I wrote an article recently, Geo-Political Problems Effecting Miner Profitability, about geo-political risks in countries that have a mining industry. I warned about buying mining company’s stock when they operate in areas that have adverse laws and taxes that affect their bottom line.
The Fraser Institute, a Canadian think tank, released a Survey Of Mining Companies February 23, 2012. They have conducted an annual survey every year since 1997. Around 5,000 surveys were sent to companies all over the world. This survey represents the opinions of the executives and managers of the responding companies running the gamut from gold to rare earth metals. Only 802 (about 16%) responded from 93 jurisdictions. The survey was to assess how public policy, specifically corruption, taxes and regulations, affected the exploration investment.
Here are some highlights from that survey.
The most corrupt estimations:
4. Democratic Republic Of The Congo (DRC)
7. Papua New Guinea
10.Madagascar & Zimbabwe
Least corrupt estimations:
They define PPI or Policy Potential Index which is, according to them, “a report card to governments on the attractiveness of their mining policies”. The top of the chart is the best, the bottom the worst.
I take it a step further and say if your mining company has mines in any area toward the bottom of the chart I would look to reposition my assets.
The chart below shows how important policy factors are to the miners. Maybe you should assess your holdings similarly.
Written by Goldfinger