Day 2- Session 6: Sustainable Mining & Conflict Resources
Objective Capital Global Mining Investment Conference 2010
Stationers' Hall, City of London
28-29 September 2010
Speakers:
Andy Bone - World Diamond Council
Aidan Davy - International Council on Mining & Metals
Andre Van Zyl - Oak Ridge Solutions
Mike Davis - Global Witness
Day 2 - Session 6: Sustainable Mining & Conflict Resources
1. Investment Conferences
GLOBAL MINING
INVESTMENT CONFERENCE 2010
DAY 2 - SESSION 6: SUSTAINABLE MINING & CONFLICT RESOURCES
What next for the Kimberley Process?
Andy Bone – Director, World Diamond Council
Sustainable Mining
Aidan Davy – Senior Programme Director, ICMM
Transforming Artisanal & Small Scale Mining
Andre Van Zyl – Managing Director, Oak Ridge Mining Solutions
Conflict Resources
Mike Davis – Chief Campaigner, Global Witness
● CITY OF LONDON ● TUESDAY-WEDNESDAY, 28-29 SEP 2010
STATIONERS’ HALL
www.ObjectiveCapitalConferences.com
6. Overview of presentation
Growing pressure on ESG disclosures
Mining sector risks overall and ESG issues
Investor interest in ESG risks
Selected ESG risks and ICMM activities/
members performance
Conclusion
www.icmm.com
7. Growing pressure on ESG disclosures
Dodd-Frank Wall Street Reform and Consumer Protection Act (2010)
includes provisions to:
Report payments by project and by recipient government (1504)
Provide quarterly reports on a variety of Health & Safety related matters (1504)
Due diligence measures on “conflict minerals” from the DRC (1502)
SEC issued guidance on Climate Change Disclosures (02/10):
Requires listed companies to disclose impacts of climate change
‘Physical impacts’ includes changes in water availability or quality
Investor-led calls to listing authorities and stock exchanges to require
companies to consider the sustainability of their business model
www.icmm.com
8. Mining sector risks
Life cycle aspects, e.g. Political instability
recyclability, disposal War/civil disturbance
Chemicals management/ Expropriation
inherent HSE risks
Breach of contract
Supply/value chain
Market access
Resource access –
Business interruption land, energy, water
H&S and ESG Access to capital &
Failure of systems talent
Regulatory non- Climate change
compliance Reputation
Commodity price Currency Risks
Interest rate risks Equity risks
www.icmm.com
9. Risk convertibility in the mining sector
Life cycle aspects, e.g. Political instability
recyclability, disposal War/civil disturbance
Chemicals management/ Expropriation
inherent HSE risks
Breach of contract
Supply/value chain
Market access
Resource access –
Business interruption land, energy, water
H&S and ESG Access to capital &
Failure of systems talent
Regulatory non- Climate change
compliance Reputation
Commodity price Currency Risks
Interest rate risks Equity risks
www.icmm.com
10. ESG operational issues in mining
Ethical Business Practices Labour & Working Conditions
Anti-corruption stance Labour relations
Transparency Diversity and equal opportunities
Political involvement Occupational Health & Safety
Labour issues in supply chain
Environmental Responsibility
Energy and Greenhouse Gases Water resources (use, pollution, management)
Biodiversity Land (use, contamination, management)
Tailings management Solid waste management
Air emissions (excluding GHG) Emergency Preparedness Closure
Social and economic contribution
Artisanal and Small Scale mining Communities (impacts and social investment)
Conflict and security provision Involuntary resettlement of communities
Cultural heritage Local economic development
www.icmm.com
11. Top 10 Global Pension Fund Markets ($20.4 trn)
Source: UNCTAD (2010). Investment and Enterprise Responsibility Review
www.icmm.com
12. Scope and influence of Responsible Investment
UNCTAD analysis of world’s 100 largest pension funds:
Average AUM per fund (SUS bn)
51 135
No. of pension funds
27 73
66
22
No. of Responsible No. of Responsible
Investment indicators Investment indicators
As of February 2010, PRI had 700+ signatories (currently 800+) with AUM of over US$20 trn
