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Because I lived in Africa and now live in Latin America I no longer ought to be surprised at certain irrational decisions made by movers and shakers in the less developed world. It’s also beyond my limited ability to comprehend every now and then what the local hoi polloi in the less developed world goes on a rampage for. Since getting interested in investing in junior mining companies I’ve stumbled across two more examples of rather bizarre actions and attitudes in the less developed world. The first example is currently unfolding in northern Peru. Yanacocha deserves to be called one of the world’s biggest and most profitable gold mines. It’s located in northern Peru, about an hour north of Cajamarca. Even though mining contributes to twenty nine percent of Peru’s tax revenues, opposition to mining in that region is increasing. To quote The Economist:”....Peru cannot afford to do without mining”. The second example unfolded in Eritrea last year. Nevsun Resources was exploring very promising deposits in Eritrea. All of a sudden the Minister for Energy and Mines gave the order to stop all exploration and mining operations. Even though Nevsun Resources could eventually return to work, it illustrates that doing business in the less developed world entails a little risk.

Yanacocha gold mine

By the way, yours truly doesn’t have a box at home. I’ve more interesting things to do than wasting time passively in front of the box. But that’s not the point in this context. The point is rather: Are all these do gooders right? Is it a bright idea indeed to write off or cut debt of poor countries?

Debt Relief

Let’s start with an ethical argument. Do you reckon that it’s ethical to cancel the debt of some countries while other countries have made a serious effort to pay their debt? Moreover, there are a few countries that are vigorously opposed to the idea of cutting or writing off their debt. Laos may serve as an illustration. Why are those countries opposed to the idea? Brian Hammond of the OECD points out that cutting or writing off debt repayment affects the country’s credit rating. The country may also have to pay higher interest rates on future loans.

Let’s not forget the issue of governance. Debt relief doesn’t necessarily help a country develop its economy and infrastructure. Unless the incompetent or corrupt movers and shakers there are removed from power, debt relief will only save their butts and keep them in office. Michael Edwards, who was with the Ford Foundation and the World Bank, puts it in a nutshell:”Africa’s crises is really one of governance”.

Sometime last year yours truly made the suggestion to write off all debts of less developed countries on the condition that they’ll never ever receive any loan or foreign aid whatsoever. That approach entails the advantage that debt relief doesn’t backfire on these countries in terms of credit rating and interest rates on future loans. 

However, since then I’ve come across an idea which I’m even more favourably inclined to. The idea comes from Robert Wheelen. Robert is with the Institute for Economic Affairs. Robert’s idea boils down to privatising all heavily indebted countries in the less developed world. He wants multinational corporations to run them on a twenty-one year lease. I’m tempted to add one point to round Robert’s idea up. After the expiry of the lease we’ll arrange a management buyout or spin off. The countries can then be run entrepreneurially. In case the idea prevails I’ve already a country/company in mind in which to place some private equity.
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Gordon Brown

Even if the debt of developing nations were going to be written off or cut, it remains to be seen how the debt relief may be financed. The British chancellor of the exchequer, Gordon Brown, recently suggested to use a revaluation of the International Monetary Fund’s (IMF) gold reserves. Some of these gold reserves may then be sold to finance the debt relief. In case Gordon’s idea sounds a little abstract, it might work – a little simplified - more or less like this: The IMF is said to currently own about one hundred million ounces of gold. They’re valued at about forty US$ an ounce. Assuming that these gold reserves are going to be revalued at two hundred and forty US$ an ounce that little revaluation would immediately “generate” twenty billion US$. These “generated” funds could then be used to finance the debt that countries in the less developed world owe to the IMF. In a nutshell, all this sounds to me like an accounting trick, not like a serious discussion of debt relief. I’ve arrived at a few conclusions on debt relief. In my humble opinion, if this sort of thing is going to be carried out make sure that the debtors will never ever again receive any loan or foreign aid whatsoever. The alternative is to privatise all heavily indebted nations in the less developed world to sort out the underlying problem, which is bad government. Finally, Bono and U2 may be hopefully inclined to give a concert in Laos.

