The good news in resource-related political risk continues: no new disasters, such as nationalization of a major mine. The Middle East remains in conflict, and Africa remains a dangerous place to do business, as has been the case for decades.

The most alarming news for us was that Mexico’s Green Party just won a larger portion of the nation’s Congress. It remains a small minority with about 10% of the seats, but that’s more than the German green party… and look what it’s done. Worse, the green party is in alliance with the ruling PRI, which needs it to form a majority coalition. That means the ruling party has to give the greens a lot of what they want.

Some of what the greens want is just crazy. However, Mexico is a place where poverty still abounds and the harsh facts of life still matter in politics. Nothing has actually changed yet, and the country does have a stable and workable mining code. It’s too soon to write the place off, but we’ll be watching it closely.

Stupidity Watch

There’s more bad news than good, as usual. Here’s the latest:

  • European Union: Last month European Parliament voted in favor of a mandatory certification system for importers of so-called conflict minerals. The bill is largely aimed at Africa, where minerals play a role in several violent conflicts. As a result, 800,000 European companies will have to ensure that revenues from the minerals they use are not funding conflicts. The move doesn’t really affect our investments but is an interesting example of stupid regulation in the EU that will tax business and make not one bit of difference to the people it’s intended to help.

  • Chile: Country’s environmental regulator has filed charges against Canadian miner Lundin Mining Corporation. The reason: alleged environmental violations in its Candelaria copper deposit located in Chile’s Atacama region. It may be that the company is at fault and the authorities are just doing their jobs. We haven’t been down there to check. But the move is part of an ongoing pushback against mining, so view this as another turn toward economic stupidity in Chile.

  • Mongolia: Khan Resources petitioned a US court to weigh in on its protracted dispute with Mongolia. The move comes after the country decided to invalidate a $100 million arbitration claim by the Canadian company. Our view remains that Mongolia’s intention to revoke Khan’s claims was monumentally stupid. It will make it that much harder to attract investment, which the country badly needs.

  • Peru: Violent protests against the Tia Maria copper mine rocked Peru again last month. Five deaths and many more injured reported so far. The government declared a state of emergency in the region. The conflict is suspended, but the truce looks fragile. Louis James has provided his take on the situation. Short version: the government is pro-mining, but don’t invest in companies in Peru unless they can convince you they have strong local support.

  • Romania: The country has hiked taxes for mining activities by just under 7%. The government says it wants to align tax rates with inflation. Romania last touched mining taxes in 2013, when it upped them by a whopping 28%. Not a good trend. And stupid: it makes no sense to raise taxes on a business that has almost ground to a halt in your country but which could attract foreign investment, if the politicians would just let it be.

  • Zambia: News is out that Zambia is considering cutting the mineral royalties for underground mines. The cut would push the tax below the recently revised 9%. The original (now abandoned) tax hike saw the government charging as much as 20%. We hope common sense will eventually triumph over political stupidity.

This Month’s Country Scores

This month’s report examines 66 countries with significant mining activity. We plan to expand this to cover oil- and gas-producing countries and other resource industries. This month the focus remains on mining. Below are the individual country scores, followed by regional groupings and other notes.

The Big Picture: Regions

Important points to note:

  • Europe looks the most investor friendly. The region includes both EU members and emerging European and Balkan countries, such as Russia and Serbia. This group is diverse, but on average its constituent countries tend to have stable and attractive investment climates, which makes them good mining jurisdictions.

  • Australia scored very well in the Fraser Survey, the World Bank’s report, and the Corruption Perceptions Index. We tend to agree with this result: the country is a good mining jurisdiction, much better than the Asia & Oceania average. There are other outliers in each group that can render a regional average less useful, and we always look at individual countries to determine if they’re worth our investing consideration.

  • There can be variances within a country between its administrative divisions, such as provinces in Argentina or states in Brazil and the US, and each can have significantly different investment appeal.

June 2015: Top Five Countries

This month’s top-scoring countries are: Sweden, Finland, Ireland, the US, and Canada. They are all considered very low risk.

  • Sweden (Casey Country Score 0.04). Sweden is a jurisdiction with excellent infrastructure and famously low corruption and inflation. The country features high-quality geological databases and readily available exploration services.

  • Finland (Casey Country Score 0.05). Finland is a top Fraser Survey jurisdiction and was an undisputed leader in most of the other reports we drew input from. We note, however, that while stable, government processes in Finland can be very slow.

  • Ireland (Casey Country Score 0.06). Thanks to the combined effects of the Minerals Development Act in 1940 and a number of significant tax measures announced in 1956, Ireland has become one of the most pro-mining places in Europe and in the world.

  • United States (Casey Country Score 0.08). The US ranking in the current Fraser survey dropped a tick, but with excellent infrastructure, low inflation, and high investor protection, it’s still a great mining jurisdiction overall. Some states are obviously not as mine friendly as the ones that rely heavily on mining in the West: Nevada, Wyoming, Idaho, Colorado, and Utah. This is well understood by both resource investors and the Canada-listed mining companies that operate there.

  • Canada (Casey Country Score 0.08). Canada is another country with a long-established mining industry and an extremely favorable investment climate in the majority of its provinces. We don’t have any particular concerns about Alberta, Ontario, and Quebec, among other Canadian provinces, when it comes to mining friendliness.

About the Casey Country Score

Before we recommend a company, we always analyze the country (or countries) in which it operates. We examine the government’s level of support for mining, foreign investment, and private enterprise, and try to avoid countries with policies detrimental to investors.

To this end, we tap multiple sources with knowledge of the country in question, including government officials, miners, geologists actually working on the ground, independent journalists, and NGOs. Whenever possible, we visit the country to see how the data measure up against the observable reality. It’s impossible, of course, to get our boots on the ground in all the countries we’re interested in as often as we’d like. So to fill the gap, we’ve developed the Casey Country Score (CCS) as a quick way to assess a country’s investment climate.

The CCS measures multiple aspects of a country’s investment appeal, including the ease of registering property, investor protection, transparency of government institutions, and logistical infrastructure, among others. Lower scores are better. While the vast majority of countries receive a score between 0.0 and 1.0, some may slightly exceed 1.0 if, for example, they have high inflation in addition to other poor scores.

Notes:

1] We designed the Casey Country Score to aggregate multiple ratings from such international organizations as the Fraser Institute, the World Bank, Transparency International, and others, and we augment that data with current indicators, such as inflation. The score gives more weight to mining-specific data than to indicators pegged to the economy as a whole, but of course, it reflects the overall investment climate in a country too. Our proprietary formula assigns a single score to each country. The results give us a rough but interesting insight into how countries stack up against each other as investment jurisdictions, for mining and in general.

2] As we’re focused on resource investments in the Casey International Speculator, the letter for which we created the CCS, we selected countries for this report where mining (excluding the oil and gas industry, but including nonmetals) is a significant industry. We used the size of the country’s mining industry in relation to its GDP as a benchmark and considered mainly those where the figure was 1% or more.

3] For Finland, Sweden, Serbia, and the United Kingdom, mining (excluding oil and gas) fell below our 1% benchmark according to the most recently available data. Yet these countries are interesting mining jurisdictions with a lot of investment opportunities. We made a judgment call and left them in.