Fool’s gold: Understanding government’s intentions in the mining industry

Fool’s gold: Understanding government’s intentions in the mining industry

 

Services: Business Environment Analysis

Sector: Natural Resources

Challenge: Our client, a mid-size mining company, was interested in an Andean country where geological exploration pointed to vast gold deposits. The company, however, was concerned about the regulatory stability of the country, whose political leadership had in recent years acted against foreign investors in mining and other sectors. Over the previous 12 months, the government had suddenly began courting the international mining industry and reversed some of its negative policy initiatives to attract foreign investment.

Approach: AMI began by researching the wording of the new mining policies and consulted the expertise of a local lawyer. The wording of the new policies, ostensibly welcoming, left several undefined clauses that could be exploited by unscrupulous regulators. Through local, well connected players in government and the local mining industry, AMI learned the truth behind the government’s true intentions with its apparent courtship of international mining companies. Thanks to the financial crisis, the government faced a potential debt crisis. The government was heavily criticized for having seized foreign assets in the energy and mining sectors and faced multiple international law suits, which in turn complicated their ability to issue new debt. The government’ charm offensive was designed to soften their image both to the mining industry but also to international lenders. With elections a year ahead, attracting new mining investment might also create much needed jobs.

Result: Our client decided not to pursue investment in spite of the attractive geological findings. As predicted, the government’s welcoming posture dissolved as its own debt problems were overcome and the administration survived the elections intact. Since then, other mining companies have resumed their complaints over the unequal treatment they receive vis-à-vis local mining investors.

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