US-listed mining companies are active in a range of different jurisdictions associated with a variety of risks that can be summarized under the term country risk. Most definitions of country risk include factors such as political risk, exchange rate risk, economic risk, sovereign risk, transfer risk, socio-economic risk and others. Depending on the source, various contributing factors of country risk are weighted differently. In a recent study we collated country risk ratings from eight different sources and averaged these ratings into compounded country risk ratings. These compounded ratings were normalized to range from 0 to 100 with low numbers indicating low risk and high numbers indicating high risk. Readers interested in the specific definitions are encouraged to follow the links to our sources given in this article. The most recent results from this work can be found in this article. We used our compounded country risk score to evaluate country risk exposure for selected gold and silver mining companies using 2011 data. As 2012 data becomes available we are providing updates and are also including Endeavour Mining (OTCQX:EDVMF).
Last year's attributable production for Endeavour was 220,462 ounces of gold with guidance of 310,000 to 345,000 ounces given for 2013. Production was achieved in three mines in Mali, Ghana and Burkina Faso. The table below gives the 2012 numbers for production, reserves and resources at each of Endeavour's mines and projects. Endeavour Mining is a mid-tier gold mining company with a market capitalisation of $406M and a focus on West Africa. Endeavour Mining is attempting to follow an aggressive growth plan which has manifested itself with last year's takeover of Avion Gold.
The table above can be summarized as shown below where summations for each country of exposure are listed with the data already calculated in percentages of gold-equivalent ounces. Country risk ratings for each country of exposure are shown in the middle column of the table. The right side of the table lists the weighted risk contributions for each country separately for production, reserves and resources with summarized scores in the bottom line. The individual ratings can be interpreted as ratings going from present risk (production) into the future (inferred resource).
When taking into account production numbers the country risk rating computes to 65.90 indicating considerable country risk. Due to the disproportional contributions from operations and projects in Mali the country risk rating increases to 70.38 when considering reserves. Taking into account resources the country risk rating increases further to 71.04 for measured and indicated resources and 77.09 for inferred resources.
These ratings indicate very high country risk going into the future, mostly owing to the situation in Mali and the high proportion of resources in this country for Endeavour Mining. The computed country risk rating is comparable with Randgold (NASDAQ:GOLD). The Mali focus has been exacerbated by the recent purchase of Avion Gold. These assets hold the possibility for high rewards and investors should make themselves aware of and comfortable with the associated risks.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.