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Archive for the ‘Corporate Social Responsibility’ Category

Xstrata retains leadership in Dow Jones Sustainability Index

September 20, 2011 Comments off

“The main sustainability issue facing the mining industry is that of declining ore grades, which implies that over time, more mineral ore needs to be extracted and processed in order to produce the same amount of metal. This is likely to exacerbate many of the environmental and social issues facing the mining & metals industry going forward. Some of the prominent environmental issues include mineral waste management, as well as the management of key inputs such as energy and water. Social issues are mainly centered around the health & safety of workers and general labor conditions. Issues such as land rights, population relocations, the use of private security forces to protect mining assets, and mine closure also remain very controversial. As with other extractive industries, the mining space is particularly susceptible to corruption, bribery and other breaches of the Codes of Conduct”

Source: Dow Jones Sustainability Index Review 2011, September 2011

Observations:

  • Xstrata tops the Dow Jones Sustainability Index for the basic resources sector for the second year in a row.
  • Most important changes of the index for the mining industry are the inclusion of Newcrest and Kinross, and the removal from the index of ArcelorMittal and Goldcorp.
  • Assessment criteria include economic, environmental, and social topics. Full list of criteria can be found here.

Implications:

  • Inclusion in the DJSI is mainly a marketing issue; it does not have direct operational or financial consequences. Many countries do require foreign investors to adhere to global reporting initiatives to ensure a certain level of sustainability, but DSJI requires a much broader set of policies.
  • Xstrata especially scores higher than industry average in terms of climate strategy, mineral waste management, human capital development, and standards for suppliers. The benchmark report will certainly be used by some companies to prioritize areas for improvement.

©2011 | Wilfred Visser | thebusinessofmining.com

Glencore reveals mine fatality figures

September 8, 2011 Comments off

“Glencore recorded more deaths at its industrial operations last year than any of the other “big five” London-listed miners. The world’s largest commodities trader listed the deaths of 18 employees and contractors in its first disclosure of safety and environmental information.

Among its closest peers in the mining sector, there were three deaths at Xstrata, three at Rio Tinto, five at BHP Billiton and 14 at Anglo American, according to data published by the companies. Among FTSE 100 mining companies, only Kazakhmys and Vedanta recorded more fatalities with 26 each. Glencore, which raised $10bn (£6bn) in May in one of the largest ever initial public offerings in Europe, has until recently published little information on its industrial and trading operations.”

Source: Financial Times, September 7 2011

Observations:

  • Together with an extensive half-year results report and presentation, Glencore published its first sustainability report this week.
  • Glencore’s fatality frequency rate (FFR: fatalities per million hours worked) was 0.1034 in 2010, down 25% compared to the previous year. The All Injury Frequency Rate for mining activities was 3.45, down 17% from a year earlier.

Implications:

  • The comparison with other large miners as made by the Financial Times is rather shortsighted. Risks at any type of operation are unique and cannot be compared easily. With the nature of Glencore’s assets (Kazzinc, Katanga, Mutanda, Mopani, Los Quenuales, etc.), which are often located in developing countries and/or operated by local companies, it is obviously harder to manage safety than in large centralized operations in Western countries. However, it is a good sign that Glencore reports the figures and indicates it wants to manage safety at a global level.

©2011 | Wilfred Visser | thebusinessofmining.com

India and Australia strengthen environmental protection

August 31, 2011 Comments off

India Court Extends Karnataka Iron-Ore Mining Ban

“India’s Supreme Court has extended a ban on iron ore mining in two new districts in the southern state of Karnataka, a lawyer involved in the matter said Friday.

Panindra Rao, a lawyer representing the mining industry, told Dow Jones Newswires that a court-appointed body found prima facie evidence of environmental degradation in the districts of Tumkur and Chitradurg. ‘[The court] has stopped mining and transportation operations in Chitradurg and Tumkur districts,’ he said, adding that a panel has been asked to make a detailed environment impact study of these two districts.

The extension of the mining ban to two more Karnataka districts on lines of another imposed on July 29 in the key iron ore hub of Bellary is expected to hurt not only supplies to domestic mills, but also exports by the world’s third-largest iron ore supplier.”