Since getting out of business and law and into college teaching I enjoy having time to suss out in detail stuff that manages to attract my interest. The stuff ranges from debt relief to investing in junior mining companies as well as emerging markets. The time appears to be right to consider investing in carefully selected junior mining companies. What are the reasons that make me come to that conclusion?

The global mining industry has gone through some serious mergers and acquisitions. Mining companies are more inclined to significant mineral deposits. Significant mineral deposits generate mineral for loads of years. They demand significant capital, however, to develop the deposits. The need for this sort of significant capital has resulted in large mining companies, outfits like Rio Tinto for example.

As a result of this mergers and acquisitions process, the newly created outfits slashed their exploration expenditure. Geologists left the major sector and joined the junior mining sector. Moreover, heaps of juniors have managed to attract high calibre management with geological expertise. That expertise together with financing is what leads to promising investment opportunities. To quote Simon Ridgway, president and director of Radius Gold:”With exploration plays, it’s usually management. With early stage development companies, if the management is good it controls the funds’ use, and good things can happen”.

A second reason to be mentioned is that demand for commodities has tremendously increased all over the world, in particular in Asia. Because commodities suffered from a bear market for quite a while, there haven’t been a bunch of new significant mineral discoveries during the past decade. The major mining sector is making an effort now to get its hands on new resources. 

As Ross Beaty, Executive Chairman of Pan American Silver puts it:”....we are probably half way through a bull market, but I believe this particular cycle will be longer and stronger than at least the last two cycles. That’s because of the profound economic transformation sweeping through Asia....notably China and India”. In a nutshell, even though the junior mining sector does involve a great deal of risk, it does offer opportunities to make a little money.

A Day In Colima

You may be wondering how come I have the time to suss out issues like debt relief and exotic investments like junior mining stocks. Quite simple. My new life in college teaching gives me a bunch more freedom and flexibility than my previous life in business and law. A typical day for me in Colima looks more or less like this:

At about 8.00 am I manage to get my butt out of bed. It then takes me about an hour to have a shave and a shower as well as getting dressed. When I look more or less presentable it’s time to stagger to one of my favourite restaurants for brunch. Afterwards I check my Email on campus and scan a few newspapers. During that time yours truly also prints some material out and prepares his classes. After all this, it’s time to stagger home to spend a few hours on my roof terrace. In the afternoon I return to the campus. The purpose of the exercis is to spread my wisdom in the classroom and create some entertainment there at the same time. This reflects quite accurately my daily rhythm from Monday to Thursday. After going through this sort of stressful week, I go into my well deserved three day weekend. 

Most of the sussing out is thus done on my roof terrace. You’ll continue to hear about it. 

The following is a list of articles written by Jurgen for the magazine:

Some Thoughts On Living In Latin America ~ Enjoying A Latin Lifestyle
Working Around The Globe ~ Tips On How To Find Work Around The Globe
Living And Teaching In Colima, Mexico ~ A Place To Rest
Thoughts On South Africa And New Zealand ~ Hitchhiking And Economics
Some Thoughts On Literature And An International Lifestyle ~ Reading And Living
Some Thoughts On Africa And Latin America ~ Speaking From Experience
A Journey To Various Places In Mexico - Places To See
Memories Of Africa ~ Namibia, Botswana and Zimbabwe
A Long Way From Munster To Colima - Travel And The Self
Some Thoughts On Capitalism And Investing - In 2004
Canada From Various Perspectives ~ Montreal, Vancover And More
A Critical Look At South Africa - Politics And Economics
Emerging Markets and Economic Geography - Economic Growth Around The World
A Meaningful Life Or A Turkey On The Ground - Favorite Places To Live
Some Thoughts On Living In The Less Developed World ~ Emerging Markets
Places To Do Business In Europe - Where To Invest In Europe

To contact Jurgen Click Here
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