Page 31 - Introduction to Mineral Exploration

14 C.J. MOON & A.M. EVANS

These new requirements have now led to a on political risk in mining is the Fraser Insti-
time gap, often of several years in developed tute in Vancouver (Fraser Institute 2003). It
countries, between the moment when a newly publishes an annual review of the investment
found deposit is proved to be economically attractiveness of many countries and regions
viable, and the time when the complex regulat- based on a poll of mining company executives.
ory environment has been dealt with and gov- The attractiveness is a combination of mineral
ernmental approval for development obtained. potential and policy potential. Some countries,
During this time gap, and until production for example Chile, rank at the top of both
occurs, no return is being made on the sub- indices, whereas others, such as Russia, have a
stantial capital invested during the exploration very high mineral potential index but a very
phase (see section 11.2). low policy potential index.

1.5.3 Taxation
1.6 RATIONALE OF MINERAL EXPLORATION
Overzealous governments may demand so
much tax that mining companies cannot make
a reasonable profit. On the other hand, some 1.6.1 Introduction
governments have encouraged mineral devel- Most people in the West are environmental-
opment with taxation incentives such as a ists at heart whether engaged in the mineral
waiver on tax during the early years of a mining extraction industry or some other employ-
operation. This proved to be a great attraction ment. Unfortunately many are of the “nimby”
to mining companies in the Irish Republic in (not in my backyard) variety. These and many
the 1960s and brought considerable economic other people fail to realize, or will not face up
gains to that country. to the fact, that it is Society that creates
Once an orebody is being exploited it has the demand for minerals. The mining and
become a wasting asset and one day there will quarrying companies are simply responding to
be no ore, no mine, and no further cash flow. Society’s desire and demand for houses, wash-
The mine, as a company, will be wound up and ing machines, cars with roads on which to
its shares will have no value. In other words, all drive them, and so on.
mines have a limited life and for this reason Two stark facts that the majority of ordinary
should not be taxed in the same manner as people and too few politicians understand are
other commercial undertakings. When this is first that orebodies are wasting assets (section
taken into account in the taxation structure of 1.5.3) and second that they are not evenly dis-
a country, it can be seen to be an important tributed throughout the Earth’s crust. It is the
incentive to investment in mineral exploration depleting nature of their orebodies that plays
and mining in that country. a large part in leading mining companies into
the field of exploration, although it must be
pointed out that exploration per se is not the
1.5.4 Political factors
only way to extend the life of a mining com-
Political risk is a major consideration in the pany. New orebodies, or a share in them, can
selection of a country in which to explore. In be acquired by financial arrangements with
the 1970s and 1980s the major fear was nation- those who own them, or by making successful
alization with perhaps inadequate or even no takeover bids. Many junior exploration com-
compensation. Possible political turmoil, civil panies are set up with the idea of allowing
strife, and currency controls may all combine others to buy into their finds (farming out is the
to increase greatly the financial risks of invest- commercial term). The major mining com-
ing in certain countries. In the 1990s and 2000s panies also sell orebodies that they consider too
perhaps more significant risks were long delays small for them to operate.
or lack of environmental permits to operate, The chances of success in exploration are
corruption, and arbitrary changes in taxation. tiny. Only generalizations can be made but the
One of the most useful sources of information available statistics suggest that a success rating