Weekly Nugget

Country Risk: Signs a Jurisdiction is Going South or Going Well

It is difficult to tell how mining investment will do in a country, but there is a concise rubric you could use to assess risk.

Recently, I had the chance to travel down to Ecuador to attend the inaugural CGS Quito 2022 mining conference to get the latest insights from one of the most exciting developing mining jurisdictions in Latin America. 

Little did I know that only a week later, the very streets where my AirBnB overlooked would become the stage for violent clashes between Ecuadorian security agents and protestors

The news burst a halo I had formed around mining in Ecuador over the past couple of years as more and more discoveries were coming out of the country, but it also made me quickly realize how this is going to affect the value of mining companies.   

Luckily, there would be a presentation at the conference that would give me a basic rubric to assess whether country is starting to improve or get risky. 

A Political Shift in LatAm

Just as in real estate, location, location, location often determines the success of a mining project, and we are not just talking in terms of geology but in terms of the social and political dynamics that approve mine development. 

The most recent sign of the changing political winds in Latin America is the victory of Gustavo Petro as the president of Colombia. Petro has consistently called to halt all new oil and gas exploration, fracking and move the economy away from its reliance on its oil exports. 

In addition, up to 65 community-level mining conflicts are brewing in Peru. While in Chile, the Constitutional Convention is proposing environmental language that could scale back mining.

In Bolivia, dwindling natural gas revenues from declining production is fueling debates over natural resources within the Movimiento al Socialismo (MAS) party. In Ecuador, protests against the government included demands for a moratorium on new mining activity.

While initial news of disruptions can be shocking, eventually there is a resolution but in the interim periods, the valuation of mining companies can be affected. 

Reading this news as an amateur natural resource investor is enough to make you question whether you made the right choice and leave you searching for any way to analyze the news.

Reading the Tea Leaves

I obsess over news from different ends of the political spectrum and I read company press releases for the smallest hint of disruption but it all becomes a cacophony of different opinions. But there is a concise rubric you could use to help organize the news you hear and read. 

James Bosworth of Hxagon, a risk consultancy firm that publishes a weekly risk report on Latin America, delivered a presentation in Quito that outlined some of the signs people can use to determine whether a jurisdiction is improving or getting worse. 

What would signal a country worsening?

  • A greater number of attacks
    • Crossing of red lines, or a limit past which safety can be guarantee
  • The politicization of security
  • A worsening economy
  • A government offensive that escalates the violence

What might signal improvements?

  • A better deployed security force
  • Security for bad reasons
    • Criminal consolidation
    • Corruption
  • A rapidly improving economy
  • Political agreements among the parties

These eight points are not set in stone and can happen in varying degrees in different jurisdictions but nonetheless, it provides a framework for assessing the next jurisdiction you may consider investing in or visiting. 

Lessons Learned

While I walked the streets of old Quito there was little sign of unrest except for a few isolated protests and even a group protesting mining, but even being on the ground did not reveal the tension lying below the surface. 

As I stood outside waiting for my cab to Quito's Mariscal Sucre International Airport, I spoke with a local geologist who knew the terrain far better than I could and asked how I was travelling. 

I said I had booked a cab through the Spanish language Uber app Cabify and she politely offered her private car service with the caveat that Ecuador can be dangerous. I turned it down and said I was up for an adventure, but given recent events it may have been wiser to take her offer. 

I may have been there for an adventure, but I got a lesson to not treat country risk so lightly.  

Check out the Prospector Portal interactive map to explore Ecuador mining and exploration projects. 

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