Foreign Operations Risk

Two weeks ago a contributor to our Stock Research Portal Q&A Forums asked, with specific reference to a company operating in Cote d’Ivoire, “How would you estimate the value of Perseus’ Ivory Coast exploration project? The market seems oblivious to Perseus’ exposure there.”  I provided my own answer to that question today as follows:

A fundamental principal of value is that it is specific to the ‘point in time’ at which it is determined.  That is to say, all factors relevant to the valuation of a particular asset known or believed prospective at a particular point in time need to be brought to bear on that assets value at that particular point in time.  Since those relevant factual and perceived prospective factors change with each passing day, so too is value re-determined each day as new information is assimilated by the market.

That said, the recent political disruption in Cote d’Ivoire, which I think fairly can be presumed to be well known by market participants, ought to be priced into the market each day as new developments and related news comes available.  While there can be little doubt that political disruption in Cote d’Ivorie changes the near-term risk profile of any company with important operations there, the value of the shares of each such company is ‘the present value of all future expectations’ – a long term view, not a short term view.  For the market for Perseus shares not to be materially affected in recent weeks in a material way says to me that ‘market consensus’ at least in part is saying that it believes Cote d’Ivorie’s current political unrest will be resolved in a way that will not by itself be either terribly positive or terribly negative to Perseus’ future prospects.  Whether that current market consensus is right or not of course remains to be seen.

In the end, answering your question is a little bit like ‘pushing on a string’.  Each individual investor has an ‘individual risk tolerance’ and an ‘individual risk assessment mechanism’.  Market consensus sometimes is right, and sometimes it is wrong.  I think the best advice one can give you (which likely is far broader than you had hoped) is ‘think about your own individual risk tolerance for the Cote d’Ivoire situation, monitor it closely, and reach your own conclusion each day as things unfold there – remembering the mantra that if you are a shareholder in Perseus or any other company who operates in Cote d-Ivoire (or for that matter any other country) “every day you hold a stock and don’t sell it is a day you theoretically re-purchase it”.

I long have considered foreign operating risk a big deal in my own research and analysis of the mining exploration stocks. In the Valuation of Mining Companies E-learning book you can find under the E-learning tab of Stock Research Portal, I comment on this issue as follows (paraphrased):

The geographic location of the Company’s project(s) is of significant importance.  At both the exploration and producer levels mining companies are subject to the political and economic risks of the country(ies) in which they principally operate, and (are subject) to substantive government regulation. Understanding a company’s property(ies) and project(s) means understanding:

·        their physical location and comparative geo-political risk;

·        how the laws in the jurisdiction in which the company may influence both the company’s and shareholders’ rights;

·        that many mining explorers have one or a small number of geographically scattered projects. On one hand it can be argued the latter mitigates geographic risk through diversification. On the other hand it can make a company’s prospects more difficult to assess, and leads to questions related to whether company management is capable of maximizing opportunity as a result of time and effort dilution; and,

·        of particular importance, current and prospective government stability, political risks, and political attitudes with respect to labour and safety laws, the environment, mining, mine permitting, mine infrastructure, and income tax law and rates all bear on project risk. Hence all are things that require careful consideration by investors in their respective risk assessments.

In the next few weeks we plan to add significant country specific location and ‘country political and economic data’ to the ‘Company Overview Page’ of each company in Stock Research Portal’s Company Universe.  This is something we believe our Subscribers will find to be of great value going forward – both from the point of view of content, and importantly from the point of view of ‘stock research efficiency’ (read ‘depth of research capability’, and ‘time savings’).

Giffords Shooting

A USA Today article titled ‘Gabrielle Giffords shooting fuels debate over rhetoric’ written only hours after the Congressman and others were shot in Tucson, Arizona this past Saturday morning questions whether the hard and sometimes offensive rhetoric currently adopted by partisan American politicians is at least a partial cause for this type of occurrence – and whether U.S. politicians ought to ‘rein things in’, or risk a greater likelihood of further such events than might otherwise take place.

I think this misses what I consider to be the more important point.  I say that while U.S. political rhetoric may be ‘more than edgy’ at times, the fundamental issue is far more likely to be the reduced standard of living and economic concerns currently (and I think prospectively) faced by much of Main Street America.    If American politicians are at increased risk of having violence visited upon them as we go forward, from my perspective that will result not from partisan rhetoric, but rather from partisan behavior behind the scenes in circumstances where that behavior does not result in getting Main Street America ‘back to work’.  I have said in other e-mails that it is not ‘rocket science’ to understand that you can’t take things away from people and leave them happy.  If things in on U.S. Main Street don’t change, and change quickly, it seems to me unhappiness on Main Street inevitably will lead to some minor number of people in the U.S. populace adopting further ‘socially unacceptable’ behavior.  Simply put, you don’t want you or your loved ones to be ‘in the wrong place at the wrong time’ if and when such events occur. I also think other countries whose ‘Main Streets’ suffer the same ‘loss in standard of living’ consequences are, and will not be, immune to the same time of ‘minority activity’.

