Comment: The risks associated with overseas mining investments—a field that Miner has consistently paid close attention to and researched. At first glance, when I saw the title of this article, I was rather dismissive, thinking it would just be another rehash of old ideas—vague and empty talk about community and cultural differences, and so forth. But after taking a closer look, I suddenly became intrigued—the same principle, when argued by different people, can vary dramatically in quality.

What’s particularly striking is that among the young professionals in geological exploration units who spend their days working tirelessly in the field, there are no shortage of talented individuals—people with broad horizons, deep commitment, excellent foreign-language skills, a touch of artistic flair, and a knack for eloquent writing in foreign languages. (The cover photo was taken by the author during a field trip.) We’ve long maintained that the key to a company’s internationalization lies in the internationalization of its people. Given sufficient time and experience, China’s mining industry will soon be well-stocked with a robust pool of successors ready to carry forward its international ambitions.

1  Preface

According to statistical data, as of... 2013 At the end of the year, the failure rate of China's overseas mining investments was approximately... 80% ( Chen Xianda, 2013 ) Overall, it is relatively low.

The fact that, despite paying hefty tuition fees, investors are not reaping any returns suggests that China’s overseas mining investment strategy has serious flaws. So where exactly lies the problem? Based on the author’s experience from working overseas and analysis of several case studies, a common issue pervades China’s overseas mining investments: while giving great emphasis to factors such as exploration, development, and capital, there is a conspicuous neglect of external, indirect supporting factors—such as the political environment, culture, and local communities in the host countries.

This is a continuation, driven by the government, of the mining investment model overseas—a pattern characterized by “focusing on one’s own interests while neglecting external considerations,” in other words, lacking relevance to local realities. In practice, what we perceive as mutually beneficial and win-win often appears to locals as harmful to them and advantageous only to ourselves. On closer examination, the internal factors within oneself are actually the key determinants—namely, the failure to take into account the “soft risks” that mining companies may face when making overseas investments.

2  The Specificities of Overseas Investment in the Mining Industry

The essence of mining is simple: The act of acquiring commercial benefits through the possession and exploitation of resources. This is a purely economic definition of mining, focusing solely on the extraction process itself and disregarding the location where the activity takes place. However, in reality, mining involves far more complex factors than those described above—factors that encompass environmental, cultural, and community dimensions. If it occurs overseas, then it’s even less likely to be encompassed by purely commercial activities. The reasons are as follows:

    1 Generally speaking, a country’s sovereignty cannot be separated from its territory. Resources (including energy resources) are naturally embedded within a country’s territory; they cannot be separated and do not possess the attribute of being attached to any specific object. This characteristic determines that the mining industry is not only an economic activity but also carries political implications.

    2 “Development equals destruction.” Mining inevitably leads to negative changes in the natural environment and alters regional ecosystems—both natural and human settlements. Moreover, the once-stable social structures and cultural fabric are disrupted and eroded by the impact of foreign cultures and lifestyles. (Guo Lei,) 2013 ). This is a universally occurring fact.

Unlike other industries, which tend to give and support the investment destination, the mining industry more often gives the local population a sense of “plunder.” This is a common issue across the mining sector, irrespective of the region.

    3 Mining overseas investment is a quintessential “three-high” industry—high capital intensity, high risk, and high-profile—receiving significant international attention. It is highly susceptible to influences from the global environment as well as the political climate and policies of the host country, making it relatively more difficult to withdraw investments compared to other industries (Guo Lei). 2012 ).

Based on the aforementioned characteristics, in overseas mining investments, we should adopt a smooth and effective approach to minimize resource appropriation and profit-taking, while simultaneously enhancing the benefits derived from mining investments and promoting environmental friendliness and improvement. (Guo Lei, 2012 ).

These issues are universal in overseas investments in remote regions and are the focus of this article.

