Mining News

How to Not Conduct Mining Policy

Posted by Cheryl Rutledge on 11/14/2014 12:28:03 PM

By Taylor Jackson and Kenneth P. Green

The Kyrgyz Republic could well serve as the poster child for disastrous mining policy. The former Soviet satellite recently made a move to seize rare earth projects held by Canadian firm Stans Energy. Stans interim president and CEO, Rodney Irwin, assessed the situation with a recent statement:

“The lack of due process by the Kyrgyz Government is poisoning the business environment in Kyrgyzstan…Furthermore this irresponsible action by the Kyrgyz Government only opens the door for future litigation and increased liability for the Kyrgyz Republic. The Company’s main focus now is to secure the US$118 million arbitration award in Canadian courts and to diversify its operations to more business friendly jurisdictions”

The Kyrgyz Republic is sending the signal to potential investors to keep their money out of the country and such a move is surprising considering how dependent the Republic is on mining for its economic health. Mining related activity contributes 26 percent of tax revenues, about 10 percent of GDP and 50 percent of total export earnings.

While the World Bank reports that reform oriented governments have sought to restore the economic and investment situation after political turmoil in 2010, this appears to have not translated into improved performance regarding the investment climate for mining.  In the 2013 edition of the Fraser Institute Annual Survey of Mining Companies, the Kyrgyz Republic ranked as the least attractive jurisdiction in the world for mining investment on the Policy Perception Index, which scores jurisdictions on policy dimensions including the legal system, barriers to trade, availability of labour, etc. Notably, the Kyrgyz Republic ranked as the worst performing jurisdiction on policy factors including uncertainty concerning existing regulations, legal system, socioeconomic agreements and political stability.

In 2011, Stans purchased the Kashka Rare Earth Processing Plant, which was the only plant outside of China to produce all rare earth elements. Given the increasing demand for rare earth metals, there is a significant economic opportunity for the Kyrgyz Republic to be processing rare earths for the global market. However, policy moves as detailed above can only hamper the country’s attempts to reap the benefits of a well-developed mining sector.

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