When demand picks up to record levels, as it has for gold and silver stocks, individual and institutional investors quickly seek out high quality assets and trading vehicles to capitalize on this demand. However, if you venture outside of North America with your investment dollars (to invest in gold or silver explorers/miners), uncertainties increase and political risk is heightened. These wild variables should be a caveat to all who invest and are a major reason why I will invest in a domestic (North American) mining play 9 times out of 10 before even considering investing abroad.

As Mr. Buffet says, "buy what you understand". We understand the political environment in North America. I understand the environmentally sensitive regions. I understand the socio-economic issues with mining and which areas are more favorable than others in North America.

When you invest in mining plays outside of North America and in third world countries particularly, your risk increases - simply because of the political instability and macro economics we don't have to be concerned with at home. Governments in these third world countries can be your worst nightmare as an investor in a mine or exploration project.

Commodity investing carries enough risk as it is. Why add more risk to an investment by purchasing a gold mining/exploration company operating in a country with an unstable or new government, an oppressed population or in a hotbed region for violence? There is simply no need to venture off into geopolitically unstable regions when North America is home to many of the best gold mining operations in the world.

If you do your homework, you'll find amazing bargains with near-term production on the horizon, trading at cheap valuations and operating in a mining friendly region of British Columbia, Alaska, Ontario, Nevada or Idaho - regions known to promote mining while protecting environmentally sensitive areas.

These regions have predictable government reactions to mining permits, drilling permits, granting concessions etc. Their economies depend on mining investment and want to keep the reputation of being a mining friendly state or province they have worked so hard to achieve. You want to buy into mining plays where your biggest concern is the price of the commodity the company is mining - not which new government regime is going to take over the country and if they will allow the company you have invested in to continue operating (despite the fact the company has already poured multi millions into the asset it bought and paid for).

The price of gold and silver are rising rapidly. Several poverty stricken third-world countries are home to great gold and silver deposits. However, the people in many of these countries are fed up with living in poverty. The governments of these nations are facing intense scrutiny to redistribute some of the wealth. Thanks to western mining companies' investment into their country and skyrocketing gold and silver prices, the government may find a way to redistribute some of this new found wealth back to the people. They will do this by using the 'Robin Hood business model'. Steal from the rich (the western mining companies) and give to the poor (the people of their country and themselves). They can do this in many different ways. The government can increase taxes on the western mining company, increase royalty payments, nationalize mining or flat out takeover the mine. Don't think it hasn't happened before. It has happened many times, leaving the western mining company and its shareholders high and dry.

Contracts in some of these third world countries are worth less than the paper they are written on, especially when an extensive monetary crisis arises.

Now, more than ever, third world country governments are concerned about the morale of their citizens given the uprisings in Northern Africa and the Middle East. Governments in these countries know that to keep their people quiet, they must distribute some wealth back to them.

Investor risk has increased with mining companies who operate in third world countries as pressure rises to distribute the new found mineral wealth back to the people of the country; even if that would be at odds with established rules and contracts between western mining companies and the foreign government.

Why invest in gold mines outside of North America?

The fact of the matter is simple. North America has proven itself to be the safest, most favorable mining environment in the world. When you step outside of North America, risk increases. North America is home to the best gold projects in the world. Alaska, British Columbia, Yukon, Ontario and Nevada are our favorite areas to invest in. It's no secret these regions are home to many of the world's biggest gold mines and projects. Again I ask: Why invest abroad when North America has many of the top gold deposits and regions this world has to offer?

The examples of foreign governments intervening against western mining companies' operations are abundant. It's happened in Africa, South America and Asia. And as the value of gold and silver increases, government intervention will increase - cutting into mining companies' profits and perhaps in a few circumstances, even taking them over entirely. I believe we will start to see more intervention abroad when governments realize that the proven gold or silver in the ground outweighs the economic benefits of keeping the western mining company in their country. If a company has 5 or 10 million ounces proven in the ground and the government thinks it can extract it without the mining company's help, that company could be boarding the next plane home with nothing but their hat in their hands. Although this sounds like an extreme situation, just wait until gold is trading at $2500 an ounce. Governments in third world countries have been known to do crazy things when their power is in jeopardy.

Remember, most of these third world countries are broke. How do you think they feel when western companies take their only wealth (under the ground) and ship it across the world? It angers the people of the country and forces the government to act by implementing stiff taxes on exporting and increasing royalty costs - and maybe even taking over the mine entirely. This happens at or near the peak of every major bull cycle in commodities.

Just last year The African National Congress was threatening to nationalize mining in South Africa. South Africa is not a run of the mill mining country either. They are a leader in diamonds, platinum and chrome deposits.

The main point behind this idea was to readdress the inequalities of apartheid by selling stakes in mines to black South Africans (with no history of mining).This would naturally increase foreign investment costs and of course, kill share prices (of public mining companies operating in South Africa) in the process.

On Friday Allen Sykora reported:

Current events in Peru show the continuing political risk that are often faced by mining companies when trying to bring new supplies on line, points out Barclays Capital.

Southern Copper's $1 billion Tia Maria mine in Peru is being delayed for at least a year until 2013 as the Peruvian government suspended the environmental-impact study in a bid to calm tensions, Barclays notes.

Protestors are threatening to boycott presidential elections Sunday unless Southern Copper abandons the project. "This is an example of how, beyond concerns relating to declining ore grades, mining companies are facing higher political risks operating in riskier countries," Barclays says.

"In addition to protests against specific mines, the five main Peruvian presidential candidates have expressed support for an increase in taxes on the major gold, copper and zinc producers, not unlike the royalty tax and mining tax that Chile and Australia have imposed."

http://r20.rs6.net/tn.jsp?llr=z7im7ybab&et=1105105621863&s=14289&e=001yOiDQBQXR7Jl0-RJT-V4e6AIL2KAci08tZ2tSDhQdY8MihYUlnGxuIFoK0XAF51q8eMlv-gLBCEdCdwtZndB42Btz95WOvNK4p9s2hEbTb7GLvLliyv6HGkhjcbShLW5dfTluYkXVbeEg-QqXG1MFvsVxfO8Km8L0fl7iIByPfIhTw76Edf4rWiREu1ZEztWEA8koaQfIezDor1xMk22H3OAxIbES3To" target="_blank">http://www.valvemagazine.com/index.php/web-only/web-exclusive/2522-mining-faces-many-political-risks

No mining company operating in a third world country is immune to being pushed around or flat out cheated out of their investment. It has happened to some of the biggest mining players in the world.

*Newmont and Oxus Gold have experienced disputes over operations in Uzbekistan and Kyrgyzstan with the governments of both countries.

*Anvil Mining has experienced major setbacks in the DR Congo over allegations of human rights abuses.

*Strikes have affected BHP's Escondida mine in Chile. Due to the strikes, Chilean workers are now some of the highest paid miners in South America.

*Bolivia has made several threats to 'nationalise' mining concessions

These are just a few examples of a very long list.

The point of this is simple. Gold just hit a new record high this week. Investors are scrambling to find gold stocks to dump their money into. In this crazed state, investors often overlook the political and social risks that come with mining. I am reminding you not to become a statistic.

We live on a continent with the most favorable mining laws in the world. We live on a continent with the most effective and largest gold mining operations in the world. We live on a continent with the best track record for showing investors huge returns on investments in the mining industry. This is why, 9 times out of 10, I invest in gold mines and projects in North America. SFMI is, IMHO, the best of the best.

Hang on . . . it's gonna be a great ride!!!!

jdub