Source: UNCTAD (2010). Investment and Enterprise Responsibility Review
www.icmm.com
13. Do sell-side analysts give a XXXX?
Investigated overall impact of CSR
strategies on securities analysts
recommendations (16yr horizon)
Examined perceptions of analysts on
value creation (or value destruction)
potential of CSR strategies
Initially, CSR strategies perceived as
value-destructing. Later, CSR
strengths seen as value-creating: shift
from sell to buy recommendations
Higher ability analysts more likely to
reward CSR strengths
www.icmm.com
14. ESG risks and project finance
International Finance Corporation
Project finance rise.... and fall
(IFC) has set the standards for
addressing ESG risks
IFC Performance Standards 35
US$ billions (mining)
US$ billions (total)
embraced by EPFIs – represents 30
over 90% of project finance deals 25
Mining investments of over $26 bn 20
between 2005 and 2009 15
10
Despite a dip in 2009, likelihood is
that activity will increase 5
IFC Performance Standards under
review – bar likely to be raised
Source: Harvard Business Review (2010). An overview of
project finance and infrastructure finance
www.icmm.com
15. Value of global mining sector M&A deals (US$ bn)
(September)
Transaction service providers increasingly address ESG risks as part of M&A due diligence
Source: PwC (Sept, 2010). Mining Industry Briefing: M&A in the Global Mining Sector
www.icmm.com
16. Carbon Disclosure Project – Global 500 (2009)
Includes mining & metals
Performance scores
Disclosure scores
Note1: Materials includes: Metals & Mining (45%), Chemicals (35%) and Construction Materials,
Containers & Packaging, and Paper & Forest Products (20%).
Note 2: As of September 2010, CDP initiative backed by 534 institutional investors with more than $64trn in AUM
Source: PwC (2009). On behalf of The Carbon Disclosure Project
www.icmm.com
17. ICMM activity on Climate Change
Climate change is of significant interest to
ICMM member companies
Mining industry estimated to contribute
approx. 1.8% to global GHG emissions
Many metals produced are essential to
pollution prevention ‘green technologies’
ICMM members working to establish
themselves as part of the solution to the
climate change challenge
Current efforts involve sharing information to
improve understanding of issues and drive
implementation of best practice technology
www.icmm.com
18. Water availability & quality
Water disclosure scores by sector (out of 100):
Source: CERES (2010). Murky Waters? Corporate Reporting on Water Risks
www.icmm.com
19. Increasing importance of Indigenous Peoples
Indigenous Peoples are increasingly
important in terms of resource access
EIRIS, CAER and The Ethical Funds
Company all promoting FPIC (ideally
large ‘C’)
Not just NGO’s advocating: Co-
Operative Bank’s support for Beaver
Lake Cree Nations vs. Tar Sands in
Alberta
EIRIS analysed 250 companies from
FTSE All World Developed Index: Oil
& Gas (47%), Mining (36%); Forestry
(10%) and Agribusiness (7%)
www.icmm.com
20. Indigenous Peoples – selected indicators
Agribusiness
Forestry & Paper
% %
Oil & Gas
Mining
Indigenous Policy FPIC (consent/consultation)
% %
Indigenous employment Resettlement
Source: EIRIS (2009). Indigenous rights: risks and opportunities for investors
www.icmm.com
21. ICMM member ‘policy’ commitments
10 Principles for Sustainable Development
1. Implement ethical business practices and apply good corporate governance
2. Integrate SD in corporate decision-making 3. Uphold fundamental human rights
4. Manage risks based on sound science 5/6. Improve EHS performance
7. Conserve biodiversity & participate in integrated land use planning
8. Encourage life cycle approach to materials management
9. Contribute to community development
10. Publicly report, independently assure and engage openly and transparently
6 Position Statements
Mining and Protected Areas Mining: Partnerships for Development
Climate Change Mining and Indigenous Peoples
Mercury Risk Management Transparency of Mineral Revenues
www.icmm.com
22. Reporting & Assurance by ICMM members
Adopting systematic approaches to
reporting material risks, which reflects
enhanced ESG performance
Undertaking robust assurance of
sustainability reports to enhance
credibility and trust
Understanding how/which ESG
efforts contribute to value
creation/protection
Enabling investors & analysts to
better differentiate between
companies
www.icmm.com
23. Do mining investors respond to ESG factors?
Vedanta resources share price (2010)
www.icmm.com
24. Concluding remarks
ESG factors are increasingly a
mainstream concern for investors
Not just buy-side analysts, but
increasingly sell-side analysts who have
an interest and influence
ESG factors will continue to grow in
importance in terms of project finance
and M&A activity
ICMM members demonstrate leadership
in terms of ESG commitments and
performance
“ESG analysis will benefit from improved reporting and corporate governance
structures. But attention should also be paid to the need for improvements in the
coherence and consistency of ESG analysis itself.”
