Shaping modern mining: what's at stake?

Published by MAC on 2012-11-25
Source: Nostromo Research

Shaping modern mining: what's at stake?

Virtually each week, serious criticisms are made of a mining company or its operations, although we're constantly told that industry standards are advancing. We're also regaled with continually "improved" sets of (often overlapping) voluntary principles that companies are enjoined to observe, and which some governments are slowly beginning to mandate.

Take these recent examples:

On October 9 2012, three civil society organisations accused South Korea's steel-maker, POSCO, of contravening social and environmental offences, using the OECD's 2011 expanded Guidelines for Multinational Enterprises: a Dutch and Scandinavian pension fund were also put "in the dock".

A day later, BankTrack delivered a detailed critical analysis of the draft Equator Principles draft EP11 principles published in August (1).

Earlier this month, at its first Congress, the newly-formed IndustriALL, representing the three major mineworkers' unions, headlined the necessity of forging Global Framework Agreements between individual companies and their workforces. These agreements are aimed at "set[ting] out the standards for workers' rights and decent working conditions throughout [an individual company's] operations and its supply chains."

The World Gold Council has just updated its "Conflict Free" trading scheme, to include "chain of custody" monitoring provisions for the glittering metal. Newly-introduced European Union rules oblige mining and timber companies to publicy divulge payments made to foreign governments, in conformity with recently-promulgated SEC provisions following passage of the Dodd-Frank Act.

Last week, The International Council on Mining and Metals (ICMM) further embellished its ten principles on promoting sustainable development within the mining sector.

Surely, you don't need to be told all this? Such protocols, guidelines or benchmarks - as well as critiques of them - must be firmly-fixed in your minds.

What's puzzling, however,  is that some of you invest in, or would consider backing, companies that a number of your peers have recently eschewed [See Box-1 below].

In August 2012, the Down Jones Sustainability Index (DJSI) announced it had de-listed Newcrest of Australia (admitted to the Index in September 2011) and Freeport McMoran Copper and Gold, as well as E.On, RWE and Potash Corp of Canada during the previous year.

Last March, The Norwegian Pension Fund Global confirmed earlier exclusions from its portolio of the Barrick Gold, Freeport McMoran Copper & Gold, Norilsk Nickel, Potash Corporation of Canada, Rio Tinto plc & Rio Tinto Ltd.  And - perhaps most notably - of Vedanta Resources plc and its subsidiary Madras Aluminium Company.

So does the "left hand" in your financial universe really know what the "right hand" is up to? Clearly, some of you continue bankrolling enterprises rejected by other agencies and funds - even while purporting to observe similar principles.

It's not to be expected - and probably undesirable - that every star in the investment firmament should follow the same trajectory. For example, performing a pre-IPO due diligence examination of a mining company requires the use of different tools and expertise than when assessing the possible pitfalls of a single project (2).

But both tasks have at least one essential requirement in common: all the research should be carried out by truly independent, verifiable, third parties. And that's still not what happens in may cases.

Coal Plays

That said, even the highest-standard, independent Environment and Social Impact Study, or Environmental Monitoring Plan, may neglect critical issues.

Nostromo's scrutiny of the 14-volume ESIA/SIA for GCM Resources' Phulbari coal project in 2008 discovered numerous potential hazards, embedded in the proposals, which had been inadequately tackled, or even ignored.

These included failures: to fully assess the consequences of transporting the product in dangerous proximity close to the world's most important Ramsar Wetlands World Heritage site; to gauge the impacts of acid drainage from high-sulphur stockpiles on surface waters, and of planned dewatering of a vital aquifer; and to assess underground mining as an alternative  to open-pit extraction (3).

GCM Resources had attracted major investment (inter alia from Credit Suisse and hedge funds) despite some of the ESIA/SIA's supporting studies admitting they couldn't evaluate the impacts of implementing several critical aspects of the mining plan.

The large number of such deficiencies may not be typical across the entire industry. Nonetheless, many other project assessments reflect a significant degree of disregard for their socio-environmental impacts.

