RESOURCE NATIONALISM AND MINING –
ISSUES AND POTENTIAL RESPONSES
Jon Samuel, Head of Social Performance, 19 February 2013
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ANGLO AMERICAN’S FOOTPRINT
2
PlatinumDiamondsCopperNickelIron Ore and ManganeseMetallurgical CoalThermal Coal
Corporate and rep offices
Key
E Exploration Offices
E
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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”
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• 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
RESOURCE NATIONALISM – DRIVERS
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HOW THE WORLD SEES THE MINING INDUSTRY
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RESOURCE NATIONALISM – IN PRACTICE
Taxes and royalties
Local content / value-add requirements (labour, procurement, beneficiation)
State participation in mining projects
Expropriation
Indigenisation (private)
From our perspective…
Changing the
rules of the game
while playing
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RESOURCE NATIONALISM – MANIFESTATIONS IN
SELECTED COUNTRIES
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Country Tax / royalty
changes
Local content
required
State
participation
Indigenisation
Australia MRRT (2010)
Royalty increase
(carbon tax)
Botswana Desires for greater
beneficiations
Debswana 50/50
Brazil Currently under review
(incl internal debate
between federal and
state level)
Pressure for local
supply contracts
(especially in oil and
gas)
Vale government
shareholding, state
ownership of
Petrobras
Chile Voluntary royalty
increase in 2010
Codelco
Colombia Under
discussion/review
Mozambique Talk of increase Will be an important
part of license to
operate
Degree of free carry
(5-20%)
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RESOURCE NATIONALISM – MANIFESTATIONS IN
SELECTED COUNTRIES
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Country Tax/royalty Local content
required
State
ownership
Indigenisation
Peru Negotiated
voluntary windfall
taxes
Several local
benefit schemes in
place (often
negotiated locally)
South Africa SIMS report
suggests
increasing both
Range of
requirements
under mining
charter (likely to
increase)
Nationalisation
debate and state
mining company
Broad-based Black
Economic
Empowerment
(26%)
Venezuela Strong focus on
community and
union benefits
Nationalisations
and expropriations.
Mixed companies
required in oil and
gas
Zimbabwe Yes 51% requirement
(threat of
expropriation)
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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)
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DID HIGH OIL PRICES LEAD TO NATIONALISATION?
OPEC led oil market
?
Source: OPM analysis for Anglo American
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Non-OPEC35%
Saudi Arabia25%
Kuwait10%
Iran9%
UAE5%
Iraq4%
Other OPEC12%
OPEC65%
OWNERSHIP PATTERNS IN OIL AND GAS
Non-OPEC32%
Kuwait22%
Saudi Arabia
18%
Iran12%
Iraq9%Venezuela
7%
OPEC68%
In 1960:
• World oil reserves
were 291 bn bbls;
• of which: 85% were
privately held; and
• two-thirds were in
OPEC
countries, and also
privately held
In 1980:
• Reserves were 668
bn bbls;
• of which: two-thirds
were in OPEC, and
state-owned.
1960
1980
Source: OPM analysis for Anglo American
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COULD THE SAME THING HAPPEN TO MINING?
Nationalisation Privatization Pressure on rents and state-owned equity
?
Source: OPM analysis for Anglo American
13
• 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
COULD THE SAME THING HAPPEN IN MINING?
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• 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
HOW SHOULD MINING RESPOND?
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RESOURCE CURSE: POTENTIAL CAUSES
Resource
Curse
Terms of
Trade
Dutch
Disease
Rent
Seeking
Impacts
of Mining
Volatile
Markets
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Volatility can and has
been managed by
instruments such as
hedging and
stabilisation funds
RESOURCE CURSE: RESPONSES
Terms of
Trade
Dutch
Disease
Impacts
of Mining
Volatile
Markets
The price of
manufactured
goods is also
falling
Productivity
improvements can
increase benefits to
local economies
Reallocating factors of production
to resource sector may be efficient
Only a problem if adjustment after
resource extraction is not planned
for and / or not possible
Responsible
management of
impacts and
proactive development
initiatives can create
positive economic
contributions
Revenue transparency and governance
reform can help to reduce rent seeking
Rent
Seeking
Resource
Curse
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WHAT ROUTES ARE THERE FOR DELIVERING
DEVELOPMENTAL BENEFITS FROM MINING?
