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1. RESOURCE NATIONALISM AND MINING –
ISSUES AND POTENTIAL RESPONSES
Jon Samuel, Head of Social Performance, 19 February 2013

2. ANGLO AMERICAN’S FOOTPRINT
Key
Corporate and rep offices
E Exploration Offices
Platinum
Diamonds
Copper
Nickel E
Iron Ore and Manganese
Metallurgical Coal
Thermal Coal
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3. RESOURCE NATIONALISM – SOME DEFINITIONS
• “Resource nationalism…encompasses efforts by resource-rich nations to shift
political and economic control of their energy and mining sectors from foreign
and private interests to domestic and state-controlled companies”
• “The threat of tax increases, renegotiation of terms, larger participation of state-
owned companies and ultimately nationalisation.”
• “Resource nationalism, the terms used to describe situations where
governments assert increased control over the natural resources located in their
territories”
• “Resource nationalism is a term used to describe a tendency of people and
governments to assert control over natural resources located on their territory.”
• “Situation where producer countries want to maximise their (future) revenues
from present production by altering terms of investment”
3

4. RESOURCE NATIONALISM – DRIVERS
• Economic drivers:
- High perceived profits in the mining industry
- Lack of perceived benefits to host countries / communities: “fair share”
- Changing balance of power between resource owners and developers: general
industry shift from capital to opportunity constraints as demand has grown
• Socio-cultural / technological drivers:
- Communications revolution
- Growing intolerance of poverty, and greater expectations on business to play a
constructive role in its alleviation other than through “business-as-usual” measures
- Mining generally perceived to be a part of the problem on many global issues
(climate change, water availability, biodiversity, food security, human rights etc)
- Negative legacies
• Political drivers:
- Emerging economies striving to have their voice heard, and to assert their national
interests as their economies and foreign interactions grow
- Rise of democracy and local empowerment
• As an industry we communicate poorly:
- We don’t articulate the benefits we bring in a credible manner
- The risk / reward trade-off is not understood, so profits are deemed excessive
4

5. HOW THE WORLD SEES THE MINING INDUSTRY
5

6. RESOURCE NATIONALISM – IN PRACTICE
Taxes and royalties From our perspective…
Changing the
rules of the game
while playing
Local content / value-add requirements
(labour, procurement, beneficiation)
State participation in mining
projects
Indigenisation (private)
Expropriation
6

7. RESOURCE NATIONALISM – MANIFESTATIONS IN
SELECTED COUNTRIES
Country Tax / royalty Local content State Indigenisation
changes required participation
Australia MRRT (2010)
Royalty increase
(carbon tax)
Botswana Desires for greater Debswana 50/50
beneficiations
Brazil Currently under review Pressure for local Vale government
(incl internal debate supply contracts shareholding, state
between federal and (especially in oil and ownership of
state level) gas) Petrobras
Chile Voluntary royalty Codelco
increase in 2010
Colombia Under
discussion/review
Mozambique Talk of increase Will be an important Degree of free carry
part of license to (5-20%)
operate
7
7

8. RESOURCE NATIONALISM – MANIFESTATIONS IN
SELECTED COUNTRIES
Country Tax/royalty Local content State Indigenisation
required ownership
Peru Negotiated Several local
voluntary windfall benefit schemes in
taxes place (often
negotiated locally)
South Africa SIMS report Range of Nationalisation Broad-based Black
suggests requirements debate and state Economic
increasing both under mining mining company Empowerment
charter (likely to (26%)
increase)
Venezuela Strong focus on Nationalisations
community and and expropriations.
union benefits Mixed companies
required in oil and
gas
Zimbabwe Yes 51% requirement
(threat of
expropriation)
8
8

9. RESOURCE NATIONALISM AND OIL AND GAS
Private
share of
global oil
resources
National Oil Companies account for ~55% of production and ~88% of reserves
globally (in the 1970s it was the other way around) 9

10. DID HIGH OIL PRICES LEAD TO NATIONALISATION?
OPEC led oil market
?
Source: OPM analysis for Anglo American 10

11. OWNERSHIP PATTERNS IN OIL AND GAS
Saudi
Arabia
1960 18% In 1960:
• World oil reserves
Kuwait were 291 bn bbls;
Non-OPEC OPEC 22%
32% 68% Iran • of which: 85% were
12% privately held; and
Iraq
• two-thirds were in
Venezuela 9% OPEC
7%
countries, and also
Kuwait
1980 10% privately held
Saudi Arabia Iran
25% 9%
In 1980:
Non-OPEC OPEC
35% 65% • Reserves were 668
UAE bn bbls;
5%
• of which: two-thirds
Iraq were in OPEC, and
4%
Other OPEC
state-owned.
12%
Source: OPM analysis for Anglo American 11

