At the conclusion of Antonio Ruffini’s story, he touches on the sensitivity of Zambia’s new mining law. Lumwana, Africa’s largest greenfield copper project, recently began production. Even though Zambian government officials see the jobs and opportunities a new mining complex of this magnitude can offer, it still presses ahead with a new mining tax law that it openly admits is flawed. The new laws appear only to take into account investor returns during periods of high copper prices.

When the investment community looks at mining projects, they are already accepting a high level of risk. Any sign of instability or indecision on behalf of the government will probably push investors past their risk threshold (i.e., they will invest elsewhere).

As this edition of E&MJ went to press, Russian Prime Minister Vladimir Putin brought this point home when he publicly accused OAO Mechel of price gouging. Mechel, a major Russian coal and steel producer, has benefited recently from improving steel and coking coal markets. Being very direct, Putin alleged that Mechel’s set prices unusually high for domestic markets and then exported product to subsidiaries abroad at unrealistically low prices to evade Russian duties. Whether the accusations are true or not, Putin’s comments wiped out half of NYSE-listed value in one day, taking its market capitalized value from $11 billion to $5.5 billion.

Putin’s motives, similar to those in the cases of changes to Venezuelan and Zambian mining laws, are unclear. Perhaps he wanted to stave off rampant inflation and inspire the domestic steel industry. Or, maybe he is angered by the rise of the Russian oligarchs and used his political clout to curry favor with the general population at the expense of “big business.” Either explanation is plausible. Until he fixes the situation, the approach he has taken will do irreparable harm to Russia’s relationship with the investment community.

Developing a mining installation is a long-term prospect that takes time, patience and courage. Over the course of time from feasibility studies until the point where ground is broken, a lot can change. The one stabilizing factor in this investment proposition should be the government. Policymakers should set the guidelines and then let the market force dictate the destiny of the investment. The short-term thinking that tempts government officials will devalue project investments and deprive the government and the people of greater opportunities.

Steve Fiscor, Editor-in-Chief, E&MJ