Mining boom to bust ... who really benefits?

Published by MAC on 2015-03-22
Source: Herald Sun, Bloomberg, Observer

Bye-bye boom billionaires

Herald Sun

18 March 2015

AUSTRALIA is waking up to life after the biggest resources boom in our history. So too are our boom billionaires, as one by one they are being “de-billionairised”.

First to go was Newcastle’s oh-so-briefly favourite son, former sparky Nathan Tinkler. During his brief sojourn at the top he ploughed money into two local football teams, one in rugby league and one in soccer, and bought a sprawling, money-chewing, racing stable.

Tinkler made his — paper — fortune by parlaying cascading interests in coal mines. At his, and the coal price, peak in early 2012, his net worth was reputed to have topped out at $1.2 billion.

Now all of that’s gone — the billion dollars, the football teams, his Patinack racing stables; along, literally, with Tinkler himself, who’s disappeared from view.

We know that Clive Palmer has oh-so-publicly “lost” two out of “his” three senators. He’s also well and truly lost his billionaire status.

The once backroom political hack and PR spinner made his fortune by buying the Queensland nickel operations once owned by another ex-high flier, Alan Bond, just as the nickel price went ballistic.

Palmer added sprawling interests in coal and iron ore and at the peak his wealth was estimated at $5.5 billion by Fairfax Media’s BRW.

Now, that publication always had a tendency to exaggerate — Forbes magazine never listed him higher than just shy of a billion, albeit, after commodity prices and so commodity paper fortunes had started to slide.

But even BRW had him down to just $1.2 billion last year — Forbes was about half that; and he’d now be lucky to scrape together a couple of hundred million.

So far he’s still got the Rolls and his private jet, but his Coolum resort has been closed “for renovations” and his plan to build a replica of the Titanic has sunk beneath the waves.

Now it’s Andrew “Twiggy” Forrest’s turn next in the “de-billionairising” spotlight — although right now, on paper, he can still claim billionaire status.

The big plunge yesterday in the Fortescue share price, though, slashed the gross value of his one-third stake in Australia’s third biggest iron ore miner to below the $2 billion mark. Barely a year ago his stake was worth more than $6 billion.

It’s interesting also to note how Forrest’s — and all the other billionaires’ — fortunes have fallen further in international terms. At the Aussie dollar’s peak around $US1.10 he had close to $US7 billion.

Now he’s down to his last $US1.5 billion, tops.

The final member of the quartet is Gina Rinehart — still, Australia’s richest woman and once reputedly the richest woman in the world.

At the peak, her fortune was estimated at up to $20 billion. It’s come down a lot from there. And she’s now put a very big, slice of what’s left on the line in building a $10 billion iron ore mine — just when the world, and more particularly the Chinese steel mills, have got iron ore piling up all over the place.

Rinehart is in a very strange place. Although she has a coal project with Indian partners in Queensland, she really is totally “pot-committed” to iron ore in the Pilbara.

The core of her wealth derives from the royalties she gets from Australia’s biggest iron ore producer, Rio Tinto, over its original Pilbara mines — a legacy from her late father, Lang Hancock.

She then doubled down on Pilbara iron ore by joint venturing the massive Hope Downs mine with Rio.

Then she doubled down again on Pilbara ore by striking out on her own — with a consortium of Japanese, Korean and Taiwanese buyers — to spend up to $10 billion building the massive mine at Roy Hill.

What makes her position really odd is that the more ore Rio pumps out from its original mines and Hope Downs, the more money it puts in one of Rinehart’s pockets.

But at the same time it threatens her very serious financial damage with Roy Hill. Her three partners will “take” their 30 per cent of its 55 million tonnes annual production; but she will have to sell her 70 per cent wherever she can and at whatever price she can get — a price set by Rio and BHP Billiton’s ruthless expansion programs. That said, it is actually what she and Twiggy Forrest have done that has really swung the iron ore demand-supply balance.

Forrest and Fortescue have gone from zero to 155 million tonnes of annual output in less than a decade and Rinehart is about to dump another 55 million tonnes a year on to the market.

