London Calling On A New Hazard, An Old Mine, Obscene Pay - And A Chinese Takeaway

LONDON CALLING on a new hazard, an old mine, obscene pay - and a Chinese takeaway

by Nostromo Research

12th May 2006

The Chronicles of Nano

A year ago, we were drinking toddy under the palms of a Kerala village (yes, its a hard life being a mining columnist), with a scientist who's a legend in India and elsewhere for his research into the hazards of mineral sands mining and uranium. For hours he regaled us with his thoughts about the promises and some possible dangers of nanotechnology. At the time it was difficult to understand the subject or to relate it to our common concerns.

Then, belatedly, we discovered that two of our favourite targets, BHPBilliton and Rio Tinto, are leading the way in "developing" nanotech products in Australia, along with two of the planet's biggest other destroyers, Dow Chemical and Dupont.

It's not hard to see why the latter two are at the forefront of grabbing (and patenting) this capacity to harness matter, and make it profitable through new consumer products. But why the world's two biggest mining companies?

The answer was partly provided by a statement made by Australia's federal Treasurer, Mr Bumby, last September:

"Companies like BHP Billiton, Rio Tinto and Mindata are working on separation nanotechnologies and bio-extraction applications for particles and powders."

Future possibilities, added the Australian "Age", include "mining without surface disturbance and processes to eliminate tailings and mining waste, two areas of contention for the industry."

Far be it that London Calling should call such noble aims into question - except that we've been hearing this type of thing for ages. Was it really ten years back that one of the doyens of the industry declared the advent of mining's "Green Decade"?

No - in fact it was a full fifteen years ago.

A cynic might think that BHPBilliton and Rio Tinto are, at least partly, embarked on "doing a BP". That's an allusion to the recent attempt by Britain's biggest company to persuade us that it was going "Beyond Petroleum.".

Most of the public quickly saw through that slogan and the company soon pulled it. Of course BP has gone on to vigorously initiate new oil and gas projects while paying token respect to "alternative energy".

Whether nanotechnology will go the same way - being pushed as a means of reducing resource exploitation, even as the companies expand conventional extraction - is moot. In the meantime we applaud those who are raising the alarm about this self-serving industrial equivalent of that other "promising threat" to our world: the human genome project.

Deep in the sh--t

In February 2003, London Calling speculated that a mine disaster, such as occurred in 1996 at Marcopper on Marinduque island in the Philippines, might soon afflict the huge South Deep gold mine in South Africa. Harmony Gold had abandoned its own workings, adjacent to those at South Deep. The latter's owners, Placer Dome (the Marcopper culprit) and Western Areas, were then threatening to turn off the pumps at Harmony. This presaged a break-out of millions of gallons of water through inadequate "plugs" between the two mines. And that would have been an uncanny replay of what happened at Marinduque.

The deluge didn't happen (for which we'd be the first to sigh relief.) What has happened in the intervening years is that, last October, Brett Kebble of Western Areas was murdered in a shooting which some observers impute to his corrupt involvement with members of the ANC government. His father was chucked off the board of DRD (Durban Roodepoort Deep) for dodgy dealings, and the company has gone on to earn itself the unenviable reputation of being one of the most damaging of South African-based miners, because of its operations at Tolukuma in Papua New Guinea. The Kebble jr. fallout continues: last month JCI Ltd in Johannesburg claimed that 500 million rand had "gone missing" under Brett's stewardship. Meanwhile Placer has been taken over by Barrick Gold.

Why drag all this up now? For the good reason that Western Areas' management at South Deep seems as deplorably negligent these days as it was in 2003. Last week, a loaded multi-tonne skip, and the 6.7 km of rope to which it was attached. fell 1.6 km down one of the main shafts at the mine. The story was considered important enough by Mineweb to feature in its postings for Monday May 8th. The world's leading daily e-news mining source told readers that, according to the latest Western Areas annual report, "the skip when fully loaded weighs 28 tonnes. That is the equivalent of about five fully grown male African elephants."

Fortunately neither elephants nor human beings were in the skip at the time - doubtless due more to luck than good judgment. But the accident was serious enough to set back South Deep's output by a probable twelve months. So far, Barrick/Placer hasn't made any comment on the event. The Canadians own only half of South Deep and depute responsibility to their South Africa partners - so why hold up their hands to
a potentially deadly scenario?

This is the tactic Placer has employed over the past decade, seeking to divest itself of responsibility for its unruly operations in the Philippines. And now staff appointed by Placer have been suspended from South Deep, for possible fiddling of the tendering books.

