The project design aspects of managing political risk

PDAC 2019

Toronto, Ontario

March 3 to 6, 2019

Mining projects are built and operated the world overexposing them to political risk that varies with jurisdiction in addition to financial and technical mining risk exposures of a project.  Political risk is the possibility of an investment’s performance being impacted (adversely or otherwise) 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 managed political risk through on-going qualitative assessments and corporate programs engaging government and non-government stakeholders in the project.  However, most companies overlook the project design aspects of political risk as they limit recognition of this risk to a discount rate adjustment in their design cash flow analysis.

This presentation discusses how project design can be used to manage political risk.  In particular, it looks at how different designs through their different patterns of capital investment lead to very different levels of project risk exposure and value creation.  The quantitative value and risk information generated by this analysis can assist decision-making about not only design but financing, risk-sharing, and overall corporate risk budgeting.  In a time of unpredictability, more thought about how project design and its associated capital commitment schedule can assist with managing political risk exposure is needed.  Such an effort will help the mining industry improve capital allocation by generating more meaningful insights about the risk trade-offs associated with managing political risk.

If you would like Michael Samis to present at your next conference or host a workshop, please fill in the form below or call 416-527-3421.

Send Us a Message

This field is for validation purposes and should be left unchanged.