Recommended Reading: “Gold Mine Gangs Tote AK-47s to Outgun South African Police” – Bloomberg.com

Makes me wonder how hard it might be for miners when a global economic downturn hits. Physical gold/silver held in private is of course the “safest haven”. Question is how much investors should think about owning shares of mining companies in jurisdictions that would still see a functional rule of law when hard times comes around. The potential threat of theft etc would of course be most relevant to actual producers since it’s hard to steal the deposit of an explorer if it’s still buried say 300m underground. With that said, it will most likely affect valuations since the value of an un-mined deposit rests of the notion that it can and will be profitably mined in the future.

Personally I am looking more and more favorably on jurisdictions such as Canada, Australia, parts of Mexico and Japan as of late. Scandinavia should be good as well even though Sweden is seeing higher crime rates unfortunately. The US is probably a good bet as well even though a potential demise of the US dollar would probably impact the US in more ways than a country with a local currency would be. This is of course just broadly speaking and there are other relatively good jurisdictions.

When shit hits the fan, which probably coincides with a higher value for gold/silver,  I don’t want to see one of my holdings get robbed, destroyed, blockaded or nationalized. Simple as that. When something is peak valuable, there will be a peak in external risks. Even in Sweden we saw churches etc get stripped of their copper a few years back when the copper price was a lot higher. Even though it was just small scale theft, it shows that theft and crime driven by greed will escalate when the stakes are higher.

Different Risks:

  • Nationalization
  • Robbery
  • Community (blockades etc)

There are no guarantees that any of these risks will materialize even in a “bad neighborhood” but the risks would likely increase the more valuable gold becomes and the poorer a jurisdiction becomes, simply because how humans work when incentives increase.

Below is an interview with Thomas Kaplan, done by Real Vision, where Kaplan describes how much he focuses on jurisdictional risk nowadays:

2 thoughts on “Jurisdictional Risk

  1. Ken Bolin says:

    Hi Erik!

    Is it correct that you are going to visit TSG? If so, how do you feel about Brasil as a jurisdiction?

    Thank you for all your good work!
    Best,
    Ken

    1. admin says:

      Hi Ken,

      That is indeed the plan. Well, I’m no expert on jurisdictions but it looks to be that the _current_ government is quite business friendly. The president strikes me as kind of a Brazilian Donald Trump if you know what I mean. With that said, I would not be comfortable to have an over-sized position in a Brazilian play, even though TSG looks to have a hefty discount already. I mean, am I comfortable holding TSG since I feel like I get paid to take on whatever jurisdictional risks there are in place in Brazil, yes. Would I have it as a 20%+ holding (like my core positions)? No. With Royal Gold giving thumbs up, it does look like they see TSG’s high quality project as having a good shot of actually becoming a mine though. Just my 2 cents and TSG is a sponsor so DYODD.

      Best regards,
      Erik

Leave a Reply

Your email address will not be published. Required fields are marked *

Name *
Email *
Website

If you want to show appreciation