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They Killed The Golden Goose

By Charles Kubach, Mine-Engineer.Com
January 14, 2013

It never seems to fail, that when a country rich in natural resources and low in capital, entices foreign companies to invest in exploring and developing some of their resources, investing billions of dollars in the country and the resource of interest, that the host nation gets greedy. The lines from the movie Wall Street, "Greed is Good", becomes their driving force. But everyone knows Hollywood is fantasy, and in reality, only some greed is good. Excessive greed is always destructive, and this is reality.

This has occurred in South America, notably Peru, Chile, Venezuela, and Ecuador, where foreign investment transformed their economies into a capital driven machine, providing good jobs to their citizens and a healthy stream of income to the state. Improved standards of living for the citizens were evident in mining areas as well as capital cities. Then Greed is Good takes over, and the government begins to squeeze the capital providers more and more, decreasing their profits and increasing their costs, all the while providing no positive benefits whatsoever. Eventually mining companies will abandon these areas, leaving them to their own demise at the hands of those that can not produce product for a profit in such a system, and they will slide backwards, down the economic spiral.

Now Mongolia, who only recently has experienced a influx of foreign capital to develop resources in their country, is going back on their word and original contracts with the companies, to put forth a new slate of legal requirements, which will stifle investment, if not drive it out all together. The government of Mongolia announced that they had written "new mining laws" which will provide a unspecified ownership percent to the state and unspecified fees and production to be maintained, regardless of free market conditions. This is absurd in reality, it is even absurd in fantasy, as it will only bankrupt any organization that follows such foolish regulations. Only a Communist government could conceive of such a plan, which is similar to the Obama administration views of private enterprise, and explains a bit of the US domestic economic problems, and why no sensible business has any faith in the Obama administration presenting a fair and level playing field in which they can operate profitably.

If Mongolia implements these new rules as they currently exist, they will kill the Golden Goose, as only a fool would venture into a hopeless situation such as this. No government can be trusted when they go back on their official word and no company wants a government as a partner that is so untrustworthy and hostile.

North Korea, a land of immense natural resources, could benefit greatly from Mongolia's folly, if they are smart enough to recognize opportunity and take advantage of it, by setting up a system where capital investment by foreign companies could be made, a sensible economic and regulatory platform constructed where the business could be reasonably conducted and the company make profit they are entitled to. After all, the foreign companies are risking their capital, betting on favorable economic climates, and the ability to ride out the ups and downs of business cycles. Companies need to make profit, that is why they operate, and how they grow and sustain their business in bad times. Without adequate profits, they will not have any incentive to invest and will not survive in the long run, and they know this, as it is simply economic reality.

So, while one country is apparently bent upon killing the goose, perhaps another will realize it is to their benefit to nourish the goose. We shall see.

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