One recent such instance relates to research commissioned by CoAL for its Makhado coking coal colliery endeavour in South Africa (4).

A second - certainly more egregious - example relates to a vast coal mining complex in Indonesia which was allowed to register on London's main Stock Exchange in 2011.

Bumi to bust?

You'll doubtless be familiar with the story - it's been over much of the financial press during the past two months.

In 2011, lack of "good governance" by recently-listed Bumi plc, so irked the company's co-founder, "gold standard" Nat Rothschild, that he took his fellow board members to task in a letter leaked to newspapers - and it almost cost him his job. Earlier this month, Rothschild resigned (was shown the door?) while Bumi itself appeared to be hovering on the brink of collapse.

Coincidentally, as this sad and sordid saga was unfolding, Britain's Financial Services Authority (FSA) released its recommendations on how - put simply - to correct the "light hand of regulation" that's besmirched listings on UK stock exchanges for nearly 15 years. The Bumi case provided an apt and timely lesson in just how far the blight had spread.

However, in all the column inches devoted to this scandal, virtually no journalist commented on one of its most vital aspects. In short, the rot which had set in at Bumi - conceivably reaching right to some members of its board , and in particular the Bakrie group - wasn't just due to fiscal mismanagement.

At the heart of the company's Kaltim Prima operations in Kalimantan (the world's largest exporter of thermal coal) lay a deeply-engrained predisposition to cut corners on HSE, contravene environmental regulations, abuse workers rights and threaten the livelihoods of local communities.

For over a decade, a number of NGOs, in both Indonesia and the UK, had pointed fingers at these manifold violations, supporting their arguments by diligent research and the testimonies of local people.

At Bumi's first AGM, held last July, a few shareholders attempted to probe the process by which, within the previous six months, a large chunk of the company's equity had somehow switched from one of its two key architects to a leading, but secretive, Indonesian investment fund.

The response of Bumi chairman, Samin Tan, hardly measured up to any yardstick of transparency (5). Equally telling was his reaction to claims that Bumi's annual report failed to address any of the criticisms surrounding its activities at the sharp end of its shovels. Tan passed the duty of reply to an independent director, Sir Julian Horn-Smith. But the British Knight refused to answer, declaring that the shareholders' interventions amounted to a "rant" (6).

In the light of recent events, such obfuscation hardly surprises. If Bumi's directors hadn't been exercised over fundamental questions relating to the company's structure (7) and the Bakries' indebtedness, what chance they would seriously address allegations of multiple misbehaviours in remote forest areas at 12,000 kilometres remove?

And why did a leading European investment bank stand four-square behind the Bakries in creating Bumi in the first place - a miscalculation which resulted millions of pounds in debt  it's still trying to recoup?

There had already been numerous warnings from NGOs that, by lending a "helping hand" to an outfit with such a chequered reputation, Credit Suisse not only ran considerable risk with its clients' money - but also to its reputation for promoting sustainability(8).

Critical stakes

Andry Wijaya, coordinator of JATAM (the Indonesian Mining Advocacy Network) in early October said he was "shocked that so much attention is being paid to financial irregularities within Bumi plc and PT Bumi Resources, compared to the little attention being paid to tens of thousands of people affected by these companies' activities in Indonesia" (9)

It's a valid charge that applies across the industry: one which should reverberate, not only through the brightly-painted corridors of our money-spinning institutions, but also at the highest levels of financial oversight (10).

Why do funders repeatedly seem to turn half-deaf ears to the "voices of affected communities" and ignore serious allegations of malfeasance and outright delinquency made by all of a project's so-called "stakeholders, rather than just a selected few? (11).

It's often argued that such testimony is difficult or impossible to verify. ("Just who are the '‘affected communities'? Do they possess land titles? What legal status do they enjoy as indigenous peoples in order to claim a right to exercise Free, Prior and Informed Consent? What credibility should be given to allegations by NGOs which have an implicit ‘political agenda'?")

