Watch Bolivia For Developments On the Country Risk Front
Why read: Because country risk is increasingly important, and because the Bolivian Government has been very proactive, particularly of late, in its interactions with the Bolivian Mining Industry.
Commentary: Bolivia has long been known to be rich in minerals, is said to already levy some of South America's highest mining taxes (37% on income and 5% - 7% royalty taxes), and as a country sees mining as being very important to it, where mining is said to currently:
represent 6.3% of Bolivia's gross domestic product;
represent 37% of Bolivian exports; and,
be the 2nd largest source of hard currency after natural gas.
In the past three months the Bolivian Government has nationalized a silver mine and a tin/zinc mine. It is now contemplating building smelters to process gold, silver, zinc and other ores in Bolivia through an existing state-owned mining company.
For more detail you might want to read the referenced article. Suffice to say that Bolivia likely is being watched not only by those with direct and indirect stakeholder interests in the foreign companies currently operating there, but by other developing countries.
Going forward, it will be important to closely monitor what countries do by way of increasing royalties, taxes, joint venture rules, partnership rules, development of common processing operations, and so on - all aimed at keeping more of the discretionary cash generated by miners 'in-country' for the benefit of the Governments and residents of those countries.
Simply put, the difficult line:
the countries have to walk has to do with finding an appropriate balance between being commercially sensible without appearing so greedy as to preclude foreign investment in their mining sectors; and,
the companies who elect to invest in foreign countries have to walk is to ensure they have air-tight contracts include specific enforceable royalty, taxation, and other cost related provisions that can't be altered by country or local governments of the day, or country and local governments of tomorrow.
These may prove in many, if not most, cases to be tasks of herculean proportions, such that as country risk escalates resource company-specific risk may result in some companies simply not being able to obtain funding - or some countries simply not being able to find companies willing to invest in their resources sector.
Topical Reference: Bolivia Says It Wants Greater Role in Key Mining Sector, from Fox Business, from Dow Jones Newswires, Martin Arostegui, August 24, 2012 - reading time 4 minutes.