Notwithstanding we all have been inundated by media coverage of the Tucson tragedy, you can read the referenced article here if you want to do that – reading time 3 minutes.

Additions to Stock Research Portal’s Company Universe

Today we added the following Companies to our Company Universe:

Bowmore Exploration Ltd. (TSXV:BOW).  We currently categorize Bowmore Exploration Ltd. as a gold (and copper) explorer operating principally in Mexico (and Canada (Quebec)). Bowmore Exploration Ltd.’s current market capitalization is approximately Cdn$36 million.  Review research data on Bowmore Exploration Ltd.

Petroamerica Oil Corp. (TSXV:PTA).  We currently categorize Petroamerica Oil Corp. as an explorer & producer (‘E&P) that is focused on Oil operating principally in South America (Colombia). Petroamerica Oil Corp.’s current market capitalization is approximately Cdn$50 million.  Review research data on Petroamerica Oil Corp.

Polo Resources Limited (TSX:POL).  We currently categorize Polo Resources Limited as thermal coal explorer (also metallurgical coal and uranium) operating principally in Asia (Mongolia). Polo Resources Limited’ s current market capitalization is approximately Cdn$195 million.  Review research data on Polo Resources Limited.

Press Release Highlights

The following table summarizes the companies in Stock Research Portal’s Company Universe who last Friday issued Press Releases and whose shares increased in price from the previous day’s close by more than Cdn$0.05, more than 10%, and whose share volumes yesterday exceeded their trailing 3 month average trading volume.  You can research each of these companies by clicking on the company name in the table.

* Yesterday’s data, or latest trading day’s data, as applicable

Insider Trading Highlights

The following table summarizes the companies in Stock Research Portal’s Company Universe for who our system on Friday, January 7 reported insiders who filed reports indicating they had acquired shares through ‘purchase’ transactions.  You can research each of these companies by clicking on the company name in the table.

Possibly Related Posts:

• More On Greece!
• Christine Lagarde – Listen Between the Lines!
• World Leaders – Greek Emotion?
• Roubini at Davos!
• The Baltic Dry Index!

Read ‘Dines Interview, ‘O Canada?’‘, e-mailed today to StockResearchPortal.com Subscribers.  The e-mail discusses:

• an audio interview with James Dines (The Dines Letter) where he expresses his obviously strongly held views on the investment potential of Rare Earth Elements – and also expresses view with respect to Gold, Silver and Uranium;

• an article that promotes Canada as an ‘investing refuge’ for Americans and others – where the author seems to take a stronger position on this than we think is justified; and,

• the E-Mail  Archive data feature offered by StockResearchPortal.com that we think ought to be of interest to all Resource Equity Investors and Traders.

In part, the e-mail reads:

“Dines Interview

Here is a link to an audio interview with James Dines, writer of The Dines Letter.  He discusses Rare Earth Elements, Gold, Silver and Uranium.  I suggest you listen to the interview – about 10 minutes long – get past what I see as Dines’ unnecessary ‘attitude’, and think for yourself carefully about what he has to say.  For me, a lot of what he says makes ‘sense on the surface’.  I now plan, over the next few days and weeks, to myself research the 26 Rare Earth Elements companies (Molybdenum, Nobium, Tantalum, Vanadium and other Rare Earth Elements companies) currently included in the StockResearchPortal.com Company Universe, and 13 others that we soon will be adding to that ‘Company Universe’.  To date I have done absolutely no due diligence on any of the ‘Rare Earth Element’ companies, and frankly (given all the other things I am doing in respect of the development of StockResearchPortal.com) am going to spend time doing that based entirely on having listened to the Dines interview.  Trust me, I will then decide for myself – for better or worse – whether I think Dines views make sense.  That said, Dines has definitely aroused my curiosity.

O Canada?

An article yesterday titled ‘O Canada: Investing in the World’s Safest Economy‘ suggests – at least as I read it – that Canada currently is an ‘investing refuge’ for Americans and presumably others.  While obviously the answer to the question ‘in which country to invest?’ is a relative one, I think the views of the author of the referenced article to be far to broad.  Hence, I commented on his article as follows:

I am a Canadian who has spent my adult life providing business valuation consulting advice to many of Canada’s largest companies and wealthiest families – see www.cvpl.com. I find Mr. Hutchinson’s comments and conclusions very simplistic and not ones I personally embrace – at least not to nearly the degree he seems to.

