A Cautionary Tale in International Investing

Philippine President Rodrigo Duterte is a colorful person.

Earlier this month, Duterte and President Obama were scheduled to meet during a regional summit in Laos.

When asked beforehand how he thought it might go, Duterte used a Filipino phrase in reference to the president that translates to “son of a (expletive).”

[ad#Google Adsense 336×280-IA]The U.S. promptly canceled the meeting. Later, Duterte expressed regret that his comments “came across as a personal attack on the U.S. president.”

But it was too late… His words had already caused lasting damage.

Sure, this time it was just a canceled meeting.

But the entire episode makes you wonder if this speak-first, think-later demeanor could lead to bigger trouble for those in his path.

That brings us to another situation in which the Philippine government might have gone too far. And this time, the consequences could be much worse…

First, let’s start with some background…

Australia-based gold producer OceanaGold (OGC.TO) owns and operates mines in New Zealand and the U.S.

It also controls Didipio, a high-grade gold and copper mine in the Philippines. Didipio is one of the lowest-cost gold mines in the world. And OceanaGold produces 100,000 ounces of gold per year from it.

But you see, there’s a big problem…

The Philippine Department of Environment and Natural Resources recently threatened to close OceanaGold’s operation due to “outstanding social issues” that the company has in the country. OceanaGold said it hasn’t received a formal order from the government and is seeking more details.

As a result, shares of OceanaGold plunged as much as 21% from peak to trough earlier this week…

The situation between OceanaGold and the Philippine government could be a major drag on the company’s shares going forward.

But there’s a bigger lesson here – one that applies to investors who put their money in any company with global operations (and resource firms in particular).

As an investor, you must understand how much political risk you are taking on before you buy a stock.

How much can a government action or disagreement among leaders affect the share price? There’s also a flip side, of course. If you believe this kind of move is temporary and that the stock should recover, you could add to your position and lower your cost basis.

OceanaGold shareholders are considering that scenario today. And while nobody knows which direction its share price will move from here, remember this lesson the next time you go to buy a stock.

Good investing,

Brian Weepie


Source: Growth Stock Wire