Canada's Bear Creek files suit in Peru over mine
Note: I am not a lawyer or a Peruvian, nor do I play either on TV.
Y'know, on the one hand, if the Santa Ana deposit can simply be taken away from BCM, then I would strongly suggest that all miners in Peru should be revalued at a much lower multiple. After all, it means that property rights can be usurped at a moment's notice... and a mine is nothing other than property.
So if I were doing valuation calcs based on a DCF NPV, for example, on Rio Alto's La Arena, I would replace the old 5% discount factor with a 10% - to include a 5%/year threat of government confiscation - and guess what, now your mine is only worth 68% of what it was (assuming a 20 year mine life). So RIO is only worth 68% of what it was, same for the rest of your mining industry, and say goodbye to FDI because the miracle of compound discounting makes your country yield 32% less profit, at a higher initial risk.
On the other hand, from what Otto says, it's the reality on the ground, tuff shit BCM, you lose, period. I guess the Aymara down there are a lot like the Mohawks up here.
Now, when the Mohawk Confederacy starts a big war up here and screws things up, like at Douglas Creek Estates, our government steps in, yes it confiscates the property at the centre of the problem, but then it provides monetary compensation to the developer for the confiscation. Canada's government can take your shit away too, but they're more or less required to give you money as compensation. Of course even in Canada the government doesn't volunteer free money to you, you have to go to court; but the law takes care of you once you get there.
It'll be interesting to see, re: this court case, if Peru also believes in compensation for loss of property. Maybe BCM can get Peru to hand over the capex for Corani as a settlement, since that's essentially what they took away from BCM. In fact, maybe BCM shareholders should also seek standing in this suit, since taking away Santa Ana without compensation would mean extreme share dilution is necessary to move Corani forward, which means economic injury to shareholders.
(Feel free to forward this post to BCM's officers, if you like that idea. I'm not concerned cos I didn't buy BCM until after it puked to $4.)
If BCM gets nothing whatsoever for losing Santa Ana, though, that means Peru essentially doesn't even have a legal system that recognizes property rights - at least not to the point of requiring compensation for loss of property. Hoo baby, now that will make their market tank.
So anyway, I haven't checked Otto's blog to see if he's posted anything, nor checked my email. (I saw silver and gold were up strongly this morning so I don't care so much about the particulars of the market.) I'll be happy to read his opinion, since obviously he lives right there. But I'm just interested, from a property rights angle, to see how this plays out. Because this affects things like the discount factor you use for a DCF calc, and I want to know if I should knock my RIO target down from $3.50 to $2.39.
And because DCF NPV calcs are the lifeblood of real analysts (while rogue Peruvian bloggers simply use cash flow multiples), I'm sure the real analysts out there will be watching this case's progress as well.
Note, btw - I understand that Humala didn't confiscate Santa Ana. Garcia did. Because Humala wasn't the prez. Garcia was. Humala has a chance to win over the entire mining & investment class in Peru with one stroke of the pen by offering a monetary fix to the Santa Ana problem. So this is also going to be a test of how cunning (or stupid) Humala is. He's been given a slam-dunk opportunity to get the rich on his side. I'm suspecting, mildly, that coming from the military he's not a total moron, at least from the standpoint of thinking strategically; and Nadine seems the cunning type too.