DEFINITION of 'Above Ground Risk'

Above ground risk refers to non-technical risks such as political, regulatory, environmental and security risks, that can adversely affect energy and mining companies in some of the most unstable parts of the world, as well as in Western countries with pro-business policies, strong governance and efficient legal systems.

BREAKING DOWN 'Above Ground Risk'

Above ground risk is a significant factor in the exploration and production and mining sectors — especially in frontier markets. In fact, the risks above the ground are often greater, and more difficult to mitigate, than operational risks below ground. Even in relatively benign frontier markets such as Tanzania or Sierra Leone, endemic petty corruption can expose international companies to reputational risks, both within their country of operation and home jurisdiction. Managing bribery and corruption risks has historically been a big problem for energy and mining companies.

Above ground risks in trouble spots include corruption, security and armed conflict, in addition to regulatory and political risk. But environmental activists have also increased above ground investment risks in the West as well, whether it be the claims of indigenous people in Canada, protests against the Dakota Access pipeline or anti-fracking opposition in Europe — which has led to moratoriums on fracking in a number of countries.

Some above ground risks, such as labor disputes and tax hikes are to be expected. Perhaps not unreasonably, politicians across Latin America hiked mining royalties when commodity prices spiked after the financial crisis.

But some countries effectively run extortion schemes or simply expropriate assets. Venezuela, for example, has nationalized foreign-owned oil and mining projects — leading to a collapse in investment and oil production capacity, and exposing a number of international oil companies to large losses. In 2018, Chevron evacuated its executives, after two of its employees were imprisoned for not signing a supply contract with state-owned oil company PDVSA.

  1. Micro Risk

    Micro risk is type of political risk that refers to political ...
  2. Accepting Risk

    Accepting risk occurs when a business acknowledges that the potential ...
  3. Corruption

    Corruption is dishonest behavior by those in positions of power, ...
  4. Operational Risk

    Operational risk summarizes the risks a company undertakes when ...
  5. Regulatory Risk

    Regulatory risk is the risk that a change in laws and regulations ...
  6. Risk Profile

    A risk profile is an evaluation of an individual or organization's ...
Related Articles
  1. Investing

    The Biggest Risks Mining Stocks Face

    In this article, we will examine the risks shared by major and junior mining stocks, and what they mean to investors.
  2. Insights

    How to Invest In Developing Markets

    Developing markets can be attractive additions to many investor's portfolios, but carry additional risks that must be considered.
  3. Managing Wealth

    Evaluating country risk for international investing

    Find out how investing overseas begins with determining the risk of the country's investment climate.
  4. Insights

    How Corrupt Is Venezuela? An Inside Look

    Learn more about the corruption level in Venezuela and how it could affect your investments if you decide to invest in the country.
  5. Investing

    Key Financial Ratios to Analyze the Mining Industry

    Discover some the most important financial ratios used by investors and analysts to evaluate companies in the metals and mining industry.
  6. Financial Advisor

    Advisors: Incorporating Impact Investing in Client Portfolios

    Impact investing can carry unique risks, but planning for them ahead of time can will help you incorporate these funds in client portfolios.
  7. Tech

    How to Get Established as a Cryptocurrency Miner

    Mining for cryptocurrencies may sound like a good idea. But is it worth the effort?
  8. Investing

    10 Risks That Every Stock Faces

    As an investor, the best thing you can do is to know the risks before you buy in. Find out about 10 common stock risks you should look out for.
  9. Investing

    A beginner's guide to mining stocks

    Here's a look at mining stocks and what the major and minor mining companies can bring to your portfolio.
  1. What are the primary sources of market risk?

    Learn about market risk and the four primary sources of market risk including equity, interest rate, foreign exchange and ... Read Answer >>
  2. What is the difference between risk avoidance and risk reduction?

    Learn what risk avoidance and risk reduction are, what the differences between the two are, and some techniques investors ... Read Answer >>
  3. What are the major categories of financial risk for a company?

    Examine four major categories of financial risk for a business that represent potential problems that a company may have ... Read Answer >>
  4. How does market risk differ from specific risk?

    Learn about market risk, specific risk, hedging and diversification, and how the market risk of assets differs from the specific ... Read Answer >>
  5. What are the different sources of business risk?

    Explore the various sources of business risk for companies and learn how critical risk management is to a company's financial ... Read Answer >>
  6. Why are mutual funds subject to market risk?

    Find out why mutual funds, like all investments, are subject to market risk, including how the different types of market ... Read Answer >>
Trading Center