Again, one can't help being reminded of the fallout from Marinduque when two Placer managers were indicted by the Philippine president for alleged criminal irresponsibility.

Ironically, on the same day the South Deep story broke, so did news that both AngloGold and Harmony are planning to revive the South African gold industry, now that prices have reached their highest for a quarter of a century. Having washed its hands of South Deep, Harmony is going on to its project "Phoenix." AngloGold will be looking at going even further underground than man (or elephant) has gone before.

There's something to be said for exploiting gold resources at existing mines, rather than plundering greenfield deposits, especially if it revives the fortunes of depressed mineworkers and their familes. However, last week's "mishap" reminds us that the deeper the workings go, the more dangerous become conditions for those who bear the brunt of such a revival.

It's all cooking

Just as we typed up the final version of this column (and were wondering what to buy in for tonight's supper) a menu plopped through our door offering a wealth of "traditional recipes" from our newest neighbourhood eatery.

We doubt that its evocative name - "Sizzling China" - was informed by news that the world's most populous nation, joined by its second most teeming, is fast catching up with the US as the biggest culprits behind the global greenhouse gassing of our world.

However, we heartily endorse any attempts to revive traditional methods of producing power which (to be fair) the Chinese regime is making some efforts at promoting.

As for the "Crispy Shredded with Chilli" - we'll get back to you.

Moffett: the incredible profit

Someone who's undoubtedly shredding the globe's scant resources is Freeport-Rio Tinto chairman, Jim-Bob Moffett - if the latest scathing report by WALHI on the Grasberg mine is to be credited. But he's also “dissing” his own shareholders. Last year he reaped no less than US$43.1 million in take home pay, while his company brought in earnings of US£4.67 billion. If you think this acceptable, consider that Moffett has feathered his tuffet with such curds and whey ever since 1995. Whatever the company's own earnings, he's received an average of US$14.3 million each year over the past decade. And he's also exercised US$115 million in Freeport stock options since then.

Not just this but, as Graef Crystal of Bloomberg news service, points out: "Moffett wasn't even CEO last year, having turned over those duties in December 2003 to Richard Adkerson".

"The figure is incredible all by itself", comments Crystal. "But it becomes unbelievable when one focuses on the fact that Adkerson, 59...knows a bit about digging for treasure himself, having taken home $32.8 million in 2005. That's a total of $75.9 million in pay for this Dynamic Duo, a figure that is outrageous for a company that at the end of 2005 had a market value of $10 billion."

"So," asks Crystal," what do we conclude from this? Either Adkerson is a CINO (CEO in
name only), while Moffett is still running the company; or Adkerson is in charge and Moffett deserves an entry in the Guinness World Records book as the Most Overpaid Non-executive Chairman. Neither choice would offer any appeal for shareholders."

As for Freeport's partner, don't expect any adverse comment from Rio Tinto. Its directors are also doing very nicely, thank you - not least out of the takings the company receives from its 40% joint venture at Grasberg.

Lest we be accused of only targeting these two companies, London Calling wants to make clear that we don't support any mining company executive earning more than the average employee at the mine face.

Granted this to be an "extreme" position, it's nonetheless comforting to see financial journalists increasingly taking swipes at the doyens of the industry.

Purely Belda

For example, here's Michael Maiello of Forbes magazine, last week, on the gross disparity between Alcoa's earnings and what its Chief Executive has stashed in his bank account since 2000:

"At Alcoa the boss is getting considerably more enjoyment than the shareholders. How well can you get paid for management mediocrity? These days, very well. In his seven years at the helm of Alcoa, the world's largest aluminum company, Chief Executive Alain J.P. Belda has pulled in a cumulative $60 million....Over the past five years the price of aluminum is up 73%, and the S&P 500 Materials Index, a basket of 31 stocks that Alcoa uses as a benchmark, is up 71%. Yet Alcoa stock is down 16%.

"Belda, 62, is evidently well liked by his board. Last year a small raise brought Belda's base salary to $1.3 million, and he also received a $1.6 million cash bonus, along with $1.5 million in restricted stock. Alcoa's shareholders spent another $200,000 paying for, among other items, some of his taxes and club dues."

"Club dues"? Would this be a euphemism for lap-top dancers, or simply a thousand holes on the golf links? But read on! Those who have suffered, as Belda loosens his belt, aren't primarily corporate investors - they're those "average employees" too:.

" Belda's tenure has been notable for cost-cutting attempts. Alcoa has canceled pension benefits to new employees in favor of 401(k) plans"

And Belda? "He will receive $1.4 million a year from his pension when he retires".