In reality, such witness statements can usually be put to an objective test. There are independent experts willing and ready to carry one out, as well as some established procedures for doing so, including juridical ones (12).

Many a slip between cup and lip

Despite all the investigative mechanisms, benchmarks, and other tools available, many mining companies still don't apply them seriously (13).  Nor will they acknowledge that it's precisely those caught up in their digging fields and so-called "mining footprint", who are in the best position to bear witness when operations go awry.

Last month, Oxfam USA launched a report which, on the face of it, set a feather in the cap of a number of leading mining firms. This was specifically with regard to their paper guarantee of human rights, including that of Indigenous Peoples to exercise Free Prior and Informed Consent (FPIC).

However, in a significant qualification, the development agency said it did "not attempt to measure observance of corporate policies" (14).

Within just a fortnight of the report's publication, two corporations cited by Oxfam with qualified approval were accused by NGOs and community groups of failing to observe the rudimentary process towards gaining a "social licence" to operate two of their projects.

Rio Tinto was censured for performing a "flawed and inadequate" ESIA, and having violated IFC guidelines on the rights of a group of Mongolian herders at its Turquoise Hill (Oyu Tolgoi) mine (15).

The Dominican Republic's Academy of Sciences, supported by the country's Medical Association, claimed that, were Xstrata permitted to mine the Falcondo nickel deposit, this would directly breach the integrity of the Loma Miranda national park - "a treasure of natural resources, biodiversity, water production, scenic value and recreational potential" (16).

Both these companies are leaders in their respective fields, and there's little doubting their capacity (as well as civil society pressures applied on them) to achieve best practice, and enforce the highest standards across all their operations.

So it must be of considerable concern that they appear not to being doing so.

But, then, many critics are sceptical that the mining industry as a whole can substantially improve its current behaviour, if only because it lacks the financial capacity to effect the necessary reforms.

What now?

Even if the Chinese retain their "insatiable appetite" for buying metals and mined materials (and that's doubtful), the industry may never again enjoy those bountiful years of the earlier part of this century before they abruptly turned into the "nuclear winter" of 2008.

Meanwhile, we can foresee more intense company competition to grab control of the dwindling number of high-grade global deposits. Already trade unions are mounting numerous claims for higher wages and a just recognition of workers' rights (Witness the recent bloody turmoil in South Africa - see Box-2).

A cold wind is blowing towards the balance sheets, as state legislatures (notably in Africa) ratchet up their demands for substantially more income from domestic minerals output, by increasing royalties, taxes and other dues.

Just how will those of you here today - who provide the liquidity to keep the industry afloat - respond to these developments? (17).

Corporate miners seem fated to stagger even further than now, between the "rocks" of rising operational and capital costs; and the "hard places" where they have to spend considerably more on meeting higher social, sustainable development, and environmental, commitments.

Will the industry can carry on as before: prioritising open-pit and strip mining over the underground alternative; sacking more and more workers, using the argument that they can't afford to keep them; try holding out longer against redress of the injustices caused by decades of structural adjustment measures; stall even further in settling legitimate compensation claims, and in meeting dirty and damaging "legacy" obligations?

Or will mining companies collectively (among other things) halt highly dubious, though economically beneficial, practices such as river and oceanic tailings dumping; and forsake fraudulent land "swaps" which still allow them to infringe on high biodiversity areas?

Will they post realistically-priced bonds to cover systemic operational failures; and channel far more resources into recycling and reuse than is currently the case?

And when will they surrender the illusion that uranium-sourced energy can justifiably be marketed as "green"? Or accept that carbon capture and storage will never realistically cope with currently- planned expansions of coal-fired power?

Whichever path is chosen, it must be taken by us all.

Not least those of you around this table today.

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Box-1: To disinvest or not to disinvest?

Does "talking with the company" work?

