Probabilistic approach to project-specific political risk analysis for mineral projects

As globalization continues, sustainability and social responsibility has become essential in foreign mining investment. However this global trend and the increasing acceptability toward the globalization process, viability and sustainability are not always achieved. Viability and sustainability of mineral projects is dependant on the social and political environment of the region where the mining venture is located and is based on the interaction between the mining entrepreneurs, national-local government representatives, communities, grass-roots groups and independent civil organizations. These are the organizations, which play the acting roles on the viability of mining projects and are the main source of socio-political risks for the project. Throughout the decision-making process to invest in a mineral project, socio-political risks are quantified using a set of measurable variables. Nevertheless, these risk measures should be dependent on specific industries. Two mineral projects, even in the same mining district, may have significantly different political risk profiles based on their own socio-political variables. This paper describes a methodology that takes into account local social and political variables in defining a project-specific's political risk profile. This contrasts with more typical political risk measures that focus on the country's overall risk profile. Mining operations must operate on a local scale necessitating the development measure that considers more local variables.