Is Country Risk Important?

Is Country Risk Important

Introduction

The global minerals industry is subject to a wide variety of commentary on investment sentiment and investment intensions.  Some of these commentaries are based on investment data whilst others are based on surveys of leaders in the industry.  Collectively they attempt to track and rate the investment decisions of minerals companies.

This paper examines the observations related to country risk and compares these to where investments are actually occurring.  It asks the question, do the dollars follow the stated perceptions of country risk?

Country risk is an amalgam of the issues that could adversely impact on investments that cannot be directly managed by the company and includes sovereign risk.  These issues can include political stability, the rigour of the legal system, resource nationalism, tenement security, tax certainty, regulatory systems, civil unrest, security, overseas investment rules, financial stability, graft and corruption etc.

Companies assess country risk in many ways.  Some rank the perceived risks and make decisions based on balancing the country risk against the prospectivity and likelihood of success.  Others establish a threshold risk limit beyond which investment destinations are excluded from consideration.

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