Mining companies often make substantial investments in foreign countries as part of the process of finding, developing and operating mining projects.  In addition to financial and technical mining uncertainties, these investments are exposed to political risk or the possibility that an investment’s performance is adversely affected by the unexpected actions of the host country and other actors such as the local community or transnational organizations.  Recent examples of political risk events include mining royalty and tax changes, punitive environmental or tax penalties, restrictive downstream processing or concentrate export requirements, and local community protests.  Traditionally, mining companies have recognized political risk by attaching an additional risk premium of the discount rate they use to assess an investment.   However, forward-thinking mining companies have begun to manage political risk through a formal program that:

1) Explicitly recognizes political risk as a cash flow effect when assessing  possible investments, 

2) Actively monitors and responds to political risk events affecting operating mines and development projects, and  

3) Assesses the combined effect of multiple political risk exposures on a company’s project portfolio and long-term corporate strategy. 

This short course provides an overview of political risk in the mining industry and the strategies that companies can use to manage this exposure.  We discuss how political risk can be measured, describe a framework that a company can use to assess prospective investments, manage existing investment exposure, and aggregate political risk at a corporate level.  The course will also introduce a quantitative model to explicitly recognize the investment impact of political risk.  A case study involving a fictitious company developing and operating a number of mines globally will be advanced during the course to illustrate how the various ideas come together as part of an overall political risk management program.

Presented by M Samis of SCM Decisions and J Seddon of Control Risks.