OPERATION
INFRASTRUCTURE
BENEFICIATION JOBS / WAGES
CAPACITY
BUILDING/
TRAINING
PROCUREMENT
TAXATION
SOCIAL
INVESTMENT
SME
DEVELOPMENT
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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
(approximately 100 x social investment
budget each year)
• Ensuring that host communities have the
best possible chance of securing
increasingly skilled jobs on our
operations
• Focusing in particular on how local
municipalities can use tax revenues to
provide effective public services
• Offering equity and loans on a
commercial basis to support local
entrepreneurs, both within and outside
our supply chain
• Providing grants to welfare-enhancing
initiatives where more market-based
approaches are not possible.
Local
Procurement
Local Training
and
Recruitment
Governmental
Capacity
Development
Enterprise
Development
Social
Investment
*
* 2011 data
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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
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LOCAL PROCUREMENTD
em
an
d-s
ide M
easu
res
Policy: Local Procurement Strategy
Resources:
Appropriate people and budget
SC Local Procurement Initiatives (eg
Ring Fencing)
Set framework, show
leadership support
Demonstrate
commitment
Operationalise
commitments
Communication and Reporting:
Targets and KPIs
Build Anglo American capacity
and incentivise
Support for Small and Medium-size Business Start-
ups (e.g. Emerge / Zimele)
Supplier Development Programmes
(building capacity of existing suppliers)
Alternative Livelihoods and Micro-credit ProgrammesSupporting the
grass-roots
Creating formal
businesses
Build capability, capacity
and size of suppliers
Objective
Su
pp
ly-s
ide M
ea
su
res
Localising Suppliers
(e.g. near-mine supplier parks)Encouraging more suppliers to
locate in mining areas
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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
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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
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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
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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
THANK YOU
ANNEXES
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TIMELINE OF A TYPICAL MINE
Exploration Closure
Year from acquiring exploration permits (assumes continuous intention to develop)
1 4 7 10+ 30+
• 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
DevelopmentStudies Operation
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MANAGING SOCIAL RISK
Respect human rights
Deliver lasting, positive net benefit
Identify and manage social impacts
Efficiently utilise resources
Obey all laws and regulations
Ensure contractors follow our standards
Set targets, review performance
Develop staff competencies
Engage employees and stakeholders
Report and investigate incidents
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SOCIAL PERFORMANCE WORK PROGRAMME
Anglo American Values and Good Citizenship
Business Principles
Group Social Strategy: Partner of Choice for Host
Governments and Communities
Policies and Standards: the Anglo American
Social Way
1. Education
and Training:
• SEAT training
• Post-grad
diplomas
• Advanced Social
Management
Programme
• ABET
2. Guidance
Documents:
• SEAT
• Mine Closure
Planning
Toolbox
3. Social
Initiatives:
• Enterprise
Development
• Social
Investment
• Capacity
development
• HIV/AIDS
• Housing
6. External
Engagement:
• Communities
• Governments
and multi-
laterals
• Industry
associations
• Multi-lateral
initiatives
5. Internal
Alignment:
• Business Units
• Functional
liaison
4. Leverage
Core Business:
• Local
procurement
• Local workforce
development
• Synergies from
infrastructure
provision
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SEAT: STRUCTURE
Engagement throughout
Step 1 – Profile your operation, including existing community
development initiatives
Step 2 – Profile and engage with stakeholders
Step 3 – Assess and prioritise impacts and
issues
Step 4 – Improve social performance
management
Step 5 – Deliver enhanced socio-
economic benefits
Step 6 – Develop a social management
plan
Step 7 – Prepare a SEAT report and feed back to stakeholders
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• 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
• Transport issues
• Communication and transparency
RECURRING ISSUES THAT SEAT ADDRESSES
Generally very pragmatic issues
A strong
emphasis on the
level and
distribution of
benefits
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