3  The Necessity and Connotation of Studying “Soft Risks” in Overseas Mining Investments

    3.1  Mining The Necessity of Studying “Soft Risks” in Overseas Investment

Data indicate that most of China’s overseas mining investments have been plagued by “soft risks.” A typical example is Shougang’s iron ore mine in Peru. Gang Hierro Peru S.A.A. ) Labor-management conflict, the Leibitang copper mine in Myanmar owned by Wanbao Mining Holdings ( Letpadaung Copper Mine ) Community conflicts and Peru Apurimac A regional incident involving the China Minmetals Corporation ( MMG protests. The examples listed above represent only a few of the most prominent and representative conflicts involving overseas investments by large state-owned mining enterprises. One can easily imagine the “soft risk” dilemmas faced by other medium- and small-sized as well as privately owned mining companies.

China’s overseas mining investments still lag behind those of major Western mining companies in addressing “soft risks,” lacking both the relevant experience and exhibiting occasional misbehavior. As a result, various problems that have arisen have been unprincipledly exaggerated by certain media outlets. Although China enjoys high visibility abroad, its reputation remains relatively low. Consequently, the path of overseas mining investment frequently encounters yellow lights—and even red lights. These challenges may be partly attributable to our traditionally reserved and restrained cultural ethos, but they are also closely linked to our relatively short history of international engagement and our comparatively closed approach to foreign affairs, which leave us feeling particularly powerless when confronted with “predatory” and “threatening” narratives. Guo Lei, 2013 ).

These issues often cannot be resolved by factors such as capital or technology alone. The crux of the matter lies in how the investing entities can effectively address the potential “soft risks,” gain the acceptance and trust of the host government and local communities, and foster positive interactions that help overcome mutual distrust and biases, thereby improving the external environment for investment activities and supporting the success of overseas mining investments. This is precisely where the necessity of this research resides (Guo Lei). 2012 ).

    3.2  Mining The Connotation of “Soft Risks” in Overseas Investment

“Soft risks” are the counterpart of “hard risks.” “Hard risks” refer to risks that are explicit and broadly quantifiable in the course of development—such as capital and technology risks associated with overseas mining investments. As for “soft risks,” there isn’t yet a clear or standardized definition. In the author’s view, these risks are characterized by their subtle, intangible constraints that are difficult to quantify. They typically relate to the cultural, moral, and value orientations held by society and are not necessarily linked to the natural environment (Guo Lei, ...). 2015 ).

Numerous cases demonstrate that “soft risks” in overseas mining investments are no less impactful than “hard risks” such as capital and technology. China Aluminum, which has previously suffered frequent losses from overseas mining investments, has also begun to reflect on its overseas investment strategy. Liu Xiangming, Senior Vice President of the company, stated: “In the process of international operations, we’ve come to realize that the success or failure of an investment project hinges not only on the scale and quality of the resources, nor solely on the development conditions of infrastructure, but also on the local policies and laws as well as the working environment in the community where the project is located.” The final point in this argument is precisely one of the categories encompassed by “soft risks” in overseas mining investments.

4  Mining “Soft Risks” in Overseas Investment

The preceding section defined “soft risks” in overseas mining investments and discussed the necessity of conducting related research. The following section will provide a detailed analysis. I would like to clarify that all discussions herein are based on overseas mining investments. For ease of presentation, the subsequent discussion will be organized into distinct categories. However, these factors are interconnected and mutually reinforcing; the author recommends taking them into account comprehensively.

4.1  Political Stability Risk

The act of overseas investment in the mining industry takes place abroad, spans from several years to several decades, and cannot be operated remotely. This characteristic determines... Political stability is the primary risk factor for overseas mining investments. In this regard, China’s Wanbao Mining’s investment in the Letpadaung copper mine in Myanmar... ( Letpadaung Copper Mine ) It can be described as a typical example. The project was initially launched by Canada’s Ivanhoe Mines. Ivanhoe Mines ) operations. After the West imposed sanctions on Myanmar, Ivanhoe withdrew, and China’s Wanbao Mining Company ( Wanbao Mining Ltd. ) took over operations. Subsequently, Myanmar’s democratization, coupled with fluctuating policies, has turned the Letpadaung copper mine project into a bargaining chip in the country’s ongoing power struggles among different political factions, leading to an unstable operating environment and leaving the future fraught with uncertainty (Jiang Heng,). 2013 ).

