China Update

China Update

by MiningWatch Canada

5th July 2006

The Shetongmon copper-gold mine: a preliminary report TibetInfoNet Update

Although controversial, mineral extraction in Tibet is being viewed as a pillar industry by the People's Republic of China's (PRC) government, and is drawing increasing international investment, especially from Canada. In recent years, environmental concerns, but also the stated aim of making mineral extraction more "rational" - economically more lucrative, yet at the same time under closer state supervision - has led to the banning of uncontrolled and highly damaging alluvial mining (see TibetInfoNet Update on 25 October 2005 Mining Policies Shift in the TAR, http://www.tibetinfonet.net/updates/2005/2510.htm).

The authorities' intention is to create a more professional and efficient mining industry that is attractive to foreign investment. Continental Minerals Corporation (Continental Minerals), a Canadian company based in Vancouver was, in 2004, one of the first western companies to acquire rights to explore in the Tibet Autonomous Region (TAR). The result of the exploration is that the company is now carrying out extensive studies to develop a large-scale copper mining operation in Shetongmon (Chin: Xietongmen), near Shigatse.

TibetInfoNet is monitoring the project and conducting an ongoing impact assessment study. This Special Report, the first in a series, highlights the preliminary findings of this study in the initial stages of the project. It aims to provide an insight into Continental Minerals' mining strategy, into the environmental issues linked to mining operations in the region, and on how the legitimate interests of the local Tibetan population, and the unavoidable, deep changes which mining will bring to their lives, will be balanced. So far, Continental Minerals has displayed sensitivity towards the community and the land.

In particular, environmental mitigation has been appropriate. And, although small in comparison to the overall investment, compensation for grazing land lost to road construction, and cash and 'in-kind' donations to local communities were first good-will steps in building trust at an early stage by presaging further and more substantial benefits to the local communities once the project will have reached its operational stage. The coming months and years will show whether the planned mining at Shetongmon can create a positive model for socially responsible mineral development in the TAR.

China's continuing fast-pace economic development has led to a massive demand for raw materials, driving up world prices, particularly for copper and gold. China produced 2.17 million tons of copper in 2004, but consumed 4.5 million tons. Between 2003 and 2005, the copper price doubled and is still increasing. On 08 May 2006, the price per ton peaked at US$8,110 (UK £4,305; EUR ¤6,310) and has rallied around 85% of this price since the beginning of this year. This makes the exploitation of mineral deposits, previously regarded as marginal or unprofitable, economically feasible and even lucrative.

Because of these potential rewards, overseas investors are willing to provide the enormous capital essential for mineral development in Tibet. In addition, mineral development has been selected as a key element in China's 'Western Development Drive' (Chin: Xibu Da Kaifa) and investments of billions of Yuan in infrastructure to improve communications and transport on the Tibetan Plateau are regarded as prerequisites for opening up the TAR's mineral resources and have been enthusiastically embarked upon by Beijing.

The development of the proposed Shetongmon copper-gold mine in the TAR demonstrates the implementation of current central government programmes, the beginning of the integration of Tibet into the global economy and the willingness of foreign investment to take on the challenges of mineral development in the TAR. The failure of Australian-based SinoGold to mine gold in the Tibetan areas of Qinghai and Sichuan, which was caused, at least in part,by international pressure, is well known in the industry.

Shetongmon is the TAR's second biggest known copper deposit after the Yulong copper mine in Jomda County (Chin: Jiangda), Chamdo prefecture (Chin: Qamdo, Changdu), which is currently being prepared for a planned annual production capacity of around 50,000 tons.

It appears possible that Shetongmon could have a slightly higher annual capacity. For the project, Continental Minerals has joined with Great China Mining Inc.(formerly ChinaNet-TV), an overseas Chinese company, also based in Vancouver. At the site, the Tibet Tianyuan Minerals Exploration Ltd (TTYME), a private Chinese corporation, is carrying out the exploration. Through TTYME, which acquired 100% of the Shetongmon property, Continental Minerals carries out all its exploration and mine development. Test drilling began in early April 2005 and is continuing, but there is no commercial mining yet and it is unlikely to commence for several years to come.

