Infrastructure Analysis

Hard riskThe Infrastructure hard risk score is made up of an equal weighting of the Mining Journal Transport Infrastructure Index and the Energy Security component of the World Energy Council's Trilemma Index. The MJTI Index was built in July, while the numbers from the most recent Trilemma Index were released in October last year.The numbers threw up several surprises. Most of these provide valuable insight into the infrastructure suitability of the jurisdictions covered, though an element of weakness in a small percentage of numbers collected was identified and will need addressing ahead of next year.The major region with the best transport infrastructure was Europe (inc.Russia), with a score of 85. Jurisdictions in the west, centre and north of the region were the key contributors to that score, averaging 98. These were dragged down by Eastern Europe jurisdictions, Russia (54) and Greenland (0), which together averaged 62. That number would have been worse if not for strong scores from Bulgaria and Greece (both 98).Australia/Oceania was a clear second with a score of 79. Victoria (97) was the best-performed state, benefiting from a smaller land area, which is comprehensively covered by rail, roads and well serviced by ports. New South Wales, Tasmania and New Zealand all scored more than 90. Dragging down the average for a region and providing a misleading regional range of scores of 49, was PNG (48).The transport infrastructure for the South America jurisdictions was generally strong as a score of 74 suggests. Mining stronghold Chile topped the region with a score of 92 with fellow recognised mining jurisdictions Peru and Brazil also performing well. A lead weight to the average was Bolivia (37), which meant the range of scores for the region was 55.Somewhat surprisingly, Asia was next cab off the rank, pipping both Canada and the US with a score of 68. This is partly down to the small area and coastal positioning of many Asia jurisdictions covered. This also provided a huge range of scores (0-99). The best-performers were Japan and South Korea, and the worst was land-locked Mongolia.Canada was a tale of two halves - north and south - which combined for its average of 67. In general, scores were around similar levels to those in Australia, as one might expect. However, the two northern provinces covered, Northwest Territories (21) and Yukon (26), decimated the regional score. The best-performed province, and the only one with a score over 90, was Nova Scotia (95).Africa was another surprise with a robust average score of 62. This is a reflection on the generally smaller jurisdiction size and ready port access for jurisdictions covered, which meant limited rail and road infrastructure presented less of a risk than would be the case in larger jurisdictions. The best-equipped jurisdiction was Morocco (92). Land-locked Mali (5) took out the wooden spoon for a regional range of 87.The regional average for the US of 61 was rough on several states, owing to an imperfection in the methodology. The formula penalises a lack of port infrastructure on the assumption that if a jurisdiction is landlocked or doesn't have a port, it will have to negotiate access, which represents a greater risk. In sub-national jurisdictions, where access is not a problem, this assumption is vulnerable.For Australia and Canada, the scale (land area) of the province/state determines there is more of a need for each jurisdiction to have its own port infrastructure and so the discount arguably stands. The US, however, with smaller size-of-state and no issues with access, causes a problem.US states with ports therefore scored well (US states generally all have excellent rails and roads), whereas those without ports struggled despite the fact they likely enjoy frictionless access to the ports in neighbouring states. We would suggest California (96) and New York (97) received appropriately strong scores and Alaska (16) an appropriately weak score, but other states were unnecessarily discounted. We are working on a solution for next year.Both the minor regions covered scored strongly, with Central America/Caribbean at 95 and the Middle East at 88.Energy security threw off more predictable results. The US enjoyed a form reversal and all US jurisdictions took the WEC's national score of 97. It was a similar story for Canada (96). Australia/Oceania (79) was dominated by a national score of 74 for Australia - fairly poor by first world standards and behind Cote d'Ivoire (76) - with PNG's lowly 43 balanced by New Zealand's lofty 90.Europe's western and northern jurisdictions performed well again, as did Russia (95), though too many disappointing jurisdictions weighed the average down to 72.It was daylight next as we moved into the developing world, starting with South America (57), where a close grouping of jurisdictions was led by Colombia with a score of 71. Bolivia was the poorest in terms of energy security at 42 but was one of only two jurisdictions scoring less than 50.Africa managed to stave off bottom place with an average score of 47, ahead of Asia at 42. The best-performed Africa jurisdiction was Nigeria (94), worlds away from Morocco with 11. In Asia, the grouping was tighter, though Mongolia represented an outlier with a score of nine. India has the best energy security in Asia with a score of 59.The two minor regions, Central America/Caribbean and the Middle East, scored 34 and 57, respectively.Across the two metrics used to determine infrastructure risk, the results were broadly as one might have expected. Canada nudged its way ahead of both the US (79) and Europe (79) with a combined average score of 82, though one might speculate the US deserves top spot if not for the ports discrepancy. Australia/Oceania was not too far off the pace with a score of 77.The developing world was some way behind. South America averaged 65, while Asia and Africa finished on 55 and 54, respectively, after both demonstrated clear deficiencies in energy security. Perception of riskThe perception of risk was generally in line with the hard risk numbers, though across the metrics respondents were slightly harsher on jurisdictions than the hard numbers would suggest was necessary.The correlation between perceived risk and hard risk averaged almost 0.94 and only the respondents from the Australia/Oceania region disagreed materially with the hard metrics.The correlation for that region was less than 0.82, with the perception falling short of the hard numbers.The strongest correlation between hard risk and risk perception was almost 0.98. This was surprisingly for the US, which we would have predicted would have received a much better reception by respondents than our hard metrics given the potential deficiency with the numbers.Other points of interestThough the correlation was relatively strong, it was interesting to see the hard risk metrics for Africa's infrastructure outstrip the perception. The general image of Africa being a continent full of dirt roads and rails built by former colonial masters has some merit but that does not mean the infrastructure in place does that bad a job of servicing the mining community.As pointed out above, the relatively small land areas of most countries and the fact those with coastlines have a port means that with some existing rail infrastructure, many mining projects are serviceable.That said, an overall score of 54 is nothing to write home about and speaks to the continent's thriving, infrastructure-light gold industry and its relative lack of bulk-commodity operations.We were also surprised by the relatively poor perception of infrastructure in Australia. Our expectation had been for a positive response to Australia's extensive rail networks connecting established mining districts with deep-water ports, however, respondents were in reality over-focused on the vast expanses of Australia not covered by infrastructure. This perhaps reflects the disparity between the risks involved in investing in and around established mining hubs compared to virgin territory.There were a handful of outliers in the results. Most would be surprised to see Ireland's energy security rating down at 38, which is seen in the 0.73 correlation with its energy security risk perception score of 93.South Australia is another to get a surprisingly raw deal from respondents to the World Risk Survey, which slapped it with a score of 45 - a correlation of less than 0.62 with its hard risk score of 73.A pleasant surprise for many would be the robust hard risk infrastructure score of 66 for Zimbabwe, 10 points ahead of the risk perception.

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