Geo-Political Problems Effecting Miner Profitability

February 7th, 2012
in gold, silver, miners

Buying gold and silver mining stocks has never been harder.  In the past you had to discern how well the company was run, what is their mining cost gold-minerSMALLper ounce, how much metal did they have in the ground, what is their market cap, past market history, whether the underlying metal was in an up or down trend,  and do they give a dividend.  Now you must know the countries the mines are in, the political atmosphere of that country as well as how much exposure that miner has in those countries.

Recently some countries have levied taxes and royalties (Australia, Argentina, Bolivia and Peru) while others have outright nationalized mines (Venezuela).  With the world economy deteriorating many governments are looking for new revenue sources.

Follow up:

Three of my old favorite mining stocks are in some of these countries.  SLW, AUY, and PAAS.  I still believe SLW is a very good company and their exposure is not so great that the company would be dealt a crippling blow if it's subsidiaries in Argentina and Peru were to become nonprofitable.   The stock is only up 5% in the last 12 months, mostly due to the price of silver tanking the last few months of 2011.

AUY has mines in Brazil, Chile, Argentina, Mexico and Colombia.  At least two of these counties have new encumbrances on the mining companies.  I believe AUY is a very good company and still a buy, but it has more exposure to government pressures than SLW and therefore not as good a buy as before the new laws.  Still it was up 45% in the last 12 months.

PAAS  is affected the most by the new rules.  They have mines in Mexico, Peru, Argentina, and Bolivia.  At least three of these countries are affecting the mining operations of this company.  As you can see from this Yahoo chart the stock is down 30% in the last year while silver (SLV) was up 14%.

In my next post I will give you some of my favorite mining stocks with little or no downside due to Geo-political problems.


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