The mining and exploration companies who responded to 2012/2013 Fraser Institute’s Annual Survey of Mining Companies ranked Finland as the best place to do business, while Indonesia was deemed the worst place for mining and exploration companies.
Along with Finland, the top 10-ranked jurisdictions are Sweden, Alberta, New Brunswick, Wyoming, Ireland, Nevada, Yukon, and Norway. All were in the top 10 last year except for Utah and Norway.
The 10 least attractive jurisdictions for investment are (starting with the worst) Indonesia, Vietnam, DRC (Congo), Kyrgyzstan, Zimbabwe, Bolivia, Guatemala, Philippines, and Greece. All of these jurisdictions except DRC Congo, Greece and Zimbabwe were in the bottom 10 last year.
The jurisdiction deemed to have the best current mineral potential assuming current regulations and land use restrictions is Greenland, followed by Finland, Sweden, Nevada and Saskatchewan. The worst is Bolivia.
The jurisdiction believed to have the best policy/mineral potential–assuming no land use restrictions in place and assuming industry best practices–is Mongolia, followed by the Yukon, Papua New Guinea, Indonesia, and Alaska. Ironically, Mongolia was also ranked as the mining jurisdiction most in need of improvement.
“Resource nationalism in Africa is a major concern,” said the president of a mining production company with more than $50 million in value. “Corruption needs to be controlled. Governments have to be more pro-active toward investors. Transparency is a must and could be a strong motivator for investors.”
Botswana was the highest-ranked jurisdiction on the continent, ranking 17th in the global survey. A manager employed by a mining producer with more than $50 million, noted, “Can get work done. Reasonable approval process. Not excessive regulations. Clearly pro-mining culture. Honest civil servants.”
Mali saw the largest decline its rank falling from 42nd to 79th. Mauritania saw the largest improvement in Africa, ranking 36th globally as a good mining jurisdiction.
When asked about South Africa, an exploration company vice president commented, “Both South Africa and Zimbabwe are driving social experiments not driven by logic and economy, but by ideology. In the absence of reason, primary industries become the cash cows to fund the un-fundable. The rise of oligarchs in both countries evidences decline.”
AUSTRALIA AND OCEANIA
Ranked as the 15th most favorable mining jurisdiction, Western Australia remains the country’s top ranked jurisdiction. Victoria has the greatest improvement, while Tasmania declined most significantly in the survey.
For the first time since the 2006/2007 Fraser Institute Survey, a Canadian jurisdiction did not rank first overall globally this year. Once considered the best place on earth for mining investment for three years running, Quebec has fallen out of the world’s top 10 mining jurisdictions.
Canadian jurisdictions claimed three of the top 10 spots globally this year with Alberta ranked third overall, New Brunswick falling from first to fourth, and the Yukon ranked eighth.
“Canadian mining regulations and legislation are generally easy to operate under,” said the president of a mining production company with more than US$50 million.
However, the vice president of another mining producer with more than $US50 million, bemoaned the “constant back and forth in Canada [with] First Nations trying to prove negative impacts of mining in order to get contractual financial and other commitments from mining companies. We need to find our way to a regulatory and cultural regime where First Nations can focus on holding companies to responsible behavior and opportunities for mutually beneficial business relationships—not percentages of projects…”
Finland took the Fraser Institute survey’s top rank and Sweden and Norway were in the top 10. Norway, India and Turkey improved most significantly in the survey rankings.
China has the most significant drop in score and rank followed by Poland.
“Our company is being forced by local governments in China to sell its mining operation to a local operator without a competitive process in place and the designated buyer will not pay fair market value for the assets and resources,” complained an exploration company president. “This will create a local monopoly and potentially cause risk from various safety perspectives to our employees.”
Meanwhile the vice president of a producer company with more than $50 million noted Finland offered mining “no unnecessary regulations and a government that supports mining and clears away obstructions.”
Another exploration company vice president declared he was weary of Mongolia’s “incessant changes to relevant laws as a kneejerk reaction to specific instances and its desire to re-open existing agreements made in good faith.”
An exploration company president said he considered Kyrgyzstan “corrupt, inconsistent and [prone to] random policy changes.”
Vietnam was criticized by senior management at a mining company with more than $50 million for its “endemic corruption, highest taxes and royalties in the world, unskilled workforce, political ineptitude, and a constantly shifting and overly complex regulatory framework.”
Chile remains the top-ranked jurisdiction in this region, although it dropped to 23rd in world rankings. Comments for the region showed concern for resource nationalism and mining opposition in some areas, while policies to formalize informal miners (Peru) and to redistribute mining royalties to the local level were considered positive by some mining companies, the Fraser Institute noted.
