Resource nationalism surge could spell tough times for mining sector: Verisk Maplecroft

London — Resource nationalism -- government assertion of control over a country's natural resources -- saw an increase in 34 countries worldwide in 2020, with the mining sector likely to experience rougher times ahead due to the economic impacts of COVID-19, analysts at Verisk Maplecroft said in a report March 4.

With 18 states identified as mineral and hydrocarbon dependent countries, the consultancy said the threat of resource nationalism is likely to increase further over the next two years as the economic impact of the pandemic is likely to aggravate a rising tendency for government interventionism among mineral-rich states, as governments try to claw back financial losses incurred through the pandemic.

The mining sectors of Africa and Latin America are expected to bear the brunt of new measures, Verisk Maplecroft said, with state interventionism, expropriation and indigenization emerging as the key mechanisms.

The consultancy said some of the world's top copper producers are among the list of countries with the highest risks of resource nationalism.

In February, copper moved past the $9,000/mt mark for the first time since September 2011 on the back of supply fears and optimistic sentiment around global economic recovery from the pandemic, with some industry analysts reinforcing the theme of a fresh supercycle in base metals prices.

Looking at the Democratic Republic of Congo, Verisk Maplecroft said that "despite eagerness to contain resource nationalist rhetoric around mining, new PM Lukonde Kyenge's ability to influence policy will be limited." Copper contributes 33.7% of the DRC's total gross exports.

Turning to Zambia, where copper contributes 64.9% of the country's total gross exports, the consultancy said Zambia "made it into the top riskiest countries in our index, following the attempted liquidation of Konkola Copper Mines."

In February, a Zambian court dismissed a motion by Indian mining company Vedanta Resources looking to halt a state-appointed provisional liquidator from splitting up its Konkola Copper Mines subsidiary and selling the company's assets.

In November, Zambia become the first African country to default on its debts since the pandemic after it failed to repay a $42.5 million Eurobond coupon.

Governments willing to intervene in economies

Verisk Maplecroft's Head of Americas Research Jimena Blanco said: "The countries to watch closest are the mining jurisdictions characterised by both a painful COVID-related economic contraction and a rise in these less explicit forms of resource nationalism."

"These governments are becoming more willing to intervene in the economy, use indirect expropriation, or demand increases in local content requirements -- opening the door to a more sophisticated resource nationalism path," Blanco said.

Countries experiencing some of the most noticeable increases in risk in the more subtle forms of resource nationalism "are where the threat for miners will intensify most in the post-pandemic drive to plug fiscal gaps," Verisk said.

The consultancy said that in Latin America the push towards resource nationalism generally hinges on two factors.

"In Mexico and Argentina, for instance, ideology is the main driving force, while in Colombia and Chile pressure comes from communities -- both those hosting mining projects and civil society more generally," Verisk said.

In Africa, motivations are much more diverse, the consultancy said.

"For example, the interventionism seen in Liberia and Mauritania is driven by structural governance shortcomings, not nationalist sentiment," it said. "In Mali, the political concerns of the transitional government are the issue, while in Guinea it is the need to maximise revenue from bauxite -- both countries are looking to review existing contracts."

2021 outlook

The consultancy said the trend for rising resource nationalism is likely to continue in 2021 irrespective of the pandemic, mainly in jurisdictions where interventionism delivers a political dividend.

"What is key for miners is to detect the signals early on, so they can adapt their investment strategies and exploration portfolios to mitigate future exposure to countries where resource nationalism trends are growing fastest," Verisk said.

"By doing so, they can also prioritise investment commitments in jurisdictions where the industry can be part of the solution, working with local stakeholders to find a balance between community needs and industry profitability to secure long-term social licence to operate."