Mining companies operating in developing countries face constant political risk of new leaders promising to deliver a larger share of the mineral wealth, writes Amsterdam & Partners LLP Senior Associate Simon Wolfe in a new opinion article published in the South African newspaper BusinessDay.
Whether or not they are legally able to take these steps, these promises to seize more tax revenue (or even seize the mines themselves) represents a recurring challenge to operators and investors. In such an environment, Wolfe writes, we need to update the way we think about risks and especially how we anticipate, respond, and defend an asset when it becomes a target of politics.
Whereas back in 2003, international financial institutions came up with the individual risk profile known as a Politically Exposed Persons (PEPs), we are now living in an age where we need to focus on Politically Exposed Assets (PEAs). These investments can become the target of politics, and thereby be subjected to a radical loss of value, when in fact the owners or investors are completely clean in terms of their political exposure. Wolfe’s article discusses what remedies are available to defend against these attacks, and proposes a rethink of how we assess and respond to risk in these markets.