Source: Mining.com

Last year, according to an Ernst & Young survey of the world's 30 largest miners, resource nationalism jumped to the top of the risk list, after 25 countries announced their intentions to increase their take of the mining industry's profits and other contemplate outright nationalization. As frontier nations such as Mongolia become investment magnets, investors will have to decide which ones they can put their faith in.

From 2001 to 2010, global mined gold production grew from 2,646 tons to just 2,696 tons. While this meager pace partly reflects the side effects of underinvestment in exploration during the low gold price cycle of the 1990s, it also reflects the longer lead time associated with the frontier market that are now essential to growing global supply. In fact, three of the world's ten largest gold mines are located in frontier markets: Uzbekistan, Papua New Guinea, and Mongolia. Research house Maplecroft in its 2012 political risk atlas released yesterday identifies The Democratic Republic of Congo, South Sudan, Myanmar, Turkmenistan, Iran, Guinea, Zimbabwe Venezuela, Iraq, Bolivia, Russia, Kazakhstan, Angola, Nigeria, and Libya as resource nationalism hot spots.

In October Ivanhoe Mines Ltd. and Rio Tinto PLC dodged a bullet when the Mongolian government said it was rethinking a 2009 deal that gave miners a 66 percent stake in Oyu Tolgoi and that it wanted half of the USD 6 billion gold and copper project. Ivanhoe shares plunged on the news, but the firm took a tough stance and after some desperate negotiations Mongolia backed off. Oyu Tolgoi is now 70 percent built and Rio is poised to take full control of the project.

Eurasia Group says when mining projects such as Oyou Tolgoi, Conga in Peru, and Tasiast in Mauritania, which have tremendous impact on economic activity in their host countries, gains “VIP status” in the eyes of the government it can also create additional risk as “taxes, royalties, and local purchasing becomes a driver for political conflict. Weak rule of law will exacerbate such risks, as will a propensity on the part of host governments to partner with Chinese and other state capitalist partners under opaque terms.