In October 2012, the New Zealand Superannuation Fund announced it would sell its modest investment in Freeport McMoran Copper & Gold, citing breaches of human rights by security forces around the company's Grasberg mine in Papua (West Papua)

In fact, the Fund had been conveying its concerns over conditions at the mine at various points during the previous five years. In December 2011 the Fund Guardians' CEO, Adrian Orr, justified its decision to hold onto its investment in the following terms:

"Investing responsibly is in our mandate. We take it seriously, we do it every day and we are internationally regarded as being among the global leaders in this area. By leader, we don't mean the investor that talks the most about being a signatory to the United Nations Principles for Responsible Investment - we mean we can point to a significant amount of evidence of having put the principles into practice."

Mr Orr went on: "We have only very small, passive investments [in Freeport McMoran Copper & Gold and Rio Tinto, its joint venture partner at Grasberg], representing a fraction of a percent of the near $18 billion in the New Zealand Superannuation Fund...Nevertheless, we have over the past five years repeatedly communicated our concerns about the social and environmental issues associated with the operation of Grasberg to company management.

"We believe that our engagement, and that of other investors and of Non Governmental Organisations, has improved the practices at the mine and the disclosure of those practices...That would not have happened had we, and the other investors who got involved, simply divested our holdings".

But now, after half a decade of struggling to get the two companies to "improve" their practices in Papua, the Guardians clearly consider this strategy didn't work.

Thus, they cast strong doubt, not only on a belief that practices have substantially improved, but that their engagement would have made any material contribution to such an improvement.

Indeed, from-the-ground testimony by Indonesian human rights organisations strongly suggests that abuses of human rights have accelerated over the past two years, for which Indonesian police and military forces have largely been responsible.

In late 2011, Adrian Orr had contrasted his Fund's then-position with that taken by the Norwegian Pension Fund Global in 2007 when it threw Freeport out of its portfolio; and two years later, also ejected its partner, Rio Tinto, on similar grounds.

He argued that: " Different funds have different approaches to Responsible Investment based on their portfolio holdings and the legal frameworks particular to the fund. This is not a competitive proposition (sic).

"There are some differences between the Guardians and Norway's approaches to responsible investment - we exclude some stocks the Norwegians do not and vice versa - and this is for clearly stated reasons arising from legislation, investment mandates or both (as in our case)."

"However", Orr added, "both the Guardians and the Norwegians use both exclusion and engagement."

How much slack, how much time, should a company be permitted to set to correct its malfeasance or deficiencies, before a fund concludes that it's beyond the pale, or at any rate cannot be persuaded to reform, merely by offering dialogue?

Orr had defended his Fund's continued investment in Freeport-Rio Tinto, saying that: "For us, walking away might be simpler and quicker than staying engaged, it might avoid critical coverage, but it changes nothing."

Since then, his Fund has indeed "walked away". And few observers expect this to change anything - though at least it signals a moral stand taken on behalf of New Zealand citizens.

It's also debatable that exclusions by Norway's Pension Fund Global have been of much significance in compelling improvements by the six other mining companies from which it has disinvested (see main text).

What we do know is that other funds (including two Scandinavian pension funds) acknowledged the value of research undertaken by the country's Council on Ethics, before they too decided to pull their money out of Vedanta Resources plc.

These examples - and the discourse around them - strongly suggest that it's often far too late to make things better, once the original investment decision has been made.

Arguably, in all the cases mentioned, there was sufficient and compelling evidence available at that time to conclude that the investment would be unsafe, and would contribute to violations of existing principles and guidelines.

[Sources: Guardians respond to Metro magazine story, December 2011 issue,

Auckland (28 November 2011); New Zealand Public Fund bids Goodbye to Freeport, Mines and Communities website, 2 October 2012: http://www.minesandcommunities.org/article.php?a=11928]

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Box-2

Why are investors in the mining industry so silent?

by Malcolm Gray and Bonita Meyersfeld

Public Eye News (South Africa)

17 September 2012

SINCE August 16, the South African and international media have been immersed in commentary and discussion about the tragedy at the Lonmin mine at Marikana.

Almost every conceivable voice has been heard, except one: those who invest in and fund mining activity. It is for this reason that an investment manager and a human rights lawyer have decided to merge their voices.