Source: Wall Street Journal, August 31 2011

Australia’s West Kimberley Becomes Heritage Site

“Australia plans to protect its spectacular West Kimberley region from environmental degradation caused by mining and development. An area of wilderness bigger than England will be classified as a National Heritage site to help guard its rare attractions including 130 million-year-old dinosaur footprints.

Nicole Roocke, director of the Chamber of Minerals and Energy of Western Australia, said the ‘broad-brush approach’ would mean an additional bureaucratic burden for potential mining projects in the area. ‘It will impact negatively on all economic development in the Kimberley. It will compromise economic growth in communities in the Kimberley,’ Ms. Roocke said.”

Source: Wall Street Journal, August 26 2011

Observations:

  • The Indian district of Karnataka is responsible for approximately a quarter of India’s iron ore exports and a fulfills a significant part of domestic demand. Environmental degradation in the area is mainly caused by illegal and/or poorly controlled mining.
  • The key fight between industry groups and environmental lobbyists in Australia is about the development of a gas terminal for Woodside in the West Kimberley region. Industry groups are not happy because they will have to introduce tighter controls (although the developing partners do not see the introduction of the site as a stumbling block), while environmentalists see the introduction of a heritage site as useless if the development of the complex goes on.

Implications:

  • The current boom of the mining industry has encouraged governments around the world to put stricter environmental regulations in place, knowing that companies are willing to go a long way to be able to continue with their projects. While the main government interventions in India are around increase of government control and institutionalization of the industry, interventions in Australia, the US, and other OECD countries mainly focus on preserving specific areas or species.
  • The actions of the Australian government should partly be seen as a political move, countering the critics that the government has been too mining-friendly by watering down the super profits tax.

©2011 | Wilfred Visser | thebusinessofmining.com

Chilean Copper-Mine Strike Continues

July 28, 2011 Comments off

“Escondida, the world’s largest copper mine, declined the Chilean government’s offer of mediation in its labor conflict, Valor Futuro reported Tuesday, citing a company document. The sole union at the mine, representing 2,375 workers, went on strike late Thursday to protest what it says are unmet labor-contract terms.

‘We’ve received an invitation from the government to talk, and in this context we’ve given them our reasons for declining to participate at a negotiations table with union leaders while the illegal strike continues,’ reads the Escondida document as reported by Valor Futuro.”

Source: Wall Street Journal, July 26 2011

Observations:

  • Escondida (translated: ‘hidden’) is majority owned and operated by BHP Billiton. Unions demand higher bonuses, unmet housing benefits, the elimination of shifts lasting more than 12 hours, and protection for sick workers.
  • Daily lost output could add up to 3,000 tons. The company plays tough by refusing to continue negotiations as long as the strikes continue.

Implications:

  • The wave of new labor contracts reached for various copper mines in Chile through collective bargaining has gone relatively smooth so far. Leaders of Codelco have expressed fear that the conflict at Escondida could spread to other companies.
  • High commodity prices and increased resource nationalism have led to a surge in mine operation strikes in the last months: BHP’s Australian coal operations, South African coal mines, and Escondida being the most well-known. Companies try to maximize output and make record profits while prices are high, and in turn workers demand a larger part of this profit then originally agreed upon.

©2011 | Wilfred Visser | thebusinessofmining.com

Vale woos Guinea with social projects

July 11, 2011 Comments off

“Vale’s finance chief said the Brazilian miner would invest in development programmes in Guinea in an attempt to safeguard a $2.5bn mining concession and avoid making a large pay-out to the African country’s new government. In spite of still being vulnerable to a review of mining licenses in Guinea, Guilherme Cavalcanti said that Vale could win the government’s approval for its Simandou iron ore project that it shares with rival Rio Tinto by paying for education and agriculture in the communities where it mines.

‘Our approach to Africa in Guinea is not to become only a mining extraction [company] but bring country co-operation,’ he said. ‘So, as we do in Mozambique, we can help people in agriculture, we can help in education, we can train local people … So it’s more an approach to communities as well, not only mining extraction.’