12. COULD THE SAME THING HAPPEN TO MINING?
?
Nationalisation Privatization Pressure on rents and
Source: OPM analysis for Anglo American state-owned equity 12

13. COULD THE SAME THING HAPPEN IN MINING?
• Our view is that large-scale nationalisation in the mining sector is unlikely:
– Prices rises do not appear to have been the trigger for nationalisation in oil
and gas (in fact the converse appears to be true)
– There was a spate of nationalisations in mining, but these tended not to be
successful and led to subsequent privatisations or closures
– The economic rents from mining are generally much lower than in oil and gas,
– Mining operations are technically challenging to run, and require very high
levels of ongoing capital expenditure to sustain them
– Very limited ability to control markets, given wide distribution of most minerals
across the world
– The increasing inter-connectedness of the global economy makes the cost to
implementing countries of unilateral nationalisations much higher
– Governments have realised that they don’t need to nationalise: the tax
system and other policy tools provide other means
– We have a better understanding of what we need to do to respond to the
threats posed by resource nationalism
13

14. HOW SHOULD MINING RESPOND?
• Be clearer about the existing economic impacts of the mining sector, at both
local level and at more macro levels, including addressing the resource curse
debate
• Ensure that mining is seen as a responsible industry:
– Sound business ethics
– High standards of safety, health and environmental management
– Fair treatment of workers
– Good neighbours
• Perhaps most importantly, deliver more effective responses to the demand for a
greater share of benefits by enhancing the industry’s contributions to local and
national socio-economic development
14

15. RESOURCE CURSE: POTENTIAL CAUSES
Rent Terms of
Seeking Trade
Resource
Curse
Impacts Volatile
of Mining Markets
Dutch
Disease
15

16. RESOURCE CURSE: RESPONSES
Revenue transparency and governance The price of
reform can help to reduce rent seeking manufactured
goods is also
Responsible falling
management of Rent Terms of
Productivity
impacts and Seeking Trade improvements can
proactive development
increase benefits to
initiatives can create
local economies
positive economic
contributions
Resource
Curse
Impacts Volatile
of Mining Markets
Reallocating factors of production Volatility can and has
to resource sector may be efficient Dutch
been managed by
Only a problem if adjustment after Disease instruments such as
resource extraction is not planned hedging and
for and / or not possible stabilisation funds
16

17. WHAT ROUTES ARE THERE FOR DELIVERING
DEVELOPMENTAL BENEFITS FROM MINING?
INFRASTRUCTURE
BENEFICIATION JOBS / WAGES
CAPACITY
SOCIAL
OPERATION BUILDING/
INVESTMENT TRAINING
SME
DEVELOPMENT PROCUREMENT
TAXATION
17

18. ANGLO AMERICAN’S APPROACH TO SUPPORTING LOCAL
SOCIO-ECONOMIC DEVELOPMENT
* Our approach to community development is based on
understanding local contexts and leveraging our core
business to create sustainable upliftment
• Leveraging our $13.8 billion supply chain
Local (approximately 100 x social investment
Procurement budget each year)
• Ensuring that host communities have the
Local Training best possible chance of securing
and increasingly skilled jobs on our
Recruitment operations
• Focusing in particular on how local
Governmental municipalities can use tax revenues to
Capacity provide effective public services
Development
• Offering equity and loans on a
Enterprise commercial basis to support local
Development entrepreneurs, both within and outside
our supply chain
• Providing grants to welfare-enhancing
Social initiatives where more market-based
Investment approaches are not possible.
18
* 2011 data

19. ENSURING WE UNDERSTAND THE LOCAL CONTEXT
• Our Socio-Economic Assessment Toolbox
(SEAT) is at the heart of our management of
social performance and developmental
issues
• SEAT is an award-winning manual that
provides extensive guidance on:
– Profiling and engaging with host
communities
– Assessing positive and negative impacts
– Managing relationships with host
communities
– Contributing to community development
• SEAT provides extensive guidance on
understanding our local context, and how we
should respond to that
• Freely available at
www.angloamerican.com/seat 19

20. LOCAL PROCUREMENT
Objective
Supply-side Measures
Encouraging more suppliers to Localising Suppliers
locate in mining areas (e.g. near-mine supplier parks)
Build capability, capacity Supplier Development Programmes
and size of suppliers (building capacity of existing suppliers)
Creating formal Support for Small and Medium-size Business Start-
businesses ups (e.g. Emerge / Zimele)
Supporting the
Alternative Livelihoods and Micro-credit Programmes
grass-roots
Demand-side Measures
Set framework, show
Policy: Local Procurement Strategy
leadership support
Build Anglo American capacity Resources:
and incentivise Appropriate people and budget
Operationalise SC Local Procurement Initiatives (eg
commitments Ring Fencing)
Demonstrate Communication and Reporting:
commitment Targets and KPIs
20

