Investors flock to safety on rising risk around the globe

Prospective geology, reasonable costs, workable permitting and regulation regimes, and political stability rarely go together in a mining jurisdiction.

That’s what makes mining such a high-risk, high-stakes business. Early entry into risky, but geologically rich jurisdictions can only in retrospect be assessed as a brilliant move or an expensive disaster.

Miners have invested hundreds of millions into finding, delineating, developing and operating assets only to see them expropriated by governments. Centerra Gold’s Kumtor mine in Kyrgyzstan in 2021; TriMetals Mining’s Malku Khota silver-indium project in Bolivia in 2012; and several gold projects in Venezuela in 2008, including Gold Reserves’ Las Brisas project, and Crystallex International’s Las Cristinas among them.

In some instances, a country can become off-limits overnight for reasons that have nothing to do with mining policy. International sanctions against Russia, for example, forced Kinross Gold to sell its profitable Kupol mine in the Chukotka region last year — and to accept US$340 million for the mine plus its Udinsk project, half the negotiated price instead of US$680 million — after a government review of the transaction.

And in other cases, political risk can shift quickly.

Take Ecuador’s infamous “windfall profits tax” that prompted Kinross to sell the rich, high-grade Fruta del Norte project, which it acquired for US$1.2 billion in 2008, six years later for US$240 million. After only six months of negotiations with the government — still led by the same president, Rafael Correa — new owner Lundin Gold was able to come up with a workable agreement to develop FDN. The mine produced first gold in 2019 and churned out more than 475,000 oz. gold last year.

While expropriations and geopolitical considerations such as a state of war are on the extreme side, current geopolitical trends are nudging up risks for miners in many regions. Resource nationalism is on the rise, as countries with previously mining-friendly jurisdictions including Chile and Mexico institute new taxes and restrictions on mining, while political stability remains elusive in many parts of the world.

One has only to look at the trio of Peru, Ecuador and Colombia — the focus of our May 29-June 11, 2023 issue.

• In Peru, a political crisis began with the removal and arrest of leftist president Pedro Castillo in December, after he attempted to dissolve congress ahead of a vote to impeach him. Widespread protests against his removal turned violent, with scores of people killed. While the situation has calmed considerably, it was only five months ago that road blockades choked off mine supply routes and forced closures, with Glencore’s Antapaccay copper mine in Espinar province facing direct attacks.
• In Ecuador, President Guillermo Lasso successfully dissolved congress on May 17 ahead of an expected impeachment vote. Although it has never been used before, the move is allowed under the country’s 2008 redrawn constitution. However, widespread protests against the right-wing leader, mirroring country-wide demonstrations against Lasso last year led by Indigenous groups, are expected. Elections will take place within six months, but until then, Lasso, who won election in 2021, can govern by decree. In addition to the rising cost of living, Lasso’s failure to address escalating gang violence in Ecuador is a major reason for his dismal approval rating, which at the end of last year dipped under 20%.
• And in Colombia, there is uncertainty about new regulations that the leftist government of Gustavo Petro could put in place. Elected last year, Petro is eyeing higher taxes on mining and oil companies, mandating environmental licences for exploration, and updating the country’s mining code to prioritize small-scale mining over “big multinational companies” and increase environmental protections. In addition, a May 17 bombing attack by illegal miners that killed two people and injured 14 at Zijin Mining’s Buritica gold mine in Antioquia province demonstrates that concerns about security and criminal activity in Colombia aren’t all in the past.

Fraser Institute survey

Political instability isn’t new for any of the three countries in the northwestern corner of South America, which have bounced around on the Fraser Institute’s annual ranking of mining jurisdictions over the years. The think tank’s series of reports, which are based on surveys of mining executives, take both policy and mineral potential into account at a ratio of 40% policy and 60% geology in its Investment Attractiveness Index.

Peru, which has the longest history of large-scale mining development, rose as high as the No. 4 spot in the 1999-2000 survey, before falling to 14 in 2018. In this year’s survey, which was released in early May, Peru ranked 34th of 62 jurisdictions considered.

Ecuador, which has seen an influx of mining investment over the past decade, ranks 27th this year, up from 56 in 2018, but down from last year’s ranking of 24.

And Colombia, perceived as too unstable and dangerous, didn’t make the list for the first time until 2006-7, when miners began to see it make “large strides in improving security and battling criminal gangs and guerillas.” This year, it ranks 36th of 62, down from 29th spot last year. However, the Fraser Institute report noted that from a policy standpoint, it is the least attractive jurisdiction in Latin America and the Caribbean Basin for mining investment.

Given that this year’s survey was conducted between August and December 2022, some of the latest concerning developments in the region have yet to show up in the rankings.

The latest report reveals a preference for more stable jurisdictions, with the top 10 concentrated in Australia, Canada and the United States.

But a look back through previous years’ results suggests that trend started nearly 20 years ago, with tolerance for risk peaking in 2003 and 2004. During those years, five of the top 10 jurisdictions were in developing nations. Since the financial crisis, there hasn’t been more than one country from developing regions in the top 10 in any year.

With skittish markets continuing to brace for a recession and investors opting for safety, expect to see more investment in jurisdictions like this year’s top 10: Nevada, Western Australia, Saskatchewan, Newfoundland & Labrador, Colorado, Northern Territory, Arizona, Quebec, South Australia, and Botswana.