In the past two years Canada’s banking system indeed has proved to be more stable than that of the U.S., and to some degree Canadians are ‘hewers of wood and carriers of water’ – that is, we have a critically important resources economic sector, and one that I believe will become more important in a world context going forward. However …..” – to continue reading click here

See Blog Legal Disclaimer

Possibly Related Posts:

• More On Greece!
• Christine Lagarde – Listen Between the Lines!
• World Leaders – Greek Emotion?
• Roubini at Davos!
• The Baltic Dry Index!

Read ‘BHP/Potash Corp, Economists, Gold ‘Risks’’ e-mailed today to StockResearchPortal.com Subscribers.

Visit StockResearchPortal.com for economic news, economic indicators, commodity charts, and stock
information and stock research covering diamond stocks, gold stocks, silver stocks, copper stocks, potash stocks, uranium stocks, and other resource stocks.

See Blog Legal Disclaimer

Possibly Related Posts:

• More On Greece!
• Christine Lagarde – Listen Between the Lines!
• World Leaders – Greek Emotion?
• Roubini at Davos!
• The Baltic Dry Index!

The following is the text of an e-mail I sent today to Subscribers of StockResearchPortal.com. StockResearchPortal.com is a research website that provides coverage on the approximate 1,600 Mining and Oil & Gas stocks listed on the Toronto and Toronto Venture Stock Exchanges.

*          *          *          *          *

I have frequently stated my belief that one risk element that must take center stage in any thoughtful investment research and analysis of a company are the politics, economics, and prospective economic well-being of the country(ies) in which that company principally operates. That is one important reason StockResearchPortal.com categorizes each mining and oil & gas company in its Company Universe by it business ‘type’ (e.g. explorer or producer) and the geography in which it principally operates. You can find these categorizations on the ‘Company Overview‘ page on each ‘Company Data Page‘ in our website, in the ‘Compare & Rank Companies‘ data component in our website, and in several other tables and data components in our website. You can also review the latest write-up on countries in which companies in our Company Universe principally operate by visiting ‘Economic Research‘ on our Main Nav, clicking on it, and then clicking on ‘Country Specific Economic and Political Commentary‘ found on top of the left Navigation Bar of the resultant webpage.

I recommend you read an article titled ‘One man’s defence of a national reputation‘ in its entirety by clicking here. The article discusses a Private Member’s bill currently before the Canadian Parliament that “aims to impose controls on powerful Canadian mining companies that operate overseas”. The Conservative Party, who currently operate under Canada’s Parliamentary System of Government as ‘minority government’ (the party with the largest number of Members of Parliament, but without a majority of those Members) are reported as having “vowed to kill the bill”, which apparently is going to be debated in a House of Commons Committee this week. The Bill is opposed by Canada’s Mining Industry which is reported in the article as:

· being comprised (in 2007) of 1,373 mining companies listed on the Toronto Stock Exchange (‘TSX’);

· having had (in 2007) 79 billion shares traded on the TSX collectively valued at Cdn$482 billion;

· representing 60% of all world mining companies;

· representing 43% of total world mining exploration; and,

· allegedly having violated human rights in 30 countries, in circumstances the companies say they have done nothing wrong and, where there are no Canadian laws that regulate mining companies abroad.

Canada’s International Trade Minister Stockwell Day is reported as saying there will be no legislative action because it would not work, the companies do not need it, and “one country doesn’t develop laws that apply in another country”.

The article also reports that while Canada’s Members of Parliament consider controls, foreign pension funds have signaled they won’t invest in Canadian mining companies unless they adopt firm corporate responsibility rules abroad.

My comments on all of this are:

· first, having spent my adult life as an objective expert witness in major corporate litigation matters I can tell you unequivocally that its is easy to allege wrong-doing, that there are two sides (or more) to every story, that in litigation plaintiffs (i.e. in this case the countries that are protesting) often act for opportunistic reasons that go beyond the claims they make, and allegations in lawsuits often ‘overreach’ and are ‘overstated’. Stated simply, while I recommend you click here and read the referenced article, I suggest you do not leap to the conclusion that Canadian mining companies who operate abroad are guilty of anything until a Court decides otherwise;

· second, that mining (or any other type of) companies operating abroad have documented ‘corporate responsibility rules’ makes good sense to me as part of a company’s overall Corporate Governance. While I don’t know how many companies operating in foreign jurisdictions have such ‘documented rules’, I expect many do – and that going forward any that don’t likely will create such documentation; and,

· three, I think the fact that the referenced Private Member’s Bill has been put forward should be seen by investors as nothing more but something that focuses them, not on the behavior of the Canadian mining companies in foreign jurisdictions, but on the question of how (if at all) the politics and economics of any particular jurisdiction influences the ‘risk profile’ of a company operating in that jurisdiction.

Research Gold Stocks

See Blog Legal Disclaimer

Possibly Related Posts:

• Three Types of Investors – and What About Traders?
• Dow Weekly Gains/Losses!
• What Value Do You Give To Your Time?
• Coming Derivatives Crisis?
• The Equity Markets and Value?