Further, Fortescue’s ore is low-grade and so gets a much lower price than Rio and BHPB get. Fortescue’s cost to produce it is also about double that of BHPB and Rio.

At an iron ore price about $US55 a tonne, BHPB and Rio will still make very handsome profits, but Fortescue will be right on line to even just wash its face in cash terms. If the iron ore price goes any lower, Fortescue’s share price and Forrest’s fortune will both be shredded.

It would be an, ahem, irony of ironies, if Rinehart’s Roy Hill ended up “de-billionairising” Forrest, while Rio’s ruthless efficiency kept Rinehart in that category.

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Miners woo communities with soccer fields, bull rings and guinea pigs to unlock US$25 billion in stalled projects

Firat Kayakiran and Andre Janse van Vuuren

Bloomberg News

17 March 2015

Schools and clinics. Soccer fields and bull rings. Even plump guinea pigs — to eat.

From South America to Africa, mining companies are throwing all that and more at communities to quiet growing opposition to controversial projects.

“There’s something like US$25 billion worth of projects tied up or stopped,” Mark Cutifani, chief executive officer of Anglo American Plc, said in an interview. “We have to get all those relationships right.”

While opposition to mines is nothing new, the issue is a growing concern for miners like Anglo American and executives are increasingly speaking out. Billions of dollars are at stake, they say.

Their opponents say the companies despoil the environment and often fail to benefit local economies, or at least not as much as they claim.

Push-back has been growing since the 1980s, when communities were rarely consulted about new mines. Now, local support is critical, according to Thras Moraitis, head of strategy at Xstrata Plc before its 2013 takeover by Glencore Plc.

“You can’t get a permit without involving full and prior consent of the local communities,” he said.

Communities from Peru to South Africa are mobilizing to negotiate more successfully with the companies, according to two studies released late last year. Residents who are relocated to make way for mines are demanding more in return.

Power, Water

In Peru, it took six years of talks before work could begin on the Las Bambas copper project, said Moraitis, who’s now a principal at X2 Resources, a mining investment vehicle founded by former Xstrata managers.

Clinching the Las Bambas deal required building a new village with six-bedroom houses, a bull ring and a soccer pitch atop a 4,000-metre (13,000-foot) mountain. The village, Nueva Fuerabamba, has power, running water and sewage-treatment facilities.

“We call it New York in the Andes,” said Andrew Michelmore, CEO of China’s MMG Ltd., which bought Las Bambas from Glencore in July for US$7 billion.

MMG has moved three-quarters of the villagers and expects to complete the relocation this quarter.

Relocation plans cover minute details. In Fuerabamba, for instance, Xstrata brought in husbandry experts to breed healthier, bigger guinea pigs, which are a common food in Peru and Ecuador.

Local Communities

“That’s how detailed you have to get into when you are working with communities,” Moraitis said in an interview.

Increasingly, executives expect to face resistance from local communities.

At the same time, it’s slowing development of more modern projects and adding new costs as the industry struggles with declining profits. A total of US$79 billion is estimated to be spent on new projects in 2015, according to Macquarie Group Ltd. Unlocking delayed projects could make a significant impact on the global minerals trade by boosting supplies of commodities like copper and gold.

In December, a study group at the Kellogg School of Management at Northwestern University in Illinois reported what it termed a growing lack of trust among local communities. The cost of that is “both real and significant,” the authors wrote in urging companies to work harder to integrate social impact, including human rights issues, into their earliest planning for new projects.

New Projects

“It’s going to remain challenging for communities, countries and mining companies in the near future,” Tom Albanese, CEO of Vedanta Resources Plc, said in an interview. “It will contribute to reduce the number of new projects that do get developed. It makes it harder for supply to be responsive.”

Vedanta shelved plans in 2014 to mine bauxite in India’s Niyamgiri mountains after local tribes, who believe their god resides in the hills, rejected its plan.

Discontent among local communities can be costly.