Rio Tinto only gained clear tenure in Guinea in April after promising the government $700m in cash as well as rights to take up to a 35 per cent stake in Simandou. Simandou, one of the highest-quality untapped iron ore resources in the world, has attracted the two largest iron ore miners to Guinea despite the country’s history of volatile dictatorship, weak rule of law, and recurring threats of licence renegotiations.”

Source: Financial Times, July 6 2011

Observations:

  • The Simandou deposit is divided into 4 blocks: Vale controls blocks 1 and 2 with the Benny Steinmetz Group (BSG) as minority shareholder; Rio Tinto controls blocks 3 and 4 of the Simandou deposit, working together with Chalco. In an earlier stage Rio Tinto held title to the full deposit, but the Guinean government cancelled this deal.
  • In a review of mining licenses announced in March the Guinean government requires a minimum of 33% of ownership of strategic mining projects in the country to increase government control.
  • Rio Tinto struck a deal on the redistribution of ownership at the end of April, setting up a long term phased process of acquisition of ownership by the government. Furthermore the company agreed to a conditional one time $700mln payment to the government and promised to develop a railway to export the ore via a Guinean port.

Implications:

  • The social projects promised by Vale are a mere hygiene factor in the negotiations about transfer of ownership. The government will clearly expect any operating partner to take an active role in community development. However, Vale’s experience with large scale operations in developing areas in Brazil and Mozambique might help to gain trust.
  • Most likely Vale will agree on a conditional and phased deal similar to Rio Tinto’s agreement with the government. The agreement will be designed to make any payments or ownership deals conditional on crucial milestones and actions by the government. Vale will still need to decide on a way to export the ore, either negotiating to use the railway build by Rio Tinto, or setting up the infrastructure to export via Liberia.

©2011 | Wilfred Visser | thebusinessofmining.com

Argentina suspends $5.9bln Vale potassium project

June 20, 2011 Comments off

“A $5.9bn potassium project in Argentina has gone into limbo after authorities in Mendoza province suspended development, alleging that Vale, the Brazilian miner, had failed to meet requirements to hire and buy supplies locally. The project, which includes the construction of a railway and a port on Argentina’s Atlantic coast to transport potassium, is still in its initial planning phase. In its first-quarter earnings report, Vale said it had pushed back the planned start of production to the first quarter of 2014 from the second half of 2013.

The company expects the project to have a nominal annual capacity of 2.1m tonnes of potash. A second phase would increase capacity to 4.3m tonnes. The Mendoza government said on its website that the decision had been taken ‘because of insufficient information supplied regarding the plan and the level of investment … The sanction will be lifted when the company complies with the request’.”

Source: Financial Times, June 18 2011

Observations:

  • One of Vale’s strategic priorities is to build a strong potash business. The Argentinian Rio Colorado project, which should start production in 2014 with some 20% of Vale’s current potash production, is key part of this strategy.
  • Argentina’s province of Mendoza is situated in the region del Nuevo Cuyo in the midwest of the country, bordering to Chile. The province has set strict ‘buy local’ and ‘hire local’ regulations in order to stimulate the economy, forcing Vale to hire 75% of total workforce locally.

Implications:

  • Both the provincial government and Vale are very polite in their communication, signalling the importance of the project to both of the parties. The province is using a rather uncertain moment in the development phase of the project to stress the importance of collaboration with local authorities. However, this discussion is not expected to seriously derail the project, unless governmental changes chance the standpoints of the provincial government.
  • In the worst case for Vale issues on development of a port for the same project in a different province will be made part of new negotiations with Mendoza province, indicating involvement of the national government.

©2011 | Wilfred Visser | thebusinessofmining.com

ENRC tensions grow as two directors dismissed

June 9, 2011 Comments off

“Private feuding within Eurasian Natural Resources Corporation, the Kazakh miner, spilled out into the open on Wednesday as investors in the tightly held company overwhelmingly voted against the re-election of Sir Richard Sykes, the senior independent director, and fellow board member Ken Olisa.