21. CAPACITY DEVELOPMENT
• As a business we pay very significant sums
in taxes
• Clear that these revenues are not always
well spent, typically due to a lack of
capacity
• Meanwhile, we often suffer because of poor
pubic service provision
• We are now engaging on a structured basis
in South Africa and Brazil in initiatives to
build the capacity of host municipalities and
regions
• Working with partners, we have undertaken
structured assessments and designed
tailored implementation packages
• Focus is on revenue
management, accountability mechanisms
and basic service delivery
21

22. ENTERPISE DEVELOPMENT
• Through our Zimele and Emerge schemes in South Africa and Chile we are
now supporting over 47,000 jobs in small businesses
• We provide a mixture of equity, loans and technical assistance to
businesses, and help them understand how our supply chain works
– Our ongoing procurement needs create a very strong platform from which to support
local entrepreneurs
• Currently expanding our ED initiatives to Botswana, Brazil and Peru
• Current focus areas include:
– Reducing costs: substituting social investments (i.e. grants) with enterprise
development activities (i.e. loans, equity participation and business training)
– Increasing efficiencies: in existing schemes by outsourcing some of the activities to
specialist delivery partners (e.g. Technoserve, CARE)
– Partnering with development finance institutions to increase the capital available
– Creating revenue: for example by generating captive, low-cost sources of carbon
credits
– Creating more stable host communities and a more robust and competitive supply
chain
22

23. SOCIAL INVESTMENT
• $128 million spent on social investment in 2011, about $0.5 billion in the last 5 years
• Monitored using a Group-wide database and set of indicators to help ensure value
for money
23

24. CONCLUDING REMARKS
• Resource nationalism has emerged in recent years as one of the
major risks facing the mining industry
• However, this isn’t a new phenomenon, and in some ways current
manifestations are less threatening than in previous decades
• Some of the drivers of resource nationalism are due to poor
understanding of the economic realities of mining
• The mining industry needs to do a better job of understanding and
communicating its economic contributions
• It also needs to work with partners, in particular governments and
host communities, to enhance current economic contributions, with a
strong focus on leveraging the core business
24

25. THANK YOU

26. ANNEXES

27. TIMELINE OF A TYPICAL MINE
Exploration Studies Development Operation Closure
1 4 7 10+ 30+
Year from acquiring exploration permits (assumes continuous intention to develop)
• Only approx 1% of exploration targets are ever developed into mines
• Capital Expenditure for “Tier 1” mine typically between $1 and $10 billion
• Some of World’s biggest deposits have been mined for over 100 years
27

28. MANAGING SOCIAL RISK
Respect human rights
Identify and manage social impacts
Engage employees and stakeholders
Deliver lasting, positive net benefit
Efficiently utilise resources
Obey all laws and regulations
Ensure contractors follow our standards
Set targets, review performance
Develop staff competencies
Report and investigate incidents
28

29. SOCIAL PERFORMANCE WORK PROGRAMME
Anglo American Values and Good Citizenship
Business Principles
Policies and Standards: the Anglo American
Social Way
Group Social Strategy: Partner of Choice for Host
Governments and Communities
1. Education 2. Guidance 3. Social 4. Leverage 5. Internal 6. External
and Training: Documents: Initiatives: Core Business: Alignment: Engagement:
• SEAT training • SEAT • Enterprise • Local • Business Units • Communities
• Post-grad • Mine Closure Development procurement • Functional • Governments
diplomas Planning • Social • Local workforce liaison and multi-
• Advanced Social Toolbox Investment development laterals
Management • Capacity • Synergies from • Industry
Programme development infrastructure associations
• ABET • HIV/AIDS provision • Multi-lateral
• Housing initiatives
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30. SEAT: STRUCTURE
Engagement throughout
Step 1 – Profile your
operation, including Step 6 – Develop a Step 7 – Prepare a
existing community social management SEAT report and feed
development plan back to stakeholders
initiatives
Step 2 – Profile and Step 5 – Deliver
engage with enhanced socio-
stakeholders economic benefits
Step 3 – Assess and Step 4 – Improve
prioritise impacts and social performance
issues management
30

31. RECURRING ISSUES THAT SEAT ADDRESSES
• Access to jobs and training
• Access to land and alternative livelihoods
• Access to supply chain opportunities
• Balance / distribution of social investments
• Rivalries between stakeholder groups
• Perceptions of environmental impacts
• Health and public services
A strong
• Transport issues emphasis on the
level and
• Communication and transparency distribution of
benefits
Generally very pragmatic issues
31