Shetongmon is the name of the county in which the deposit is located. However, there are several other sites in the vicinity already under exploration by Great China Mining. There have been reports of other areas of mineralization containing copper, gold and silver, on a site adjacent to the TTYME claim. In addition, there are still some artisan gold mines, but not on the Continental Minerals-controlled site. The type of mineralization encountered so far also suggests that there could be other undiscovered deposits in the general area.

Deposit types in Shetongmon are similar to those found in the Andes in Chile and Peru, and to those in south western North America, areas that are both renowned for their enormous copper deposits. The mineralization zone in Shetongmon county's Rungma District is located on the southern slope of the Transhimalaya range (Chin: Gangdise Shan), just to the north of the Tsangpo river which, after breaking through the Himalaya, turns into the Brahmaputra river in India.

The current condition of the environment in Rungma reflects hundreds of years of intensive resource use. Erosion and environmental degradation, due largely to intensive grazing, but also to a general desiccation of the region for many centuries, have substantially reduced and impoverished the local vegetation. Many centuries ago, juniper forests probably covered the area. Currently, thorny or bitter shrubs, unpalatable to livestock, dominate the lower slopes. Some slopes are completely eroded and their granite bedrock is exposed. Higher up, short, grass-like Kobresia sedges dominate alpine grasslands, which are so far only peripherally impacted by mineral exploration. These pastures offer much better grazing. Here domestic yaks and herds of wild blue sheep roam. Despite their present dilapidated condition, the local community, reliant on agriculture and animal husbandry, derive their subsistence from these slopes and irrigated fields.

The community of Shung Township (Chin: Xiong Cun), consisting of two villages - Shung and Tsurgung, with a total of 206 inhabitants herding 161 yaks and 1448 sheep and goats - will be directly impacted by the development. Shungis inhabited by 156 Tibetans in 22 households, who farm 28 hectares between the Tsangpo and the Shetongmon-Shigatse Highway, 2km below the area of mineralization. Tsurgung, with 50 inhabitants in 7 households, is uphill from the highway and located closer to the exploration area.

The alpine pastures of neighbouring Dongkar (Chin: Dongga) to the northwest of Shung are also being explored. All over the Tibetan areas in the PRC, villagers have usage rights to grazing grounds, but do not actually own the land. In general, this legal subtlety is not of great relevance to most communities and has little impact on their traditional way of life. Nevertheless, in cases like this, where government agencies are selling to outsiders the rights over land that has been under the control of communities for centuries, the absence of legal control over 'their' land becomes apparent.

Currently, the project is still in its exploration phase and the planning for actual exploitation of the minerals, should the deposit be viable, has yet to be finalised. Environmental impact studies, social impact studies, and procedures involving permits etc. are still underway and might require many more months or even years before they are concluded.

Despite the current early stage of planning, the actual opencast mining process typical for such a deposit can be roughly predicted. Initially, the overburden (soil, gravel etc.) and waste rock (solid rock without ore) needs to be removed and piled up for later use in land reclamation. Holes are then drilled into the rock, and explosives loaded and detonated. The broken rock is removed from the pit floor by large trucks and loaders, and possibly conveyor belts. The broken rock is crushed and ground to a fine powder using a ball mill.

Next, a process called 'circuit flotation' separates the valuable mineral grains, a concentrate that contains metallic and mineral particles. It is based on the tendency of copper to attach itself to foam that will float on top of the suspended material, while the mineral component, with no value, will sink to the bottom. The copper froth is then combed off the top, while the waste is dried and deposited with the mineral remains, or tailings. The suspension containing the metals is separated from the froth and is further concentrated to produce pure copper and to extract gold and other metals. For this last stage, the processes commonly used are either state-of-the-art cathodic electrolysis or traditional smelting.

Both processes consume enormous amounts of energy. It is therefore possible that the mine will require a total of 20-40 MW of electrical energy - roughly 10% of the current wattage available in the whole of TAR. A central issue is whether Continental Minerals decides to concentrate the copper on site using electrolysis (a 'cleaner' alternative), or to transport the concentrate to a smelter off site, via rail, to lowland China (Shigatse is scheduled for railroad linkage in 2010), where there is an overcapacity of smelters. It seems likely that for the time being, the latter option will be chosen, at least for the first years of exploitation.

