I have asked the following question dozens of times in sessions: “What are the risks involved in international investing?” After getting over the insult of being asked such a straightforward question, people excitingly respond Political Risk and Currency Risk.

I will admit that I used to think of Political Risk in the same way as I think about the winner of the Golden Globe in the Best Performance by an Actor in a Supporting Role in a Series, Mini-Series or Motion Picture Made for Television Category: it needs to be mentioned, but let’s move on to the cooler stuff. That was until recently, when I came across the following relating political turmoil in Mali and Randgold Resources (LSE: RRS, NASDAQ: GOLD), a gold mining stock with about two-thirds of its production in Mali.

A March 22nd, article on cnn.com details a political coup in Mali:

Source http://articles.cnn.com/2012-03-22/africa/world_africa_mali-suspected-coup_1_security-forces-tuareg-soldiers?_s=PM:AFRICA

Even though the company has issued multiple statements asserting that production is expected to remained unchanged in 2012, the stock has dropped by more than 20% since the beginning of March.  And that’s political risk!!

“During this period these operations continued to operate without any material disruption,” Chief Executive Mark Bristow said in a statement.

“Our production guidance for 2012 remains unchanged, although we have not completed our assessment of the impact this situation has had on costs. We will monitor the implementation of the political settlement by the relevant parties, and give the market a full update when we report our first quarter results on 3 May.”

Source: Reuters, April 9th, 2012

Source: finance.yahoo.com

Category: CAIA, CFA, CIMA

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