Mining investors, currently experiencing one of the industry’s worst times in over a decade, are braced for another round of disastrous results from mining companies this week, as the commodities rout takes its toll on profits.
But instead of panicking and try to “get out” of the game, mineral industry advisory firm Behre Dolbear is recommending stakeholders to focus on those markets that have been able to ride the wave relatively well so far.
In its annual ranking of countries in terms of political risks for mining investment, Behre Dolbear says among those nations the top ten are Canada, Australia, United States, Chile, Mexico, Peru, Namibia, Botswana, Colombia and Ghana, in that order:
Since 1999, the firm has annually compiled political-risk assessments in the global mining industry. Over time, Behre Dolbear says it has found a positive correlation between the growth of a nation’s wealth and the prosperity of its mining industry. “We have observed that when a country recognizes its critical need to adapt and restructure burdensome policy, it begins to optimize its economic potential,” the report says.
The 25 countries considered in this year’s survey, as in the past, were ranked based on seven criteria. Each benchmark was rated on a numeric scale that reflects the relative conditions that impact investment growth.
A score was calculated from the collective results of all seven criteria, which led to the firm’s relative rankings. The lower the numerical ranking, the lower the risk.
Regardless of the ranking, the study notes miners these days face a series of challenges to start a project, many of which did not exist ten years ago:
Today it takes six years or more until investors can expect returns from a greenfield mining construction project. It typically takes ten years to discover, define, and determine the feasibility of a project. Long lead times heighten a project’s overall risk profile, making it difficult for companies to achieve the level of return required to compete with alternative asset classes for investment. Mining companies are facing difficult challenges adapting to softening markets as their margins are squeezed and they dispose of non-core assets to conserve cash.
Behre Dolbear experts say they expect to see a prolonged market correction that will continue until supply concerns begin to influence markets.