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By Melissa Pistilli-Exclusive to Silver Investing News

We’ve seen silver spot prices flirting with $18 an ounce for a few weeks now and according to James Burbage III, President of Lloyds Asset Management, we could see silver hit $23 before the end of this year.

“Silver has been the sleeping giant that’s being awakened by a market ripe for precious metals investors who know how to take the necessary steps to secure their financial futures,” said Burbage.

Commodities prices in general have seen sharp gains recently and while that may fuel hopes that world economies are rebounding its also leading to increased political risk for metals miners around the globe, particularly in Latin America.

Labour tensions are heating up in mineral-rich nations like Peru and Chile where mine workers are staging strikes to demand higher wages and additional benefits. “The conditions are just right for workers to demand more in negotiations,” said Pedro Marin, head of Chile’s Federation of Miners and union leader at BHP Billiton’s Escondida copper mine.

Poverty-stricken peasant farmers are seizing mining operations in Bolivia. For now, they are only targeting small mines rather than large foreign-owned operations. But, those in the industry are still fearful already diminishing investment in the sector could be further affected; especially with Bolivia’s President, Evo Morales, turning a blind eye to the seizures as he seeks reelection in December.

As the number of untapped natural resources in relatively low-risk nations drops, mining companies are finding it increasingly necessary to venture into much more politically risky environments like those in South America. Hence, successfully managing political risk is becoming a key component of financial success for mining firms.

Pan American’s Purchase of Aquiline Resources

Once Pan American Silver Corp‘s [TSX: PAA] friendly acquisition of Aquiline Resources Inc [TSX: AQI] for C$626 million is finalized, the silver producer will have inherited the Navidad Silver Project in Argentina, one of the biggest untapped silver deposits in the world.

The Latin American property is not without its own political risk. Navidad, which Aquiline estimates may yield around 15 million ounces a year, is located in Chubut Province where existing laws ban open-pit mining and cyanide use.

There is some concern that the Navidad project could go the way of Meridian Gold’s Esquel project, located in Chubut as well.

In 2003, over three-quarters of Esquel residents voted against a proposal to construct a gold mine in the neighbouring mountains and Meridian was forced to halt exploration and development leading to a write-down of the property in 2005.

But, Pan American’s CEO Geoff Burns remains confident the company will be able to advance the project and is currently in talks with central and provincial governments about possible mining law changes.

It seems the province’s governor Mario Das Neves is amenable to encouraging mining development in the region.

If any mining firm could convince Chubut officials to let it move ahead on the Navidad silver project its Pan American. The company’s most recent success in Argentina includes bringing the Manantial Espejo silver mine into production last year and receiving Argentina’s Mining Company of the Year award.

“We are impressed with Pan American’s track record of bringing projects into production, and in particular, its strength in government and community relations in Argentina,” said Aquiline CEO Marc Henderson.

Political risks are, of course, unavoidable, but those mining companies who embrace the challenge as an opportunity to engage the communities in which they operate are more likely to increase their shareholder value.

Successful strategies for tackling and mitigating political risk were addressed this summer by Pact Director Eva T Thorne at the Latin American Mining Congress in Coral Gables, Florida. Pact is an organization that helps foster partnerships between corporations and NGO’s with a focus on advancing sustainable development. Corporate Social Responsibility and involvement in developing nations are major aspects of Thorne’s work.

“We successfully operate mining companies who are operating in Latin America and need to master the art of political risk, management, and litigation by incorporating assessments, analysis and plans as soon as they identify an area for investment” said Thorne.

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