Measuring the contribution of

mining to the

Lao People’s Democratic Republic

Asian Mining Indaba

November 2012

Troy Hey

www.icmm.com

Overview

• ICMM - The Resource Endowment Initiative and Mining: Partnerships for Development

• Measuring the contribution – the experience of the Lao PDR

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MMG: At a glance

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Legend:

Operating assets

Development assets

Exploration areas

Note: the Avebury operation is currently on care and maintenance.

3

copper

Mutoshi

copper

Kinsevere

copper / gold / lead / silver / zinc

Golden Grove

copper / gold / lead / silver / zinc

Rosebery

lead / silver / zinc

Century

lead / silver / zinc

Dugald River

gold / copper

Sepon

copper / lead / silver / zinc

Izok Corridor

ICMM at a glance

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Over 800 sites

in 62 countries

CEO led

22

Company

members

34

Association

members

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ICMM member companies

Overview of ICMM’s work programs and REi

Resource Endowment Initiative (REi)

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1. Reporting &

Assurance

2. Socio-

economic

Contribution • Resource Endowment

• Community

3. Environment • Climate Change

• Water and

biodiversity

4. Health &

Safety • Worker

• Community

5. Materials

Stewardship

From “resource curse” to resource endowment

• Mining wealth has been mismanaged and plundered, fuelling social conflict, political problems and economic stagnation

• ICMM analysis of 33 countries found that half performed poorly, experiencing difficulties associated with the “resource curse”

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• In past centuries, the U.S., Australia and Britain became rich nations partly by exploiting their mineral wealth

• Various countries show the potential for this continues today:

However, evidence also shows mining

can bring great development benefits

On one hand, mining has failed to bring

development in some countries

• Examples include Angola, DRC, Sierra Leone (though the situation is often changing in such countries)

- Chile has in recent years become one of South America’s most successful economy while relying significantly on mining

- Botswana was one of world’s 20 poorest countries 20 years ago and now, partly due to diamonds, is one of Africa’s richest

To realize mining’s potential development

benefits, good governance is key – both

nationally and locally

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• Many of the positive macro contributions of mining will arise naturally provided that the regulatory and taxation conditions are reasonably attractive

• But mining’s full potential contribution to development requires a strong governance

framework – not just at the national level, but regionally and locally

Natural

Resource

Endowment

Mining

Activities

Efficient

Governance

and

Institutions

Positive

Outcomes

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Broadening the benefits from mining

Where governance is weak, multi-stakeholder

partnerships can help enhance development

outcomes

• Development-focused, multi-stakeholder partnerships are needed

• Companies alone cannot unlock the full development benefits of mining

Six priority areas for multi-stakeholder

partnerships identified by REi

Partnership for

Poverty

Reduction

Companies:

Example of role:

• Participate in national development dialogues

Donor agencies:

Example of role:

• Engage with local NGO and faith groups

Host Governments:

Example of role:

• Integrate mining into poverty reduction strategies

NGOs, Civil Society,

Communities:

Example of role:

• Recognize role of mining in poverty alleviation

Poverty reduction

Revenue management

Regional development planning

Local content

Social investment

Dispute resolution

• Research under the REi has identified six priority areas for partnership

Example

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Key lessons learnt from ICMM’s Resource

Endowment initiative (REi)

• Mining can be a powerful driver of development • Good governance is key to unlocking mining’s benefits • Where governance is weak, multi-stakeholder partnerships

in six priority areas can help enhance developmental outcomes

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Overview

• The ICMM: The Resource Endowment Initiative and Mining: Partnerships for Development

• Measuring the contribution – the experience of the Lao PDR

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Mining Partnerships for Development Toolkit

Approach

Government and ICMM applied Mining Partnerships for Development Toolkit, a systematic approach to:

1. Measure mining’s economic and social contribution

2. Provide practical partnership tools

3. Workshops to build action plans and relationships

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Lao PDR: Overview of assets and challenges

• Land-locked nation - 70% of 5.7m people live on < $2 per day

• Lao PDR well endowed with forests, renewable water assets and mineral resources

• Hydropower, agriculture and mining major industries

• Ask what constitutes responsible mining?

• Does government receive adequate returns from mining?

• What is mining’s net contribution?

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Overview of findings – the benefits

Consistently high rates of GDP growth and falling poverty (with decreasing income inequality)

Increase in local community average incomes of 5-7 times

Major employment, training and development outcomes - two mines now support livelihood of >30,000 people

Major role in supporting new businesses and local production

Economic contribution:

80% of foreign direct investment; 45% of exports; 12% of government revenues (over $1billion since 2003); and 10% of GDP for next 14 years

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Overview of findings – the concerns

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Some macroeconomic anxieties over evidence that economy at

risk of exceeding macroeconomic “speed limits” (IMF)

Government’s mining revenues volatile because of commodity

prices

As mines mature and pay more revenues to government

macroeconomic challenges intensify

Additional wealth going to consumables rather than capital

investment – govt. and individuals

Need to improve surrounding business environment and skills so

local firms are built to supply beyond mining.

Mining has leveraged development potential

Lao PDR: GDP growth per capita, 1951-2008

Source: Maddison, Angus (2010) “Statistics on World Population, GDP and Per Capita GDP, 1-2008 AD”

University of Groningen: http://www.ggdc.net/maddison/

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Need to ensure positive contribution continues

over long-term

Source: MMG Sepon and PBM

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Lessons learnt

• Companies cannot deliver development outcomes alone

• As in Chile and Ghana (but unlike Peru and Tanzania), mining has contributed to increased local incomes and living standards

• How? Large-scale mining companies made significant effort to integrate into host economy through partnerships

• As in Chile, government provided stable investment climate, good macroeconomic management.

• Unique to Lao PDR: government responded to additional needs of mining-affected areas to strengthen local government capacity.

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Toolkit applied in Lao PDR

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Enthusiastic

workshop

participation

Minister for Mining

NERI (Ministry of

Planning and

Investment)

World Bank and IMF

NGOs

Outcomes of the Mining: Partnerships for

Development process

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Improved industry

collaboration in country

Government better informed

and vigilant in allocation of

new exploration and mining

licenses

….Government presented

report findings at China

Mining Congress, Tianjin,

November 2011

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Lao in Context – Mining Contribution Index

For further information

please contact:

Troy Hey, MMG Limited

Troy.hey@mmg.com

www.icmm.com

Kathryn McPhail, Director kathryn.mcphail@ICMM.com