Mining investments: know where to hold ’em – by Daina Lawrence (Globe and Mail – February 19, 2014)

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As in real estate, mining is also about location, location, location. Investors have to consider where a project is situated when looking at this type of investment, as geopolitical issues, messy regulatory processes and heavy taxation or royalty rules are all things than can affect a mine, say analysts.

High risk and remote areas can be costly to operate in and some governments continue to demand enormous contributions from the mining sector. In recent years, some of the industry’s heavy hitters have been forced to abandon their projects due to these factors.

It’s expected that more mining companies are going to venture into riskier territory to explore new project prospects because areas in safer zones, such as the United States, Canada and Australia, are being rapidly depleted.

Investors must be aware of the risks in these regions because it could affect the projects and, as a consequence, the company share prices. It may also have an impact on how much a company’s stocks are valued, as experts expect the value of these projects to be closely linked with their geographical location, so investors may pay a premium for a less risky locale.

Perhaps the most notable example is Barrick Gold Corp.’s Pascua-Lama mine located on the Argentinean-Chilean border. The company announced last October it would stop development of its mine indefinitely. To date, the project has cost the world’s largest gold producer more than $5-billion (U.S.) and is expected to cost about $8.5-billion to complete.

It was originally estimated to cost $3-billion. The announcement came after the company was fined more than $15-million by the Chilean government for alleged breaches in environmental controls. The company has said the cause was related to high costs and political disputes, as well as regulatory issues. It noted the lack of skilled labourers and a 50-per-cent increase in per-hour labour rates were also major factors.

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