The public dismissal of the two directors highlights the deepening tensions within the FTSE 100 miner. It has been dogged by corporate governance concerns since it floated in 2007. Speculation about boardroom battles has intensified since the group announced controversial acquisitions in central Africa last year, most notably the purchase of mining assets in the Democratic Republic of Congo that the Congo government had recently expropriated from a Canadian mining company.

In particular it will focus attention on the position of foreign companies that list in London and rely on City grandees to give comfort to shareholders. The presence of boardroom heavy-hitters was especially valuable to ENRC during last year’s controversy over acquisitions in Africa, most notably the purchase of mining assets in the Democratic Republic of Congo that the government had recently expropriated from a Canadian mining company.”

Source: Financial Times, June 8 2011

Observations:

  • ENRC was formed in 2006 by consolidation of assets privatized in the mid ’90s. The founders are Alexander Mashkevitch, Alijan Ibragimov, and Patokh Chodiev; each still holding 14.6% of the shares, with the Kazakh government holding 11.7% and Kazakhmys 26%. Because Kazakmys abstained from voting the founders and government held at least 75% of the voting shares.
  • Current CEO Felix Vulis announced his departure in February, and the founders are rumored to want to replace several other executives and board members. The dismissal of the directors has tipped the weight of the board to the founder’s side, giving them significant power.

Implications:

  • Unless the dismissal of the independent directors came as a surprise to the persons in question the fact that they did not make a quiet move out of the board should be understood as a means to draw the attention to the governance issues of the miner. It appears that the founders and the Kazakh government want to strengthen their control over the company, even though it has mainly been expanding internationally in the past years.
  • The debates in the board about the acquisition of the projects in Congo including the Kolwezi asset, formerly owned by First Quantum, indicates a cultural difference between the Kazakh hardliners and the more western independent directors with more eye for corporate social responsibility. With various other Eastern companies listing on western stock markets this will be an issue that will surface more often in the future as many development projects are undertaken in politically unstable areas.

©2011 | Wilfred Visser | thebusinessofmining.com

BHP Coal Workers Open Door to Strike

June 3, 2011 Comments off

“BHP Billiton Ltd. faces the possibility of strike by thousands of coal workers in Australia’s resource-rich Bowen Basin following a vote by members of three unions. In a ballot that took place in recent days and was counted Friday, roughly 90% of workers voted to give their unions the right to call a strike, Stephen Smyth, district president of one of the three, the Construction, Forestry, Mining and Energy Union, told Dow Jones Newswires. Samantha Stevens, a spokeswoman for Melbourne-based BHP, confirmed the ballot supported a possible strike.

The company continues to meet with the unions to complete negotiations on a new labor agreement, she added, and the two sides have scheduled meetings through the end of July. ‘We continue to make solid progress and as such, industrial action would be premature,’ Ms. Stevens told Dow Jones.”

Source: Wall Street Journal, June 3 2011

Observations:

  • BHP Billiton employs approximately 4,000 people in metallurgical coal operations and approximately 8000 in energy coal operations. In average across all of the companies operations the company has approximately as many contractors as own employees on-site.
  • This would not be the first time a strike at BHP’s coal operations takes place: in 2000 the employees at various mines stopped work. Prior to the changes that led to these strikes the company was perceived to be more friendly to unions than competitors.

Implications:

  • BHP BMA is trying to gain greater flexibility in setting contracts for contract workers separate from the collective agreement and is at the same time trying to limit the power of unions in recruiting decisions. While the potential financial benefit of the first issue could justify a couple of days of lost production, the short term benefit for the second issue will not be enough for the management to risk a strike. Thus the recruiting issue might be used as a tradeable by the negotiators.
  • An important underlying frustration in the negotiations is BHP Billiton’s push to introduce more stringent Fly-In-Fly-Out rosters. The struggle to find enough employees willing to either live in the outback or leave home for multiple nights each week is one of the major HR challenges of mining in Australia in the next decades.

©2011 | Wilfred Visser | thebusinessofmining.com

African Barrick Says 7 Killed in Mine Invasion

May 23, 2011 2 comments

“U.K.-listed African Barrick Gold said seven people were killed and twelve injured after hundreds of people invaded one if its mines in Northern Tanzania in an attempt to steal gold. African Barrick Gold said the local Tanzanian police were called Monday to protect its North Mara mine from around 800 intruders who entered the site illegally with machetes, rocks and hammers in an attempt to steal ore from the site.