Barrick Gold Corp. found that out in 2013 when it suspended construction of its Pascua-Lama project on the Chile-Argentina border after a court accepted an injunction filed by indigenous groups. The world’s biggest gold producer has since written down the value of the project by about US$6 billion.

Sensitive Project

Anglo American’s plan to expand the continent’s largest iron ore project in South Africa’s arid Northern Cape province shows how difficult it can be to win support from a community.

Cyril Briesies is one of 3,400 residents of Dingleton who must move by 2016 for the project to move forward. While many of his neighbours have already struck deals with Anglo’s Kumba Iron Ore unit, he’s one of about 36 households who are holding out for a better settlement.

“They never negotiate in good faith and at times it can get downright malicious,” said Briesies as he sat in his four-bedroom house on a plot about half the size of a soccer field. “This is valuable land. If this house is so important to them, they can negotiate a price that will also suit me.”

The relocation of Dingleton also includes the preparation of new locations for 24 businesses, schools and a clinic, a police station, parks and seven church congregations.

“This is a sensitive project; we’re dealing with people’s homes,” said Yvonne Mfolo, Kumba’s project leader of relocation. “There is still this lingering feeling that they may not be doing the right thing, or that they should hold out for more.”

— With assistance from Jesse Riseborough in London.

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The global extraction industry has become hallmarked by plundering, violence and political corruption

Ed Vulliamy

Observer

22 March 2015

Rafael Marques de Morais’ reports on the links between diamond mining and corruption in Angola draw attention to the growing causes for concern worldwide about the extraction industry

Index on Censorship could not have awarded one of its Freedom of Expression prizes more estimably than to Angolan reporter Rafael Marques de Morais. In doing so, Index prises open Marques’s principal discourse: the prising open of the land itself by those who plunder for profit without heed.

Marques’s writing in Angola on the links between diamond mining and government corruption draws attention to the growing causes for concern around the world in relation to the industry of “extraction” and how it behaves financially, politically and morally as it pursues sought-after minerals and commodities to fuel economic growth.

Across the globe, the management of extraction in poor countries rich in resources – by government and the multinationals they invite in – has become hallmarked by scandal, violence, corruption and environmental calamity. Vast international conglomerates are often faced with allegations that they abet the plundering of natural resources, usually in league with local officials and almost always to the detriment of indigenous communities. Only a fraction of the wealth accrued from extraction is left in the host country – to say nothing of the communities often “resettled” – ergo forcibly removed – from the land concerned. This nexus of politics and capitalism leads invariably to violence and death.

Ovid, who wrote around 10BC about the origins of man, accounted for the genesis of warfare in these terms: “The land, which had previously been common to all, like sunlight and breezes, was now divided up far and wide by boundaries, set by cautious surveyors. Nor was it only corn and their due nourishment that men demanded of the rich earth: they explored its very bowels, and dug out the wealth which it had hidden away, close to the Stygian shades; and this wealth was a further incitement to wickedness. By this time iron had been discovered, to the hurt of mankind, and gold, more hurtful still than iron. War made its appearance, using both metals in its conflict, clashing weapons in bloodstained hands.”

This pursuit of resources goes on, as does the attendant fallout – environmental, political or economic. Extraction companies seem to find it difficult to fill their coffers without harming people too. The most publicised recent example was perhaps Deepwater Horizon, for which BP was punished speedily because the disaster occurred in the United States.

But BP’s destruction was less than that of Royal Dutch Shell in Nigeria, where – after a litany of spillages, gas flares and other appalling accidents which Shell sought to blame on “saboteurs” and others – nine opposition activists, including Ken Saro-Wiwa, were hanged by the government. Shell stood by, insisting that the company “does not get involved in politics”. The company recently settled with an $84m (£56m) compensation payout over the ravages from two spillages in Nigeria, avoiding the PR excruciation of a high court case in London. Shell admitted that the massive leaks came from pipe corrosion.

“If Shell had not been forced to disclose this information as part of a UK legal action,” said Audrey Gaughran, director of global issues at Amnesty International, which pushed the case, “the people of Bodo would have been completely hoodwinked.”