Institutional investors are bound by their fiduciary duties to act in the best interests of their clients and to maximise profit. These were the key principles governing investment management for many years.

Increasingly, the interpretation of the "best interests of clients" is changing. Both international bodies and South African law require investors also to embrace a broader understanding of fiduciary duties and take into account material aspects that may affect value and investment decisions, including considerations related to environmental factors, social issues and good governance.

As such, a more challenging hurdle is emerging. Investors should be investing in companies ("portfolio companies") that will generate appropriate risk-adjusted returns, but they should also be thinking about risks associated with human rights and environmental violations.

Enter Marikana, which raises a provocative question: what happens when a portfolio company breaches a human right or environmental or governance standard? When institutional investors invest in a corporation that is connected to such a breach, the questions follow: are they complicit in the harmful conduct? Do investors have a legal obligation to take steps to prevent such violations?

And, if so, what are the possible steps? Screening, engagement, divestment or litigation? What should the asset owners (pension fund members or individual investors) expect from their fiduciaries?

Given the events in the mining sector in recent weeks, it is interesting to note that we have heard or read very little from the investment community - that is, the people who own these mining companies on behalf of the savers of the nation.

This silence is also symptomatic of a broader issue in the investment community (both in SA and abroad), namely, how much thought and analysis investment managers actually give to social and environmental considerations, which are key issues for a business's long-term sustainability when making investment choices.

Investment choices appear increasingly to be driven by short-term considerations, and one wonders about the value of the expensive and complex research provided by the broking community.

Is the broking community able to integrate these material considerations - material but difficult to quantify - into its assessment of corporations, and are investors able to interrogate and challenge such reports?

There similarly appear to be discrepancies between the various ratings a corporation can be awarded (including credit, social and environmental ratings) and the reality on the ground: some corporations with the highest ratings demonstrate corporate vulnerability.

The events at Marikana raise the question: is business as usual really sustainable business? This is not to be simplistic about the multitude of factors that feed profit and loss in any industry, not least of all mining.

It does, however, speak to the need for a more balanced approach to investment considerations, especially in the extractive industry, an industry with such a high emotional profile.

In our assessment (borrowing from much more detailed work over the years), this balance includes three parts: the natural capital controlled by the state (the resources themselves are owned by the state and, as such, the state acts as a key allocator of licences while extracting royalties, rents and other taxes); financial capital (equity and debt providers, with return and risk expectations, which fund the enterprise, its capital investments needed to procure, open up and exploit the resource and working capital); and social capital (the workers and communities who provide the human energy needed to extract, operate and sustain the overall operations and around which these operations are or should be traditionally sustained).

There is a need for this collective to be in balance. Interests may differ but, in the end, successful, sustainable ventures require all these parties to receive fair reward for their contributions.

And within this collective, there is the need for a binding, sustainable social contract that recognises that, without any one of these players, mining would not be possible. In our view, it appears that this social contract has been eroded in SA. Or perhaps it never really existed.

In addition, and possibly accounting for the relative silence to date, the providers of capital appear lost in the context of the politics, social disintegration, inequality and the apparent lack of true leadership. One of the reasons for this absent voice is that we do not all speak the same language.

Activists, the government, business, investors, trade unions and workers speak in different tongues. Each has a language with terms of art, jargon and emotion that others may not understand.

In many respects, we need the famous Babel Fish of The Hitchhiker's Guide to the Galaxy, which translates every language to facilitate universal understanding.

Without this, a resolution to the instability at Marikana and in the platinum belt is going to be hard to achieve.

In the coming weeks, we urge the investors and shareholders to account for their role in the events of the past weeks and going forward.

There is a deep emotional link to what, for many reasons, is increasingly considered a sunset industry.

We need the investment community to be engaged, to contribute by identifying the steps needed to mitigate harm, respect human rights and develop a constructive, socially and financially relevant extractive sector in SA. Society expects nothing less.

The strike at Marikana increasingly appears not to have been an event of random agitation but an event reflective of a longstanding, slow-burning and long-ignored demand for change and dignity.

