Canada: Global Mining Deals 2010: The Rise of Frontier Markets – Five Risks

Last Updated: March 21 2011
Article by Robert Johnson and Divya Reddy

The expectation of sustained commodity demand has increased investor interest in mining projects in frontier markets. Frontier markets are generally characterized as being less politically stable places that have a relatively recent history of steady mining activity and therefore provide a more uncertain operating environment for mining companies, particularly when compared to more mature emerging markets with longer track records of inbound investments in the mining sector. As such, these countries have a unique set of political risks associated with their mining sectors that companies involved in the space should be aware of. We have profiled five such risks.

  1. Security: Often, the lack of mining sector development in a frontier market is due to poor security conditions that threaten the physical safety of mining staff or disrupt mining operations. The security uncertainties in turn often stem from internal conflicts and/or from social and environmental stresses (discussed further below). For example, in Niger, one of the world's poorest countries, the marginalization of nomadic Tuaregs, whose home areas coincide with many uranium-rich regions of the country, has been the catalyst for a low-level insurgency in which uranium mining infrastructure and staff are sometimes targeted. Local security threats in Tanzania have also been a major problem for gold mining operations in the northern Mara region. In particular, uprisings by local villagers against mining operations have led to clashes with government-backed security forces, leaving miners open to attack for alleged complicity in heavy-handed security responses. Elsewhere, in Papua New Guinea, security personnel at mines have been accused of violent attacks against local populations, adding fuel to existing local backlash against mining companies.
  2. Social/environmental stresses: While resource nationalism generally originates from central governments, local opposition over social and environmental concerns to mining projects can also pose significant challenges for companies in frontier markets. For instance, the most prominent risk to mining investment in Guatemala stems from local community, religious, and environmental groups, which have attempted to impede projects. Recently, in June 2010, in response to community opposition to operations at the Marlin gold mine over environmental and human rights issues, President Alvaro Colom announced the suspension of Goldcorp's license. Local landowner disputes and environmental challenges are also prevalent in PNG, such as in the case of Lihir Gold's Lihir mine, which has repeatedly faced landowner compensation disputes and repudiation of contracts, occasionally leading to temporary closures. Similarly, the Porgera gold mine, now operated by Barrick Gold, has faced numerous disruptions caused by landowner disputes and complaints about an alleged lack of compensation for environmental damage.
  3. Corruption and lack of transparency: Corruption is an "informal" mode of government intervention, but one that mining companies must deal with in all but a handful of markets. One market that has ranked consistently near the top of corruption indices is the minerals-rich Philippines. Local business groups in the Philippines have been pushing into the mining sector since the industry's decline in the 1990s. The groups have considerable connections with national and local politicians, as well as with the judiciary, bureaucracy, and media. For now, considering that they lack technical and market expertise, these groups will largely accommodate foreign partners, but some of them may eventually use their networks and access to build nationalist sentiments or turn regulatory decisions to their favor.
  4. Resource nationalism: Resource nationalism involves policy measures designed to shift revenue and/or control of key natural resources assets from international or private hands to domestic, often state-controlled, interests. The Democratic Republic of Congo is a prime case of resource nationalism linked to the recent global copper boom, with the focal point being the government's review of all 60 post-civil war contracts between parastatal mining company Gecamines and foreign mining firms. While almost all mining contracts have been successfully renegotiated following the mining review instituted in 2007, uncertainty persists in the industry, particularly surrounding resolution to the outstanding contract dispute with First Quantum, which is the largest of the contracts that underwent a review.
  5. Government instability: Frontier markets also tend to be more vulnerable to general government instability, particularly around elections. For example, ahead of a 7 November 2010 presidential run-off vote, mounting tensions and violent clashes in Guinea cast a large shadow over the future of mining operations in the country. Although the threat of instability and regime change has sharply declined since the Guinean Supreme Court confirmed the victory of Alpha Condé of the Guinean People's Rally party in December, reform of Guinea's mining sector depends in part on Condé's ability to secure a smooth political transition from military to civilian rule, which is far from assured.

    In Kyrgyzstan, although the parliament's approval of Almazbek Atambayev as prime minister in December 2010, followed by the establishment of a cabinet, were positive steps toward restoring political order in the country, the majority coalition in parliament is likely to be unstable over time, given the divergent political views of its member parties. It also remains unclear how politicians in the government and parliament will treat foreign investors, and some politicians have voiced support for nationalizing critical industries like mining. Moreover, negative sentiment against ousted president Kurmanbek Bakiyev will remain a potential source of trouble for investors who were considered too close to the previous regime.

Managing frontier market political risk from a deals perspective

There is no easy path for managing these kinds of political risks but three key measures can help mitigate potential downsides. First, companies contemplating M&A in frontier markets should fully explore and leverage government and private political risk insurance options. Second, companies should ensure that both local partner selection and community/social relations programs are used to build a "shield" of local stakeholders, including suppliers, joint venture partners, local employees and regional/ municipal governments, and NGOs to support the project. Finally, companies should ensure that risk assessments are undertaken at the board and senior management levels before entering a new market and on a regular basis from a monitoring perspective. Maintaining awareness among senior corporate decision-makers of local political dynamics will increase the likelihood of a timely and effective response should problems emerge.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.