Stockhouse's Danny Deadlock:We've seen gains of almost 200% this year on NW but while the stock is still holding up, we're also going to drop coverage of this company. If you didn't catch it last week, a huge amount of risk surfaced in Bolivia on May 1st and while many companies will downplay their exposure, the risk is very real. There is likely no immediate short-term risk, but mid to long term it's cause for concern - and a person should be equally careful in Peru this year.
Bolivia's President Evo Morales fulfilled a campaign promise by ordering the nationalization of Bolivia's large natural-gas industry. On Monday, he sent in troops to guard 56 gas fields and ordered Western corporations to negotiate new contracts with Bolivia's leftist government within six months. The government then announced Tuesday it will extend its control over mining and forestry interests as well to give it greater authority over Bolivia's natural resources. Morales also campaigned last year on a promise to forge closer ties with Cuba's Fidel Castro and Venezuela's Hugo Chavez.
Vice-President Alvaro Garcia Linera said mining companies could face higher taxes and royalty payments and that the government will intensify enforcement of existing laws to break up big underdeveloped land holdings, apparently to turn them over to the poor. The nationalization of their resources follows a left-wing trend in South America including Venezuelan leader Hugo Chavez. Peru also goes on the radar screen because Ollanta Humala, a populist ex-army officer who has been endorsed by Chavez, is one of two candidates in an upcoming election - and he has a very good chance of winning. The election is scheduled for June 4th and should be watched carefully if you own shares in Peru mining companies.
A couple huge mining companies have expressed similar concern.
The CEO of Barrick Gold Corp, BullBoards) stated that he would rather do business in Pakistan than in some parts of South America, despite fears of Al Qaeda, because big miners don't have to share their profits to operate there.
And the CEO of Pan American Silver, BullBoards) stated ""There is no question that the nationalization of the gas industry in that country is cause for concern. The information that I've received suggests the mining industry in general is not a target for nationalization, but that information seems to be changing almost on a daily basis. There's clearly uncertainty."
The mining sector is hot right now but don't overlook the political risks of each country. High commodity prices are creating a lot of wealth and left-wing governments will not be content to watch this money move into the hands of foreign corporations. Well-diversified companies like Barrick can stomach the risk; small and micro-cap corporations, may not.
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When governments start to disrespect the rights of the governed, they tend to isolate an unpopular sector, such as big rich gas companies, an obvious target in a contry with lots of poverty. Perhaps next it will "just" be the precious metal miners with the most profitable mines. After that, base metal miners making "excessive profits" and so on.
Remember the old Leftist slogan "Private ownership is theft" When governments think like that, bad things can happen.
Please invest judiciously, your dollars could be interpreted as a vote of approval for Morales and crew.
M.