Bottom Is In, page-70

Hi Guys,

It is an interesting point and one that I have been discussing with a few colleagues recently.

Personally I am much more comfortable investing in countries that have insurgency issues but where the (legitimate) Government has a strong reliance on taxes/ royalties from mining and is supportive of the sector vs. investing in countries whereby the local populace is against mining development and this is being increasingly expressed in domestic politics via bans/ moratoriums and local protests (e.g. road blockages and sabotage).

Whilst "Africa" needs to be broken down into a country by country basis, just like LatAm and Asia, I am much more comfortable investing in certain West African nations vs. most South American nations and many Asian nations.

The list of geopolitical "no go" investment destinations is growing, however, these risks must be considered carefully.

There is a big difference in assessing external risks (e.g. terrorism) vs. internal risks (local population/ political opposition), IMO.

You can clearly see from the table below how South America, for example, has seen a decline in exploration funding y-o-y whilst Africa has seen an increase (both in absolute $$ and in share of total terms):


Source: http://www.mining.com/canadian-juniors-shifting-focus-africa-away-s-america/

Government support, or lack thereof, will have partially contributed to this. Capital will go where it is treated best.

The other point to note is how the total flow of funds for mining projects has shrunk materially y-o-y .... where are the new mines going to come from ??? There will be a structural supply destruction resulting from this lack of spending in multiple commodities over the next decade. It is very evident already in Cu and will soon become apparent in Ni too.

As per your comment, Mudguts60, whereby your mate is getting a higher salary package from working in BF, investors are likewise getting a discount on their investments from, IMO, an incorrect risk assessment ... assuming that you are willing to accept the legitimate risks and size appropriately, this will probably generate alpha, IMO, over the LT.

Cheers
John