Investors need to hear that demand and become engaged stakeholders in the emerging dialogue.

It is important that investors listen, are heard and can stand accountable as key stakeholders in the longer-term sustainability of the industry.

• Gray is a portfolio manager with Investec Asset Management. Meyersfeld is associate professor and director at the Centre for Applied Legal Studies at Wits University.

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Notes

1) The complaint against POSCO is that the South Korean steel-maker failed to conduct comprehensive due diligence before committing human rights and environmental violations at its massive integrated iron-steel-transportation project in eastern India. It was laid at OECD National Contact Points in the Netherlands, Norway and South Korea, against Dutch pension fund ACB, the Norwegian Pension Fund Global, and POSCO itself. See: http://oecdwatch.org/news-en/groups-file-oecd-guidelines2019-complaint-against-korean-steel-giant-posco-and-financing-pension-funds-for-environmental-and-human-rights-concerns-in-india

During the past calendar quarter, similar cases have been filed under the revised OECD guidelines against Excellon Resources, BHP Billiton's subsidiary Minera Yanacocha, and Compagnie Miniere de Sud Katanga.

For its part, BankTrack argued that: "[T]he strong public demand for greater transparency of banks... will not be satisfied by the feeble commitments in Principle 10 to list number and categories of transactions, but without providing any information on the nature of these transactions and their potential impact on people and planet."

Moreover, despite the draft's reference to the IFC Guiding Principles: "EPIII will also not provide any mechanism accessible to affected communities or the public to address cases of non-compliance with the Principles in a transparent, fair, or effective manner."

2) Monitoring a project's chain of supply (or custody) is clearly desirable, and in the case of DR Congo "conflict minerals", now mandatory in the USA and the European Union. However, only a few mining companies contemplate applying similar oversight to all their operations. In any case, achieving complete supply-chain transparency is a hopeless prospect, given the extent to which some minerals cease being trackable beyond a certain stage, as they are mixed or processed with ores of different origins .

3) See: Phulbari Coal - A Parlous Project: A critique of the GCM Resources PLC Environment and Social Impact Assessment (ESIA) and Summary Environmental Impact Assessment (SEIA) for the Phulbari Coal Mine Project in Bangladesh, Prepared by Nostromo Research For Bank Information Center, 12 November 2008.

4) See: Mine Not - Waste Not:A preliminary critique of aspects of the CoAL (Coal Africa Ltd) Makhado Colliery Project Environmental Impact Assessment (EIA) and Environmental Management Plan (EMP) at: http://www.gaiafoundation.org/sites/default/files/documents/MineNotWasteNot_december2011.pdf

5) See: http://www.minesandcommunities.org/article.php?a=11759

6) See: http://www.minesandcommunities.org/article.php?a=11939

7) It might take the efforts of a forensic scientist to uncover the lines of control over companies associated with the Bakrie Group and Samin Tan's own investment empire. Suffice to say that, when the scandal broke,  the two groups appeared to jointly hold a 47.6% stake in Bumi plc, with Samin Tan holding 29.99% of voting shares. Bumi owned 24.9% of PT Bumi Resources (whose accounting failures seem to be at the heart of the recent allegations). The situation could change any day. In terms of responsibility for the operations of Kaltim Prima Coal - PT Bumi's flagship mining complex in East Kalimantan - it's  important to note  that, in its 2012 Annual Report, Bumi plc boasted that "with our interests in PT Berau and PT Bumi, we have created on a 100% basis (sic) the largest thermal coal producer in the world".

8) Credit Suisse pledges to avoid investing in projects where there is „Tropischer Primärregenwald, Wälder mit hohem Schutzwert (HCVF) und gefährdete natürliche Biotope, wo die Tätigkeit zu signifikanten Verschlechterung oder Umwandlung führt (ausser bei Altlasten aus früher eingegangenen Beteiligungen)."

