Articles like this don't helpRueters
By Steve James
DENVER (Reuters) - If anyone doubted the risks of doing business in developing countries, they need only look at what happened to Newmont Mining.
The world's second largest gold producer just left Uzbekistan after more than a decade after the government in Tashkent effectively expropriated Newmont's share of a joint venture in the former Soviet republic.
It used to be that logistical problems were the only issue for companies prospecting for the world's increasingly inaccessible mineral, oil or gas deposits. But threats of nationalization of assets, political protests and blockades or revocation of licenses have become a leading issue for mining and energy companies.
Higher commodity prices are making the industries more lucrative and prompting some governments, such as Venezuela and Bolivia, to seek more control and profit from their own resources.
"There is no question the industry faces significant challenges when it comes to resource nationalism," Alex Gorbansky, an expert in above-ground risks, told the Denver Gold Forum this week. "It is not an issue industries can dodge."
Mongolia's recent windfall profit tax on copper and gold and Royal Dutch Shell's environmental issues in Russia have grabbed headlines. The media may exaggerate the problem, but the issue is real, said Gorbansky, managing director of Frontier Strategy Group, which advises companies on risk.
The key, he said, is to identify the kind of risk in a particular country and understand what is driving it. In Russia and central Asian states, so-called resource diplomacy may be tied to government's seeking state control.
But in Zimbabwe, it is external influences, such as China, that might be behind government efforts against foreign miners. In fact, there is a proxy struggle going on in Africa between China and the United States to invest in resources there.
"The Chinese model is to offer the country cheap access to capital, offer infrastructure and even military aid, like in Nigeria," said Gorbansky.
"The U.S. model is more commercial, working through development agencies, with the expectation that it will bring democracy or improve governance. There is no such expectation with China," he said.
Moderate Populism in Peru and Indonesia is behind moves to get a greater share of profits from natural resources, but a more radical economic nationalism is evident in Venezuela and Bolivia, said Gorbansky.
"One trend is 'Back in the USSR,' where you see Russia starting to reassert itself in central Asia to counter U.S. influence after the collapse of the Soviet Union," he said.
"We will continue to see that trend in the foreseeable future and the question is: what will happen in 2008 when (President) Putin steps down. Will there be continuity?"
In Latin America, Gorbansky believes the wave of resource nationalism has crested. "There are opportunities, if you look for countries in transition."
Colombia, for example, was perceived as having a high risk factor with guerrilla violence and narcotics traffickers. "But the reality is Colombia has turned a corner and there is significant upside potential," he said.
Asked about fundamentalist Islam in some countries, Gorbansky said it was an important trend. "But it can also be a stabilizing force, since Russia and the United States agree they don't want to see rising Islamic forces."
The issue of political risk was the water-cooler subject at the gold industry conference here this week.
"The thing is not to seek to avoid risk, but to seek to understand it and ask ourselves if we are able to manage it," said AngloGold Ashanti Chief Executive Bobby Godsell.
"We always say we don't go into areas where our geologists can be shot at or eaten," Gold Fields Chief Executive Officer Ian Cockerill told Reuters in an interview.
"It's a pretty good rule of thumb, because if you can't send in your geos, why would you want to send your operators. And I also find our geologists tend to appreciate that," Cockerill added.
Canadian mining company Bema Gold Corp. CEO Clive Johnson said "back in 1998-99, Russia was not everyone's choice, but it has worked well for us.
"There are lots of reasons why you can succeed in countries in transition. If you perform you are likely to succeed and make friends."