The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
Heya unic - not at all. A right wing government would be unlikely to cause any damage. Venezuela and Nicaragua (and to a lesser extent the previous Ecuador president) show why the left should be feared as Mexico is about to discover.
Strider - 25 year gap between a major blunder in a Latin American country!! I wish. The ultimate mistake for Fruta Del Norte was the government being greedy and wanting to tax too much - and that is a blunder I can see being repeated (though I hope it wont). All that needs happen is a left wing nutter gets into power on the back of the indigenous and all common sense goes out the window.
Strider as I mentioned earlier the fact that the next election is scheduled for 2021 doesn't mean it wont be before that. Take a look at the terms for the last few presidents (not the last one). https://en.wikipedia.org/wiki/President_of_Ecuador
Strider - I have no idea if they would want to get involved or not. I do note that a lot of majors are diving into the country but has anyone spent big yet? That to me is the big test - someone going balls deep. Whilst what BHP have invested in SOLG is big money for you and I its a small percent of their annual spend.
I was merely responding to a post which seemed to suggest that Rio is pulling out of Mongolia due to Political Stability reasons (the article is behind a paywall so I cant read it) so may look at the SOLG T1 prospect. I'm merely suggesting that as Ecuador is more politically unstable than Mongolia that does not add up.
Anyway don't get me wrong I am positive on this share. I just worry at times that the prospect is in Ecuador. I say this as someone who is married to a Mexican and have worked in Costa Rica and to a very small extent panama. I also have many friends from various Latin American countries including Ecuador and as such have a bit of knowledge has quickly the political scene can change. Take Mexico the new president is head of a party that was only formed in 2014 but won every state with the exception of the one I will be retiring in - Guanajuato.
Zeusfurtla whilst what you say is correct in theory... in practice it isn't. if you look at the presidents of the country (with the exception of the last one) they generally end up in power for a couple of years. I think you have to go to 96 for a President to have done a full term (not including the last one)
Not sure what BHP has to do with what I said.
You said..... "Rio's interest in gold-copper extends only to T-1 discoveries in politically stable nations."
I merely pointed out that Ecuador is not a politically stable nation, and furthermore is less stable than Mongolia.
I would agree that BHP will not have consulted with the World Bank. The fact that Ecuador is desperate for FDI is interesting but things can change rapidly. look at Mexico they just voted in a far left president. the exact same could happen in Ecuador and all gets turned around quickly.
Yeah it has a T-1 discovery but its hardly a political stable country. The World bank gave it a rating of -0.1 for political stability compared to 0.82 for Mongolia. Based on your post it therefore seems unlikely that Rio would want to get involved. That being said I would expect they will look beyond political stability if they feel its worthwhile.
Lottohopes - you only have to read the press to see the persimmon fiasco.
Anyway that aside - is this enough to make me divest my position, no its not. That being said I maintain its not in my opinion the right decision. I don't know the ins and outs of how the options are structured but I have a reasonable understanding of Latin American Labour law and am 100% sure that the locals are already well looked after. Also as I said previously the law of Ecuador is such that they are already very incentivized to stay put or they lose big payouts.
Furthermore in terms of the expats as someone who has been working abroad for many years, often in places worse than Equador - ie the Al Nafud desert in Saudi Arabia I can honestly say options would have no interest for me. In the first instance I want a high salary and second a retention bonus. Looking at the number of staff they have on the project and the amounts paid on salaries they are clearly paying well.
The only positive to the share options is it doesn't use up cash.
Lottohopes - that worked well at Persimmon didn't it. The BoD making a decision which made them an obscene amount of money (and by my last count caused 3 of them to lose their jobs) at the expense of the shareholders, including the institutional ones who really should have stopped it dead.
Thought as much - thanks for that SavShare - I think its fair to assume then that my earlier statement is correct - this is nothing about retaining Ecuadorians and everything about retaining people who are already very well paid.
Being honest I would put my mortgage on the options being issued to a very small number of people - ie the expats / the 7 people on the management and technical team.
As an expat who works abroad believe you me you get well paid for it and this is an unnecessary measure to retain them. This is more what I am eluding to - the options will be to a small number of people. There is no way an Ecuadorian is going to be able to get his head round owning shares in the UK. My old Finance manager was from Quito and he wouldn't have had a scooby.
See I just think its legalized theft.
I would love to know who gets the options and the allocation. Lets say SolG sells for 80p a share that's people making 16,575,000 GBP for doing their job in a country with not many alternative employment options.
How does it protect the workers though? Its not like they would be sacked if SOLG got bought out. They would transfer to the new company and continue to accrue their pay off. I can see no justification for this at all.
Apologies in my first post I wrote USD I meant GBP - afraid on a day to day basis I work in USD.
The technical team has 5 people the management team has 2 people. The rest of the employees (I assume are Ecuadorian which maybe a scattering of expats) where the average salary is less than 500 a month. How can they justify options to a value of almost 50 million USD?
As a note they already buy Ecuadorian labour loyalty. They get 15% of net profits (not applicable now I admit) and as is common in Latin America they get a pay off if let go. In Costa Rica recently I let someone go with 8 years service and he got 50k USD!