9) Andre Wijaya might have added that Rio Tinto (which ,until 2003, was co-owner and manager of Kaltim Prima Coal) still bears some responsibility for a legacy of abuses in Indonesia, dating back 22 years; and some of which continue in Indonesian-controlled West Papua (see: Box-1 "To disinvest or not to disinvest?").

10) UK-listed mining companies & the case for stricter oversight: Case Studies And Recommendations, London Mining Network, February 2012.

11) The term "stakeholder" has been widely misused, or narrowly-construed by mining companies. For example, CoAL (Coal Africa Ltd) failed to invite some potentially impacted farmers and indigenous communities to participate in various stakeholder discussions about important aspects of its Makando colliery project, until pressure was applied on the company in late 2011.

12) In January 2008, a leading Indian social activist, Prafulla Samantara, was refused permission to plead an environmental violation case against Vedanta's operations at its Jharsaguda smelting complex in Orissa.

India's National Environmental Appellate Authority had judged that Prafulla was not a "person aggrieved", since he wasn't directly affected by the project. However, on May 6th 2009, Delhi's High Court concurred with Mr Samantara's argument that, as an environmentalist with close connections to communities around the smelter site, he was indeed an "aggrieved" party

Not only did the court accept his argument; it also delivered an eloquent ruling as to why activists like Mr Samantara play a vital role in safeguarding rights and obligations broadly set out under the country's constitution.

Said Judge S Ravindra Bhatt: "If standing before a special tribunal, created to assess impact of projects and activities that impact, or pose potential threats to the environment, or local communities, is construed narrowly, organizations working for the betterment of the environment whether in form of NGOs or otherwise, would be effectively kept out of the discourse that is so crucial an input in such proceedings..."

Vedanta was ordered to pay 50,000 rupees (about US$1,000) to Prafulla by way of a fine and in meeting his costs. See: http://www.minesandcommunities.org/article.php?a=9245

13) One of the eight vital principles for "responsible mining", set out earlier this year by ex-World Bank advisor Professor Robert Goodland, advised an expansion of the earlier definition of stakeholder. He said that: "A mining project ESIA process should insist on the setting-up of an independent, and representative citizens' advisory council (CACs), as called for by the International Union for Nature Conservation (IUCN)" [Best Practice Responsible Mining, Address by Robert Goodland to an Extractive Industry Review seminar hosted by The Bank Information Center in June 2012].

14) The report said that extractive corporations, including mining companies, have

"increas[ed] their stated commitments to human rights...In some cases, they have been "adopting policies in favor of securing community approval prior to projects moving forward".

It suggested that this "change within companies in the last three years is likely due in large part to the intensification of controversies and conflicts surrounding oil, gas and mining projects coupled with new international lending standards set by the World Bank's private sector lending arm - the International Finance Corporation".

Oxfam USA reviewed the public policies of 28 oil and mining companies. It said that five of these (Inmet, Newmont, Talisman Energy, Rio Tinto and Xstrata) "have made explicit public commitments to Free Prior Informed Consent (FPIC), a number which has more than doubled since a 2009 Oxfam America report".

Another eight companies (including Anglo American) had "made somewhat qualified or indirect commitments to FPIC".

The report also found that approximately two-thirds of the companies surveyed "now have incorporated the concept of community consent or less strong concepts such as community support or social license in their policies regarding development activities, either directly or indirectly through their commitments to other standards. "

Companies - including Barrick Gold - which in 2009 had "only referenced consultation or community engagement, now have policies more aligned with community support or social license principles".

[See: Experts Find Increasing Trend of Oil and Mining Companies Adopting Human Rights Policies, Oxfam USA press release, 26 September 2012.

The full report is downloadable at: http://www.oxfamamerica.org/publications/community-consent-index

15) See: http://www.minesandcommunities.org/article.php?a=11936

16) See: http://www.minesandcommunities.org/article.php?a=11927

On October 23rd 2012, the UNDP announced that it had agreed to the Dominican Republic government's request to review Xstrata Nickel's environmental impact study for the Loma Miranda-Falcondo project.

17) Ernst & Young's latest prognosis for the sector is instructive.

