Handling Political Risk

Before exploration programmes or minerals developments are formulated, a mining company ought to assess how capital can be returned if the project is successful. A fact not well appreciated by the minerals community is that it is often difficult to get money out of many Pacific Rim countries due to special foreign exchange controls or restrictions on dividend or capital repatriation. On top of this risk are factors such as creeping expropriation through administrative, fiscal, or corruption pressures; environmental regulations; terrorists; and organised labour and political activists. Political risk is much more than just expropriation or nationalisation.Political risk factors can make or break a project in many PacRim countries and just the cost of delays and negotiations can insidiously affect project economics. This unpalatable thought, however, can be readily addressed by either legal structuring e.g. offshore proceeds accounts, offset/back-to-back currency hedges, or political risk insurance for the equity as well as any subsequent project development debt.