Canada are considered the best jurisdictions by most XL respondents, t hough between these countries, some states/provinces are better and some may be harder to run mining businesses. We note that North America being a reliable jurisdiction is important for future sustainable gold supplies, as the region has the largest amount of contained gold : 199 deposits or 1,130.9 m illion ounces (Moz). Chile and Mexico got the same score on our first question, b ut replies to the worrisome jurisdictions clearly put Mexico lower on the reliability score, and much higher in terms of threats. According to Fraser Institute’s report, Chile remains the top-ranked jurisdiction in the Latin and South America region: legislation is clear, the rule of law is strong, and corruption is low . The hardships companies may face there are defined by risk factors other than political ones. However, Ron Thiessen tells us that Chile is becoming a high- cost jurisdiction, where labor is more expensive than in the US, and you have to employ 3-5 times as many people as in North America. High energy costs and a scarcity of water are also major problems in Chile. Generally pro-mining Mexico has shaken its standing with its recent tax reforms. As we’ve reported previously, Mexico has imposed a 7.5% royalty, plus an additional 0.5% tax for gold, silver, and platinum companies. This amounts to an 8% royalty on precious metals miners in the country. Good companies should survive the coming change, and the best of the best should still make excellent profits, but the change was clearly unwelcome, and it shows in our XL honorees’ responses. Peru There were seven positive and three negative votes for Peru, showing that it is generally perceived positively. That said, Peru is clearly still a tricky jurisdiction with ongoing anti-mining protests and other factors that cause problems for miners. Argentina Argentina was described by our respondents as one of the most rapidly deteriorating jurisdictions in terms of political risk, and as a country that “doesn’t want mining.” No surprise. In October 2011, the government introduced tougher restrictions on oil and mining companies that mandate the repatriation of export profits and later introduced administrative hurdles to purchasing foreign exchange. Within just three years, Argentina has gone from being a place that favo rs and protects mining investments to a place with changing rules and impending threats of confiscation, higher taxes, and royalties. Additional risk lies in increasingly anti-mining legislation at the provincial level and local opposition to mining projects. Bottom Line The replies of our XL honorees remind us that even in the countries considered the most reliable, there are dangers, just as there are surprising benefits in places most would avoid. That’s why it is of particular importance to have first hand information when making investment decisions in mining—which is exactly what we strive to provide readers in our metals letters. Canada 3last_img