Each of these processes is potentially hazardous. The concentration process absorbs most of the liquid waste, but leakages in the system could cause serious pollution problems if there is no storm management system in place to catch residual waters. Constant monitoring is essential and is standard for the industry in Canada. Smelters in China and elsewhere are known as serious polluters, and accidents during the transportation of the concentrate could pollute pristine areas. The tailings also need to be engineered in such a way that there is no unchecked run-off or seepage into the ground water that could potentially contaminate the Tsangpo river. In order to protect the community and the environment, all these issues will need to be addressed within the framework of a feasibility study that establishes the economic viability and environmental sustainability of the mine and upon which a production decision can be made.

The location of the project so close to the Tsangpo river raises special environmental concerns, underlining the necessity for environmentally responsible development. During the summer monsoon, downpours are common and often cause debris flows; one of those nearly hit the village of Shung in the summer of 2005. In the event of an accident and possible contamination, millions of people could potentially be affected downstream in Tibet, India and Bangladesh. Wildlife-rich wetland areas of global significance downstream in Assam, that are the last refuges of endangered rhinos, elephants and tigers could be also impacted, as could the habitat of the very rare Ganges dolphin.

Current impact assessment

Thus far, because the project is still in its exploration stage, the impact on the environment and the community has been benign, and Continental Minerals has stressed its commitment to minimising the potential for any negative impact in its test drilling. Continental Minerals has also been backfilling roads and re-contouring them once they became obsolete, and has begun a programme of compensation to locals for any loss of grazing land. In October 2005, following an agreement between Continental Minerals and village leaders, RMB¥70,000 (UK£4,704; US$8,753; EUR¤6,874) was paid to the local community when a new road was cut in the area.

So far, it appears that Tibet Tianyuan (TTYME) has respected the land rights of the communities in Shung and Dongkar and is actively negotiating usage issues with community leaders. The exploration phase of the development requires only a small number of highly qualified personnel and any local benefit in terms of employment has so far been negligible. In 2005, no Tibetan was employed in any qualified capacity, but over a dozen Chinese were working at the site. Some locals did find manual work, but the pay, in 2005, was set, according to rates paid by the local authorities, at RMB¥20 per day (US$2.50), which is very low.

Continental Minerals has pledged to substantially increase such wages in 2006, but it appears that any local employment opportunities will remain limited unless there is a substantial and sustained effort to provide professional training and preferential hiring policies for local and regional Tibetan workers. Conveniently, as commercial mining has yet to commence, the establishment of such a programme remains feasible. As an initial step in this direction, Continental Minerals states that it is presently identifying local Tibetans with the skill sets needed for their current work.

Continental Minerals' community engagement programme so far consists of goodwill cash and in-kind contributions (uniforms, beds, books, a printer, sporting goods etc.) made to schools in Rungma, Shung and the surrounding villages. According to Continental Minerals representatives, the value of these totalled around RMB¥81,000 (UK£5,442; US$10,128; EUR¤7,954) in 2005 and a similar amount has been spent so far in 2006. In addition, Continental Minerals has undertaken work to improve water systems (water lines, pumps, irrigation ditches etc.) in the area. In order to establish a more substantial social benefit programme, two Tibetans have recently been hired to conduct demographic surveys in the surrounding villages, and to map local environmental and socio-economic needs and opportunities.

A Tibetan manager, trained and experienced in development policy and its implementation, has been hired to oversee these activities and has recently visited Canada to learn more about the project. She is also understood to have visited an operational opencast copper mine, similar to the one that could be developed in Shetongmon, as well as two decommissioned and reclaimed mines.

The extent to which the cooperation between the mine operators and Tibetan communities will play out in the long run depends on effective communication with the impacted population and its real participation in the decision-making process, as well as an open and fair approach to sharing benefits and costs. It is not clear how aware the community is of the severe impact such mineral development will have on them but they will quickly realise that the long-term socio-economic effects will go far beyond the current impact of exploration.