Argentina’s mining favorability score improved significantly with all jurisdictions except Santa Cruz improving. Nevertheless, the president of a mining producer with more than $50 million observed, “In the last three years Argentina has gone from being a place that welcomed mining investment and protected it to one where nothing is certain, other than the country’s and province’s desires to take an ever-increasing amount of the investment returns. Inflation, currency controls, union activism, changing laws, corruption, and unwillingness to acknowledge the negative aspects of the changes has made Argentina one of the most difficult places to invest and, in fact, has plummeted from desirable to not a chance at the moment even though the mineral endowment is largely untapped and the economic benefits to the poorest regions of the country could be enormous.”
Even Mexico–with a long history as a favorable mining region–drew criticism from an exploration company president who said, “After we discovered multiple, very rich and large mineral resources in a Mexican state, we were targeted by very powerful groups. This is still ongoing, so I will not name names. These groups hired Mexican and Canadian anti-mining groups to target one of our operations. They began an extortion campaign against us and we received no help from the state government. These groups tried desperately to drive us out of the state.”
Among U.S. states Minnesota and Michigan has the largest decrease in their mining jurisdiction favorability ranking, while Utah and Alaska improved the most in this year’s Frazer Institute survey.
Three U.S. states ranked in the global top 10 mining jurisdictions: Wyoming at 5th place, Nevada at 7th place, and Utah at 10th place. Utah saw the greatest improvement in rankings moving from 21st to 9th due to increased survey ratings for the quality of the geological database, taxation regime, and regulatory duplication and inconsistencies.
Meanwhile, an exploration company lawyer described Colorado as possessing “world-class resources, but crippling regulations have clients not even considering investment.”
Another exploration company president observed, “New Mexico has turned around as a place to build uranium projects. It should be noted in your study that the new government is strongly supportive of resource development.
A consulting company vice president praised Wyoming’s “lower tax regime, government encourages mining, little political downside.”
“In Nevada, the NEPA process has become relatively streamlined allowing companies to have some certainty of what the permitting process is and achieving an outcome for a known cost and timeframe,” observed an exploration company president.
Companies surveyed by the Fraser Institute reported total exploration budgets for 2012 of US$6.2 billion, up from US$5.4 billion in 2011.
The Fraser Institute survey found, “Only 46% of respondents plan to increase their exploration budgets in 2013; down from 68% in 2012 and 82% in 2011.”
Only 36.6% of producer companies with more than $50 million expect to increase their exploration budgets in 2013.
Miners continue to be pessimistic about commodity prices, with more than half of the respondents expecting only small increases or reduced prices for diamonds, coal, nickel, zinc, copper, potash, platinum, and silver over the next two years, the Fraser Institute determined.
“For a majority of respondents, only gold was expected to increase in value by more than 20% over the next two years.”
“Given the positive price expectations for gold, it is unsurprising that gold continues to be the commodity assigned the largest proportion of the budgets of survey respondents,” said the Fraser Institute.
Finally, respondents were asked about their difficulties in raising funds now compared to two years ago. Of those responding, 60% agreed strongly that the industry now has great difficulty in raising funds. Of those who agreed, nearly 80% believed the difficulty in raising funds was due to investors being worried about the state of the world economy.
“The investment model for junior miners is broken,” said an exploration company president. “The costs of doing business and the regulatory requirements have risen dramatically over the last decade and the ability of exploration juniors to attract funding is at an all-time low.”
“The investment industry is now backing investment in gold and precious metals directly and through ETFs rather than in mining and exploration companies,” observed another exploration company president. “Some of the potential rewards that investors normally expect are being stripped by the issuance of derivatives in the market or by discounting of share values through sale of flow-through shares, etc.”
A development company president believes, “Investors are worried about management’s ability to deliver projects on time and budget.”
“The recent underperformance of gold share prices is wholly due to the irresponsible actions of the major gold producers, which has hammered investor confidence,” declared an exploration company president. “Investors must be bemused that rather than delivering increased rewards and dividends to shareholders over the last 10 years of increasing gold prices, the majors have whittled away profits by mining even more lower grade, increasing their production costs and not benefitting from the rise in gold price.”
“Management of majors should hang their heads,” he declared. “Oh no, it’s alright, they still have a war chest with which to pick up distressed junior assets so it’s a win-win!”
To download a free copy of the Fraser Institute Annual Survey of Mining Companies 20-12/2013, go to http://www.fraserinstitute.org/research-news/display.aspx?id=19401