Gold to Dust in South American Mining iArticleBeach.com - Free Articles for Reprint. Add great content to your web site today

Home | About Us | Contact Us





Forgot Password? New User?

	Poetry
	Business
	Music
	Humor
	Arts & Entertainment
	Movies
	Destinations
	Women Issues
	Home Improvement
	Dating
	Real Estate
	SEO
	Health & Fitness
	Investing
	Home Based Business

View all Categories

Welcome to iArticleBeach.com - Free Articles for Reprint. Add great content to your web site today!

Articles » Finance » Investing >> View Article

Gold to Dust in South American Mining

By: Rakesh Saxena

Last month, citing the need to exercise greater control over national mineral resources, Ecuador suspended exploration and revoked a series of mining concessions. Late this week, Venezuela banned open-pit mining, and halted all activity in the vast Imataca reserve, which includes the town of El Dorado in the remote south-eastern part of the country.

Equity and debt prices for internationally listed companies mining in large parts of Latin America have deteriorated sharply in recent weeks. What does the future hold?

Hardly Unforeseen

Before assessing where prices, ratings and insurance costs are headed, it is critical to address the ideological gap: while foreign companies already invested in Latin America are claiming, expressly or implicitly, that left-wing governments are reneging on lawful contracts, the Latin protagonists of new legislation are making the case that existing laws are outdated, and bear no relevance to the fundamentals being cited by international companies, to either boost share prices or to reflect the value of securitized assets.

For example, Ecuador’s mining condominium structures were conceptualized, historically, in an extremely restrictive context, to encourage small-scale placer-based exploitation of gold and silver; though a plain reading of the law has resulted in condominium concessions passing into the hands of foreign listed companies, such transfers are without foundation if the correct historical interpretation of the law is applied. Government royalties reflected in condominium-type mining properties are not legitimate for larger, mechanized operations undertaken with modern technologies.

Political Risk Insurance

Risk Insurance syndicates who have provided Latin American mining coverage over the previous decade are now in a quandary of their own making. Quite overwhelmingly, the pricing of risk on equity and securitization was predicated on the notion that the value of foreign capital, and fiscal realism, would far outweigh transitions in government. Quote Platform has always maintained that such risk was under-priced, and for good reason.

The pricing of political risk entails a thorough understanding of the law of the land, and the sustainability of such law within the framework of an evolving economic and political reality. Risk cannot be priced on populist notions, however persuasive.

Ever since the early 1990s, it was apparent that developments in Latin American mining laws (with few exceptions) were lagging the new emerging reality. In effect, laws which are inherently crying for change must attract a higher-than-usual risk premium.

Equity Valuations

Quote Platform must point out that the decline in share prices of Latin American-based mining companies does not represent the truth on the ground at all. At this juncture, the very concept of an equity valuation in countries like Ecuador, Venezuela, Bolivia and Nicaragua is undergoing substantive change.

Ratings

The problem of pricing of Latin American corporate debt and equity has, without doubt, been aggravated by the widely-respected rating agencies who have blundered badly in utilizing two flawed statistical formulations for their assessments: (a) GDP growth data to determine that a vibrant business climate is either already in place or just around the corner and (b) the quantum of mining revenues to assume that future governments in the region will be hesitant to upset foreign investors.

Today, informed sources inside those agencies acknowledge that GDP growth numbers should not have been confused with poverty statistics. And as far as mining revenues are concerned, Latin American governments are realizing that foreign capital, if available, must be employed to prove up national mining reserves in the first instance, not to exploit existing concessions with proven surface mining opportunities.

Futures and Hedging

In this regard, it cannot be over-emphasized that end-user pricing only enters the risk equation if there is a product to sell; we are dealing now with a situation where many of the international companies may have to spend money on identifying reserves, not on exploiting them, if they are to sign equitable agreements in Latin America through the course of 2008 and 2009.

--
Prepared and issued by Rakesh Saxena, a pricing specialist in insurance and derivative products. Mr. Saxena has over 27 years of experience in the international capital markets, including extensive deal making in the emerging economies. He can be reached at derivatives@shaw.ca. Home URL: www.quoteplatform.com

Total Views : 205 Word Count Appx. : 676

See All articles From Author

Wed, 08 Feb 2012 00:54:11 GMT Chairman, 3 others out in Yahoo board shake-up (AP)

AP - Yahoo Chairman Roy Bostock and three longtime board members are stepping down, submitting to the demands of many frustrated shareholders who blame them for contributing to the follies that have dragged down the Internet company's revenue and stock price.

Tue, 07 Feb 2012 23:58:47 GMT Disney 1Q revenue misses estimates but profits up (AP)

AP - The Walt Disney Co. said Tuesday that its net income rose 12 percent in the final quarter of 2011, as a slimmer movie slate and upbeat theme park results helped the company top earnings forecasts even while revenue gains were less than expected.

Wed, 08 Feb 2012 00:01:25 GMT 2.1 million viewers live stream Super Bowl online (AP)
AP - The first live stream of the Super Bowl drew 2.1 million unique viewers, NBC said Thursday.