At present, 80mm diameter holes, 50m apart, are the extent of the operation; an operational mine will entail the excavation of a pit many hundreds of metres across. Thousands of tons of rock will need to be transported daily from mine to concentrator, and then to the tailings, which are expected to fill a whole side valley. Dust and noise will be unavoidable. The landscape will be transformed locally and, at least for the inhabitants of Shung and Tsurgung, life will never be the same again.

The village of Tsurgung almost certainly needs to be moved, since it is situated between the proposed sites for the mine, concentrator and tailings. Inhabitants of Shung are also likely to be keen to relocate to somewhere further away from the development. Some other surrounding villages, such as Dongkar, are also likely to be impacted by increased traffic, dust and noise. Traditional land use will not be possible for many households since the development will affect a wide area and some agricultural land is likely to be permanently lost. In the future, another significant concern, requiring careful planning, is the issue of migrant workers and their integration into the area.

Given the sparse local population, the settlement of non-local mineworkers, regardless of their ethnicity, is inevitable. New settlements may spring up and, until sufficient skilled Tibetan workers are trained, the majority of immigrants will undoubtedly be Chinese. Continental Minerals currently considers housing all workers in Shigatse where transportation to and from the project site will be supplied on a daily basis.

Participation, compensation and environmentally responsible practices can help the local people to cope with the emerging situation. They can also mitigate the unavoidable transformation and nuisance brought about by the project by bringing long-term benefits to the locals, the region and the TAR in general. Throughout the PRC, and especially in the TAR, the actual input of local people in political decision-making is extremely limited, with underlying systematic control by the authorities.

Although internationally there are generally constraints in most jurisdictions related to government control over mineral rights, and the impact that the development of those rights have on surface users, the fact that government agencies can sell mining rights to land that has been under the management of communities for centuries, without any local consultation, reflects a particular lack of representation. In the TAR, new rules have been enacted that require compensation to be paid to surface users. There are also new rules that require public consultation during the environmental impact assessment and social impact assessment processes, which has yet to take place in Shetongmon. It is yet to be seen how these new rules will be implemented.

If dissatisfied, local people and local administrators could stage protests and threaten unrest to attract attention, but this would be illegal under Chinese law and would potentially have a hugely negative impact on the communities and their leaders. On the other hand, since 'stability' is the key concern of the current administration, local officials are under pressure to avoid civil unrest at any cost and thus have to show a modicum of deference for their people's interests. So far Continental Minerals is in discussions with county, district and village (Chin: xian, xiang & cun) leaders, and has initiated discussions with the communities that are likely to be directly affected. I

International standards in mining in developing countries require, as a human right, that these populations fully participate in all decisions at each and every stage of any large-scale mining development. However, in the TAR, one of the most politically sensitive regions of the PRC, where the authorities are extremely wary of uncontrolled grass-root participation, these well-meant consultations could easily be influenced. Public gatherings could simply end up as well-choreographed exercises in support of decisions effectively taken by bureaucrats, particularly when foreign bodies are involved. Apart from not serving the intended purpose, these might bring more pressures than benefits to the local Tibetans. It appears therefore, that here other, more subtle ways of effectively involving the population, while respecting political sensitivities, will have to be developed.

As the first foreign company attempting to mine in Central Tibet, Continental Minerals has - besides all the challenges - a very powerful platform to advocate good standards in mineral development. Continental Minerals has repeatedly stated that it intends to implement Canadian standards for mining in the TAR, which would indeed guarantee a much higher standard than current practices in the PRC. Continental Minerals continues to emphasise its commitment to socially responsible mining at the Shetongmon site and has a unique opportunity to create an important precedent for mineral development in the TAR.

Moreover, rural development is a key aspect in all major Beijing-formulated policies such as the Western Development Drive and the 'Three Rural Issues' (Chin: San Nong Wenti). If mineral development provides equitable and sustainable development for the local community in Rungma District, without any long-lasting negative environmental and social impact, then opening up Tibetan mineral resources could be an important tool for rural development. It is crucial however, that during mining operations, effective measures are taken to protect the quality of life of the local population, to provide quality employment and pro-active positive discrimination in recruitment, and to supply meaningful and sustainable replacements for lost livelihood opportunities etc.

Provided that these positive conditions are established, mineral development potentially opens up to these Tibetan communities new and desperately needed streams of revenue that would undoubtedly have a transformative effect on their lives.