UNCTAD (2010). Investment and Enterprise Responsibility Review
www.icmm.com
28. Intro video
Background to Oakridge involvement
Overview of conflict situation in East Congo
Current situation
The fairmining solution
Project Kivu – first fairmining implementation
The future of fair mining
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31. By invitation - we got involved based on request from local
stakeholders groups
Background in corporate business transformation,
troubleshooting and root cause analysis
Our approach was region development focused, not mining
specific
We spend 12 months detailed on the ground analysis and
investigation before putting a proposal together.
We are developing the solution in conjunction with all local
stakeholders
We are developing solutions with repeatability in mind
32. It is not as complex as it seems
It is there by design
Blood minerals – not all minerals are fueling war (Blood Gold)
Resolving the conflict situation will result in many people losing a
lot of money
Our initial root cause analysis showed many anomalies when
compared with what gets reported in main stream media
Aid is a big cause of corruption
NGO’s creating a false economy
Economic development and job creation is the only solution
33. Strong and cohesive voice for artisanal mining starting to
emerging out of North Kivu
Joint meetings between Local Communities, SAEESCAM,
COMIMPA, ANR, Comptoirs, Mining Police, Government and
UN Expert Group
This voice does not effectively reach international advocacy
and media.
We are launching platforms to address this
www.walikali.com and www.habarizakweto.net
Mineral ban in North Kivu, South Kivu and Maniema (Coltan,
Wolframite and Cassiterite)
Developing the artisanal mining sector in these regions now
high on DRC government agenda.
34. It is a holistic, generic, business approach to
community based mining that is contextual in
it’s implementation
Product Scope – All metals and minerals
Key elements
Social and economical development
Environmental development
Transparent and traceable (compliance)
Ethical trading
35. Proprietary communication platform
www.fairmining.com
Best in class information and process
management systems and infrastructure
Fully integrated management information systems
Real time KPI monitoring and management facilities
Balanced scorecard methodology implemented
HF Radio based email facilities in rural areas
RFID tracking
Detailed financial and revenue distribution model
36. Secure chain of custody module (mining certificates of origin)
Trading platform
Ethical metals and stones trading platform
Baseline traceable and transparent
Level 1 – fully independent certified FT/FM products
Gold and associated metals
South America – premium 10-15%
Level 2 – internally verified sourced minerals from fairmining
partners/products
No premium
All metals
Incl 2nd party ethical products
Level 3 – recycled metals
Communities and projects (social networking)
37. Kalminco, the first majority locally owned Congo
minerals company in North Kivu
80% of profits stays in the Congo
Very attractive ROI to investors (eg. Phase 2
gives 100% ROI in 12 months)
Will become operational as part of the DRC
government’s initiatives to clean up the mineral
trade in North Kivu
38. Project Kivu
Three more Fairmining implementations are under
negotiation and will become available soon
600 km2 concessions to be developed in DRC –
business plan available in November 2010
Ghana – early 2011
Sierra Leone – early 2011
Investors that are seriously looking for both high
social and financial dividends are welcome to talk to
us
41. 29 September
Global Mining Investment Conference
Mike Davis
Team Leader, Conflict Resources
Global Witness
mdavis@globalwitness.org
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49. What’s being done to tackle the trade in conflict
minerals?
• US legislation – provisions on conflict minerals in
financial reform act
• UN Security Council due diligence guidelines for
companies sourcing from Eastern DRC
• OECD standards on due diligence for companies
sourcing minerals from conflict-affected areas
• Certification schemes: German government and ICGLR
• Industry initiatives
• UN Sanctions
50. Key elements of supply chain due diligence
1. Conflict minerals policy
2. Supply chain risk assessments
3. Remedial action
4. Audit
5. Public reporting
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53. Companies involved in / investing in the minerals
sector should:
• Ensure due diligence on supply chains
• Back legislation on conflict minerals in Europe to
match what’s just been introduced in US
Companies involved in / investing in the diamonds
sector should:
• Ensure due diligence on supply chains
• Ensure a stronger commitment to human rights by
the Kimberley Process
54. 29 September
Global Mining Investment Conference
Mike Davis
Team Leader, Conflict Resources
Global Witness
mdavis@globalwitness.org