‘A number of intruders sustained gunshot wounds, resulting in seven intruder deaths and 12 injuries,’ the company said. ‘African Barrick Gold sincerely regrets any loss of life or injury on or near its mine site. The company will continue to support the government and the community in their efforts to improve law and order and security in the North Mara region,’ it added.

The gold miner said there was no material impact to operations or production at North Mara. It noted that additional police have been deployed around the area and both the police and the company have started their own separate investigations into the incident.”

Source: Wall Street Journal, May 17 2011

Observations:

  • African Barrick Gold, put on the stock exchange by majority shareholder Barrick Gold in 2010, operates 4 gold mines in Tanzania. The company achieved approx. $1.0bln revenue in 2010 and had net income of $218mln in the same year.
  • North Mara mine is an open pit operation consisting of 4 pits; feasibility study is done to take the mine underground, which would make protection of operations easier. In 2009 the North Mara mine came in the news with a toxic sludge spill.

Implications:

  • The incident in Tanzania draws the attention to the safety risk related with the increasing activity of western mining companies in developing countries. Focus is normally on the political risk of operations in these environments, but especially for producers of precious metals and gemstones the risk of theft should be considered.
  • Though all major mining companies work hard on community development programs around the mine sites, these programs certainly do not serve as fire-proof protection against unrest. Most corporate social responsibility programs are set up for good purposes, but do not target the underlying causes of unrest in the region or of unrest versus the mine.

©2011 | Wilfred Visser | thebusinessofmining.com

Mining impact of Japan’s earthquake

March 16, 2011 Comments off

“Billions of dollars of uranium-mining investments in Australia could be at risk if explosions and radiation leaks at reactors in quake-hit Japan prompt governments to rethink plans to produce more nuclear power. With more than 30% of the world’s economically exploitable uranium reserves, Australia has a lucrative resource base as fears of climate change tilt governments away from fossil fuels and toward greater interest in nuclear power. But Friday’s massive earthquake in Japan is presenting miners like BHP Billiton with a major dilemma: press ahead with new uranium developments, or put them on ice until governments give a public vote of confidence in nuclear power.”

Source: Wall Street Journal, March 14 2011

“Exports of finished steel to Japan will rise in the coming months as the Asian nation rebuilds after the 9.0 magnitude earthquake, two senior Indian steel company executives said Tuesday. Economists estimate damages from the earthquake could run as high as 10 trillion yen and knock three percentage points off Japan’s gross domestic product growth this year.

‘It would be important to note that a lot of the wooden houses and structures traditionally found on Japan’s coastline may now be replaced with buildings made of steel and cement, as they would be better able to withstand the impact of a tsunami,’ Malay Mukherjee, chief executive of Essar Steel Ltd., said on the sidelines of an industry event. He said the quake could lead to a reduction in steel exports from Japan.”

Source: Wall Street Journal, March 15 2011

Observations:

  • Several nuclear power stations in Japan were severely damaged by the earthquake in Japan. The risk of damage in case of an earthquake, with potential risk of a meltdown in several reactors was known by the government as early as 2008.
  • In the very short term both demand and supply of steel in Japan drop, as power outages are expected and focus is on disaster relief and nuclear safety. Once rebuilding commences the Japanese demand for steel will certainly show a one-off increase.

Implications:

  • The disaster in Japan will not only refuel the discussion on the use of nuclear energy in general and nuclear power plants in earthquake zones in particular, but will also trigger the discussion of the corporate responsibility of miners in supplying the fuel for the power plants. Miners will most likely not change their standpoint that the uranium can and should be used responsibly, but public action against any player in the nuclear power value chain should not be ruled out.
  • The spike in Japanese steel demand will cause the global markets of steel, coal and iron ore to shift. Japanese steel makers will most likely be able to step up production to fulfill domestic demand. As a result the country will import more coal and ore, but will export less steel. All of this will result in upward pressure for the seaborne prices.

©2011 | Wilfred Visser | thebusinessofmining.com