Most overseas investment entities in the mining sector have a superficial understanding of this issue, exhibit rigid thinking, and rely on stereotyped conclusions. Their due-diligence reports base feasibility assessments on vague assertions such as “the bilateral relationship has promising prospects” and “the project enjoys high-level support”—conclusions that are difficult to put into practice and thus mislead investors.

So how do we determine? What about the stability of investment destinations? This is a complex question. History foreshadows the future. As a country develops and makes history, it also shapes its culture and value orientations—and through its interactions with the outside world, it influences the future development of both the nation itself and the region. The more targeted data and information we gather, the closer our judgments will be to the truth, and the better equipped we’ll be to take proactive measures, minimizing risks and losses. (Guo Lei) 2013 ). Some large overseas mining companies have established the position of political analyst to conduct related research. However, for Chinese mining enterprises just entering the international market, gathering and analyzing information is a long-term process that poses significant challenges, and the resulting research findings may not necessarily be applicable. To address this issue, collaborating with specialized institutions to carry out focused, targeted research and sharing the results is a quick and effective approach. Yet, due to the differences between the two parties... Given the differences in identity and positioning, the research perspectives and focuses will also differ. During the collaboration, it’s essential to maintain open communication, raise questions, clarify directions, and provide relevant materials to ensure that the research aligns with the needs of overseas investment. (Guo Lei, 2013 ) 。

4.2  Human risk

The importance of “people” in overseas mining investments is irreplaceable by any other factor. Here, “people” encompass two categories: first, our own personnel within the investing entity; and second, foreign personnel within the investing entity.

There is an abundant body of literature on human beings in management and economics—no need to elaborate further here. We will limit our discussion to this issue solely from the perspective of overseas investment in the mining sector.

A person’s capabilities can generally be categorized into two types: technical skills and behavioral competencies. Technical skills refer to the knowledge and abilities required to perform a specific job, whereas behavioral competencies pertain to a person’s intrinsic traits—how one approaches the job itself. At the heart of behavioral competencies lies one’s behavioral patterns—for instance, whether one is willing to embrace new environments, whether one exhibits curiosity toward the external environment, and whether one is open to engaging with diverse cultures and values.

As far as overseas mining investments are concerned, both of these capabilities are required—and indeed, the latter capability is even more valuable. After all, the ability to engage in effective interaction and communication with the outside world is crucial for fostering a healthy environment for mining development. The terms—such as “closed” and “resistant to integration”—often used by external media to criticize us largely reflect our own personnel’s lack of the latter capability. Yet regrettably, when it comes to personnel selection, we still tend to place greater emphasis on business competence. To address how we can identify and cultivate Chinese and foreign talent who possess both the necessary business skills and the appropriate behavioral competencies, we might consider drawing inspiration from... BHP Billiton 、 Rio Tinto Learn and gradually build a system that suits yourself. A behavioral competency assessment system should be established and integrated into the personnel selection framework. The behavioral competency assessments should cover all personnel within the investing entity, including both our own staff and foreign personnel.

4.3  Resource Nationalism Risks

“Resource nationalism” has intensified in recent years and attracted widespread attention. In fact, this is not a new phenomenon—it originated nearly a century ago with the nationalization movements launched by “Third World” countries in the last century, using energy as the entry point. Two large-scale energy-nationalization movements took place in the last century. During the first decade of this century, a third wave of “resource nationalism” swept across the globe, spreading from the “energy sector” to the “resource sector.” (David) · R. Mares, Zhao Xin ，2011 ). Although the external manifestations are similar, the underlying meanings are different.

First, unlike the previous two waves, which were primarily driven by developing countries, this third wave of “resource nationalism” involves both developed and developing countries, making the range of participants far broader. Second, in contrast to the previous two waves, which relied on administrative measures to forcibly nationalize resources, this wave mainly adopts environmental justifications—such as imposing “excess resource taxes” and “carbon emission taxes”—to achieve “resource nationalization” and enhance national interests (Ma Ye, Chen Liping, Song Guoming, et al.). 2014