Wed, 08 Feb 2012 02:49:44 GMT Just Show Me: 3 great and free cooking apps for the iPhone (Yahoo! News)
Yahoo! News - Welcome toÂ Just Show Me onÂ Tecca TV, where we show you tips and tricks for getting the most out of theÂ gadgets in your life. In today's episode we'll show three greatÂ cooking apps for theÂ iPhone. BigOven Epicurious Serving Sizer Take a look …

Wed, 08 Feb 2012 02:39:36 GMT Transparent Screen app saves you from bodily injury while texting (Yahoo! News)
Yahoo! News - Fond ofÂ texting while walking? Unless you're extremely nimble, you may have bumped into people, objects, or even stumbled. In extreme cases, you may have even bruised yourself or broken a few things. But if you have anÂ Android device, you can …

Tue, 31 Jan 2012 23:45:44 GMT NASA Launches Facebook Game to Test Space Program Knowledge (Mashable)
Mashable - How much do you know about the NASA space program, Earthling?

Wed, 08 Feb 2012 05:37:34 GMT Analysis: More than just Great Firewall awaits Facebook in China (Reuters)
Reuters - When it comes to China, Facebook should consider itself forewarned. Cracking the world's biggest internet population might seem an obvious ambition for the social networking giant as it trumpets its global growth before a $5 billion initial public offering, but the chances it will succeed look slim.

Wed, 08 Feb 2012 01:23:46 GMT Yahoo chairman exits, review drags on (Reuters)

Reuters - Yahoo Inc Chairman Roy Bostock and three other directors will step down as the struggling company ploughs ahead with an internal overhaul, including discussions on dealing with its stakes in China's Alibaba Group and Yahoo Japan.

Wed, 08 Feb 2012 00:26:41 GMT Social Gaming Apps for Android -- Steam, Xbox Live and More (ContributorNetwork)
ContributorNetwork - For many people, gaming is no longer a solitary experience where you buy a game and bring it back home and play it -- not even on Android-powered smartphones and tablets. Because it's not just that people are buying games from the Android Market, or Gameloft's store, or other online marketplaces. They're making friends, playing online, and earning trophies and achievements through gameplay that their friends can then see on their profiles.

Tue, 07 Feb 2012 22:50:41 GMT Google Android Mascot Merchandise -- Own Your Own Tiny Robot (ContributorNetwork)
ContributorNetwork - COMMENTARY | Say what you will about the relative merits of Android smartphones vs. the iPhone, but the Android mascot wins against the iPhone's hands-down. This is largely because the iPhone doesn't have a mascot, but that's not the point. The point is that the cute little green robot seen all over Android phone commercials (and depicted in Google branding) can be yours, and can sit on your desk or even do useful things for you. And yes, he comes in more colors than just green.

Wed, 08 Feb 2012 01:31:45 GMT CalSTRS wants Facebook board to expand, add women (Reuters)

Reuters - The California State Teachers' Retirement System, the second-largest largest pension fund in the United States, wants Facebook Inc to expand its board of directors and diversify a panel that has no women.

Tue, 07 Feb 2012 23:35:39 GMT Halliburton to abandon BlackBerry, turn to iPhone (Reuters)
Reuters - Oil field services company Halliburton plans to stop issuing BlackBerry smartphones to employees and switch over to Apple's iPhone, which it said was better suited to its needs, marking another setback for Research In Motion.

Tue, 07 Feb 2012 23:13:00 GMT Path iPhone app shown to be uploading iOS address books to its servers (Appolicious)
Appolicious - One of the most popular social networking apps available for iOS and Android devices is in a bit of hot water.

Tue, 07 Feb 2012 20:50:06 GMT Summary Box: Jobs flow from mobile, Facebook apps (AP)
AP - CAREER OPPORTUNITY: All those apps being made for smartphones, computer tablets and Facebook's online social network are helping the U.S. economy lower its unemployment rate. A study released Tuesday by the technology trade group TechNet estimates apps are responsible for creating about 466,000 U.S. jobs since 2007.

Tue, 07 Feb 2012 22:51:02 GMT Amazon, Viacom close to Web video deal (Reuters)
Reuters - Amazon.com Inc is about to announce a Web video deal with Viacom Inc in what sources said was one of the last steps in a plan to launch a standalone subscription service to compete with Netflix Inc.

Tue, 07 Feb 2012 22:00:00 GMT Don’t stress tax time with these helpful iPhone apps (Appolicious)
Appolicious - It’s tax time! What, it isn’t a happy time for you? Well maybe you should spend more time prepping throughout the year with your iPhone apps so you don’t get so stressed out come the beginning of next year. Tax time shouldn’t be stressful, it should be routine. Here are some helpful tax apps to get you started on a road to financial stability.

Tue, 07 Feb 2012 22:53:55 GMT RIM tells European developers it's "ready to compete" (Reuters)

Reuters - Next-generation software for BlackBerry's smartphones is "ready to compete", Research In Motion's new chief executive, Thorsten Heins, told more than 2,000 technical developers on Tuesday, expressing confidence in RIM's long-term future.

Mon, 06 Feb 2012 23:21:16 GMT Cisco seen reporting solid second quarter (Reuters)
Reuters - A year after network equipment maker Cisco Systems Inc unnerved investors with yet another weak quarterly outlook the company looks set to report a stable quarter buoyed in part by improving enterprise demand in the United States.

© 2006 - Present - iArticleBeach.com - Free Articles for Reprint. Add great content to your web site today. All Rights Reserved. Use of our service is protected by our Privacy Policy and Terms of Service