The financial services group warns of "A more complex and extreme risk environment" and that: "The bottom line is that if returns start to wane, then there is a greater imperative for organizations to tightly and more effectively manage their risks to maintain an adequate risk/reward balance."

It goes on to comment that:

"On the surface, the top ten risks don't look all that different from last year, but below the surface there has been an absolute shift that has made them significantly different. The risks facing the sector have become more extreme and more complex over the past 12 months due to the fast changing investment and operational environment. Two significant contributing factors are:

1. Softening commodity prices which have seen mining and metals companies taking on more risk relative to the short term returns

2. Capacity changes in terms of skills and infrastructure which have affected organizations' short term commitment to capital projects with life of mine of at least 10 years

Ernst & Young concludes that: "Resource nationalism retains the number one risk ranking as governments seek to transfer even more value from the mining and metals sector. Many governments around the world have now gone beyond taxation in seeking a greater take from the sector, with a wave of requirements introduced such as mandated beneficiation, export levies and limits on foreign ownership.

"There is no doubt projects around the world have been deferred and delayed, and in some cases investment withdrawn altogether, because of the degraded risk/reward equation.

"The uncertainty and destruction of value caused by sudden changes in policy by the governments of resource-rich nations cannot be understated. Mining and metals companies looking to preserve value are actively negotiating value trade-offs with less politically sensitive policies than resource nationalism.

"As this risk continues to grow in significance, we don't expect a slowing in this trend. Indeed, mining and metals companies must continue to engage with governments to foster a greater understanding of the value a project brings to the host government, to better communicate the implications of changes in the risk/reward equation, and to more effectively negotiate appropriate trade-offs that preserve the value to both the companies and the governments.

"Global skills shortage and infrastructure access retained second and third spots on the risk rankings this year. Both these risks are more acute in more locations now than they were 12 months ago, highlighting the supply capacity constraints that have hampered the sector for some time. Rapidly escalating costs over the past year, where rising prices have not covered this impact, have brought further challenges for mining and metals companies, pushing cost inflation up from number eight to four on our risk rankings.

"Sharing the benefits makes its debut at number nine this year. The relative prosperity of the mining and metals sector at a time when many other sectors in the global economy are struggling has seen this new risk emerge for mining and metals companies. Stakeholders ranging from the government to employees, the local community and suppliers, feel they are entitled to a greater proportion of value created by mining and metals companies. This has forced companies to balance the expectations and the needs of their many stakeholders. When they fail to do so, it results in strikes, supply disruptions, shareholder activism and governments using their power to achieve their portion through resource nationalism.

"Miners are willing to yield some returns on the appropriate transfer of risk to stakeholders. However, many of the stakeholders, who want an increased share of the mining and metals profits, are not taking on additional risk for their increased return, leaving the mining and metals companies to carry all of the risk.

"Rounding out the top 10 risks are cost inflation, capital project execution, social license to operate, price and currency volatility, capital management and access, and fraud and corruption, with almost all of the top 10 risks more complex and more critical for mining and metals companies now than they were last year.

2008 - 2012

01 Skills shortage - 01 Resource nationalism

02 Industry consolidation - 02 Skills shortage

03 Infrastructure access -  03 Infrastructure access

04 Maintaining a social license to operate - 04 Cost inflation

05 Climate change concerns - 05 Capital project executiom

06 Rising costs (cost inflation) - 06 Maintaining a social license to operate

07 Pipeline shrinkage - 07 Price and currency volatility

08 Resource nationalism - 08 Capital management and access

09 Access to secure energy - 09 (new) Sharing the benefits

10 Increased regulation - 10 Fraud and corruption

"In a rising market, the returns have justified taking on more risk. While the demand outlook remains strong, the price peaks have passed and so there is a much greater imperative for mining and metals companies to remain nimble and sure-footed in how they manage these fast-changing risks in order to balance the relative risk/reward equations demanded by both the Board and shareholders"

See: Business risks facing mining and metals 2012-2013, Ernst & Young (undated).