Tuesday, January 31, 2012

Jim Sinclair on the Value of Mining Companies in the Event of Gov't Nationalization

As the CEO of gold miner Tanzanian Royalty Exploration Corporation, Jim Sinclair has provided some very interesting information regarding the value of a mining company to investors in the event of government nationalization.  While the ability to pay obviously hinges on the counter-party, Sinclair states that the value of a mining company in a nation that has confiscated its mines is far from zero due to insurance contracts purchased from the World Bank against the event of nationalization at the time of loan origination prior to developing the mine. 
Personally, we'll take our Phyzz in hand rather than an insurance contract from the World Bank.

Thank you for all your effort and work. It is appreciated by many as these times prove to be very interesting indeed.
If gold mines become nationalized am I correct in my assumption that the shares would essentially become worthless (obviously depending on the specific mine in question)? Would it not be irrelevant whether or not one owns them in paper certificate or other?
Thanks for your consideration to my question,

Dear Jeff,
Most all companies which would include us buy insurance against being nationalized offered by the World Bank and other quasi governmental entities at the point of the project development loan. The title to nationalized properties, if nationalized, are turned over to the insurance company by the operator that guarantees the property values and/or earnings cash flow. If nationalization ends, the property is returned by the insuring entity to the producer. There are varying forms of agreement of reimbursement by the producer to the insurance entity when the problems end and title reverts to the company. The shares of the company are far from worthless if nationalized.
No nationalized property in the history of man has ever made a profit or produced effectively. Chaves obviously never checked the economic history of nationalization.
You cure this problem by giving a proper share of the operation to the real owners of the mineral – your host country.
You invite nationalization by the practice of colonialism in mining, as all majors do.

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