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As an investor in mining stocks, Argentina has always been a great temptation; on one hand, the country has an abundance of mineral resources, as well as fault lines that make mining at a lower cost much more feasible. Companies like Extorre Gold Mines Limited (XG), based primarily in the Santa Cruz region of Argentina, are able to have a cost per ounce of under $250 on mining gold due largely to the favorable geology of that area.

But as the sovereign debt crisis grows, political risk is increasingly becoming a concern for investors in mining firms. Notably, we've seen capital flows out of Argentina double in the past 9 months. When the free market moves capital out, governments often try to stop the process via the imposition of some type of capital controls to halt the flow. And sure enough, in late October the Argentine goverment announced that export revenues from mining projects need to be repatriated and converted into Argentine peso prior to be dinstributed either locally or overseas. While this is not a dealbreaker for the mining industry just yet, it is a disturbing sign -- and one that should raise flags for mining investors.

Personally, I don't have much exposure to Argentina; Minera Andes (OTC:MNEAF) is the only firm I've invested in with significant operations in Argentina. While I'm not yet liquidating this position, I don't plan on making another significant investment in Argentina. The one caveat may be Extorre, who I think has potential for an extremely lucrative mining operation as well as possessing a healthy balance sheet and talented management team -- but even then, I would need Extorre to drop below $6 per share before I can consider taking a small stake in light of the political risk involved.

Until then, I prefer mining companies that have geographical diversity in their operations if they are a major; for the smaller producers and explorers who may not have the capital to diversify operations across jurisdictions, I favor many African countries (specifically Tanzania and Mali), Canada, and the USA -- though political risk is everywhere, and something mining investors should feel comfortable with before making investments.

Source: Political Risk In Argentina Is Too Great For Investors In Non-Diversified Mining Firms