Managing Political Risk

Why this sudden big fuss over Greenland and its independenceIndependence? Aided by the global climate changes, Greenland is fiercely launching itself in the resource race counting on its potentially enormous oil and mineral reserves. The melting of the ice makes it now possible to drill and uncover oil and gas fields, raising the hopes for its citizens on ending economic and political dependence on Denmark.

Business perspectives and national interests

It's not only the Greenlanding citizens fantasizing about newly-discovered riches. With estimations of 110 billion tons of oil, and other untapped riches such as gold, diamonds, coal, zinc and uranium, companies across the globe are rushing to secure a piece of the pie (Malaysian giant Petronas just paid $310 million for 10% of Greenland's block). Australian Greenland Minerals and Energy (GME) has acquired the rights to develop what is supposed to be the world's biggest deposit of rare earths. Though still in it's pre-fesibility stage, the deposit is believed to have an annual production of 480 000 tones of rare earths and 120 000 tones of uranium oxide. Rare earths have a vast applicability from mobile phones to missile guidance system and are a key resource for all major players.

Where is the problem for GME? Well, under Greenland's strict zero-tolerance uranium laws, the deposit cannot be mined. The Kvanefjeld reserves are believed to cover 25% of the demand for rare earths in the next half a century. The perspectives for GME and its investors are huge. But so are the political risks. Starting January next year, Greenland will gain full sovereignty over the control of its resources and technically it will be able to modify the current legislation. The hope is based on the unclarity of Greenland's legislation over mining uranium as a by-product. Greenland's Minister for Commerce and Raw Materials declared that the Kvanefjeld project could not go on because of the radioactive pollution risk over the the town of Narsaq.

However, this is not just a bilateral matter as other actors have interests in the region. China, currently controlling 95% of world's resources of rare-earths has constantly slashed exports due to the increase of its internal needs, creating a panic hysteria in industrial circles in Japan. Rare-earths are used in both military and green applications and the Japanese government is drafting plans to secure supply. If the Kvanefjeld deposit were to be mined, Greenland will break Chinese monopoly over the resources, a tool the Beijing government has been using as a trade-threat. Revenues from the rare-earths alone have the potential to double Greenland's GDP. Another major player in the matter will be the EU without a doubt, which will try to use the leverage of the Danish subsidy to a direction according to its interests - either pushing for the "green" approach", either securing it's cut.

Predicting the political instability, GME made a strategic move when it decided to hire Lars Emil Johansen, the country's ex Prime-Minister, who undoubtedly has the potential and local knowledge to influence policies as GME awaits approval. GME has been fighting to downplay the media reports predicting that the project will be blocked. In addition to the complicated political-net, it is also fighting a complex legal battle with Weststrip, a London-based group supported by WA geologist Greg Barnes, accusing GME that it acted unlawfully and against their duty to the shareholders by trying to vend assets into a separate company. GME and Wetstip hold 61% and 39% of the Greenland joint venture respectively.

GME is walking on a delicate slope trying to maintain internal cohesion, satisfy shareholders and lobby effectively for the legislation change. To these factors, I would also add the inherent risk coming associated with nation-building in a society where until recently fishing and commercial shrimping accounted for 94% of its revenue.