The Competitive Position of Countries Seeking Exploration and Development Investment
James M. Otto, 2005. "The Competitive Position of Countries Seeking Exploration and Development Investment", Wealth Creation in the Minerals Industry: Integrating Science, Business, and Education, Michael D. Doggett, John R. Parry
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Companies have many countries from which to select when deciding where to spend their limited exploration and development budgets. The evolutionary trends in the investment environment tend to be different for developed, developing, and transitional economies. In developed economies there are issues such as access to land, security of tenure, the not-in-my-backyard syndrome, native title, and permitting delays. In developing nations, the main trend has been to reduce barriers to investment by reforming the regulatory and fiscal systems. Likewise, transition economies have also initiated reform efforts, but these often proceed in a number of steps as socialist ways of approaching the sector are progressively relinquished, typically in several phases of reform. This study identifies over 60 factors that may influence a company’s investment decision to invest in one country versus another. There are numerous criteria that can influence the decision process and these can be used to rank countries. The investment criteria can be divided into nine principal categories: geologic, political, regulatory, marketing, fiscal, monetary, environmental and social, operational and profit criteria, and when applied in a systematic way, can yield a profile of both geologic prospectivity and country risk. Strategies used by governments to attract investment include means by which perceptions concerning geologic prospectivity can be enhanced, as in the provision of information regarding the geologic environment and availability of open ground, regulatory system improvements, and direct marketing. This study concludes that nations can improve the likelihood of mineral sector investment by taking steps to satisfy investor decision criteria through informed policies and laws. Over the past two decades more than 110 nations have revised their mining and related laws or made major amendments to them. The result has been a lowering of many regulatory and fiscal risks; however, many risks remain that are beyond the control of government.
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Global political and economic developments shape both the demand for minerals and primary metals and their supply. Overall, demand has moved broadly in step with economic activity over the past 30 years. Notwithstanding the collapse of the Soviet Union and Eastern Bloc countries, demand grew more rapidly in the second half of the period than the first. The performance of individual products within this general trend largely reflects the specific nature of their main end uses. The geographic center of demand has shifted away from the mature industrial economies of North America, Western Europe, and Japan toward the newly industrializing countries of the Pacific Rim, China, and India. Mine production rose with demand, but not always in precise step. New capacity was required not just to meet demand, even where that was static, but also to offset the continuing effects of ore depletion. There were also changes in the location of production in response to geopolitical forces, the depletion of ore reserves, and the changing economics of extraction and processing. The number of mines contracted, especially during the 1990s, and the scale of mining operations was increased in order to achieve the requisite cost savings. Prices fluctuated in response to changing balances between supply and demand, trending downward from the early 1970s until the early 2000s. Most products witnessed at least one sharp price spike during the period, usually with continuing repercussions. Prices picked up from 2003, but generally not back to their earlier peak in real terms. Profitability varied according to the products concerned. In many years the average rates of return on capital employed have been insufficient to cover the risks involved.