Oxfam has made extraction one of its priorities. The charity’s southern Africa programme adviser on extraction industries, Titus Gwemende, recently toured Mozambique where the Anadarko company of Houston is preparing to extract natural gas, and found that “key community leaders have been harassed and threatened [by the authorities] if they continue to attend meetings hosted by NGOs on resettlement issues.”

Harassment,” he notes, “tends to precede violence.” It certainly does. I was born on the day of a coup in Guatemala in 1954, staged by the CIA and United Fruit Company, ousting an elected government to protect commercial interests. The country has barely recovered from the legacy of strife sown that day, and Oxfam asks whether its continuation is now embodied by the extraction industry. A recent report finds that where Tahoe Resources of Nevada mines, there follow “crackdown, arrests, false charges” against those opposed to it. Troops opened fire on one peaceful protest.

“Today,” says Oxfam, “we are again seeing a campaign of repression using Guatemalan military and intelligence assets to control the future of economic development. Meanwhile, a US company ignores the backlash and pushes forward with a mine despite overwhelming opposition. Guatemalans should have the right to decide about their economic development and whether or not mining moves forward.”

So land and people trampled, companies armed and rampant. But how does all this happen? Global Witness, based in London, focuses attention in the British capital; much of its work concerns the “enabling” business that facilitates these atrocities.

“It is one thing to go round the world telling people they are corrupt,” says Leigh Baldwin of Global Witness’s special investigations team. “London is a global centre for enablers of mining corruption. London is a hub for many of the world’s most exploitative mining and oil deals. Lawyers, stock exchanges, banks and even the courts have acted as enablers in deals linked to grand corruption, violence and environmental degradation”.

Baldwin cites the so-called “secret sales” scandal in Congo as “one of the most shocking examples of questionable deals by London-listed companies.” He says that Congo “lost out on at least $1.4bn through mining deals struck by blue-chip firms Glencore and ENRC – that’s equivalent to twice what the country was spending on health and education combined.” The companies acquired assets allegedly sold off cheap by the state to intermediaries.

African mining scandals, says Baldwin, “have roots in Mayfair”, while “oil deals in London have links to violence in Congo”. Global Witness claims British oil company Soco International and its contractors “have made illicit payments, appear to have paid off armed rebels and benefited from fear and violence fostered by government security forces in eastern Congo, as they sought access to Africa’s oldest national park for oil exploration.” Soco denies the allegations. Virunga Park is home to one of the last colonies of mountain gorillas – our immediate evolutionary predecessors, facing extinction.

London harbours resistance as well as atrocity. Law firm Leigh Day is to the fore in taking up the cases of those defiled, such as 33 Peruvians who in 2011 won a settlement with UK-based Monterrico Metals – again, the company avoided a case in open court – after they were tortured for protesting against a copper mine, Rio Blanco. The claimants said Monterrico was complicit in the torture, and the death of one man. “We have seen no evidence suggesting the company complained about the police conduct or investigated the protesters’ mistreatment,” said the law firm.

The ONE Campaign, a global grassroots organisation of six million members, seeks to hold governments to their word on the issue it sees as critical to ensure responsible extraction – transparency in the dealings of energy and mining companies.

ONE’s policy director for transparency, David McNair, cites the passing in America during 2010 of the Dodd-Frank law, which overhauls the corporate regulatory system and – among other things – obliges mining and energy companies to declare their dealings with governments. Implementation of the legislation is held up by its being contested by the American Petroleum Institute, “in which Shell and Chevron are prime movers”, says McNair.

“The idea of transparency is getting a lot of traction”, he says, “and the UK has incorporated into law Europe’s equivalent of Dodd-Frank – the European Accounting Directive – quite strongly. But its implementation is undermined by the energy companies; at every stage some big oil companies have been trying to find loopholes – most recently submitting industry guidelines to the UK law that in our view are weak, misleading and contrary to the law. Big oil talks about leading the way on transparency, but their actions are all too often about avoiding it. We are calling on the UK government to reject these guidelines”.