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File:Diavik Diamond Mine.jpg
Diavik Diamond Mine in Canada

Launched in late 2007, the “From Money to Metals” (FM2M) documentation project was a preliminary essay in gathering disparate data on financial institutions (both commercial and private) which aim to profit from mineral discovery, extraction and processing.

Thanks to the generous sponsorship of Germany's Heinrich Boell Foundation, and in cooperation with the UK-based Mines and Communities network (MAC), the database has continued to expand since then. So, too, has critical analysis of the policies and practices of mining investors, along with the companies and projects they fund. Please read on...

Backwards towards the future?

Five years ago, it seemed that the fortunes of global mining might have been seriously - if not mortally - wounded, following the gargantuan credit collapse triggered by the downfall of US investment bank, Lehman Brothers, in September 2008.

As that annus horribilis closed, the minerals industry was saddled with the most significant reduction in corporate equity (share) values in living memory. Extractive companies performed worse that year than those in virtually ever other industrial sector represented on the London Stock Exchange - the single most important source of largescale mining-related capital [Russ Mould, editor, Shares Magazine, in a presentation to LSE seminar, London, 17 February 2009].

Just about every mining enterprise listed on other stock exchanges also suffered falls in their market capitalisation, while mineral commodities traded at lower prices or volumes than in any period for ten (in some cases twenty) years. The only exceptions were gold and silver; the former apparently sustaining its historical role as a "safe haven" in hard economic times [Lawrence Williams: ”Is gold the only salvation from this financial Armageddon?" Mineweb, 16 February 2009; see also: Barry Sergeant: “Warm bullion, hot stocks”, Mineweb 21 January 2009].

During 2010, some measure of market stability seemed to have returned. Even so, at the beginning of 2011, virtually every major mining firm on the planet continuing suffering impacts from what the fabulously-rich Warren Buffet earlier dubbed “the financial nuclear winter”. The market value of Chinese extractive companies had dropped the most: China’s huge Shenhua Coal and Chalco dived in their worth by around a third, while that of India’s NMDC (formerly the National Mineral Development Corporation) had collapsed by just over 50%.

Even diversified giants like Rio Tinto and BHP Billiton, consistently among the top three global miners, saw their share prices dip by 2.9% and 3.6% respectively [Mineweb, 12 January 2011 -]. In the meantime, a raft of smaller firms (so-called Juniors) and their exploration projects hit the dust.

Nonetheless, it was naive to expect that the minerals sector as a whole would meekly roll over and die, just because its key investors had received the fright of their business lives. Mining is a notoriously cyclical industrial sector; precisely for this reason its biggest players have become adept at coping with dramatic falls in demand for at least some of their output.

It can take ten or more years to bring a major mining project on-stream. These time-lines are factored into the “bankable feasibility studies” which companies need to present to prospective investors. So long as banks, private funds, and multilateral agencies (principally the World Bank/IFC) are persuaded of an eventual improvement in global economic growth rates, they have customarily been willing to wait-out such delays.

The important question is: for how long are investors now prepared to wait? During 2011-12 turmoil hit the euro currency area, and "quantitative easing" failed to rescue the dollar-based economy of the United States. And suppliers of the basic "building blocks" of modern societies - miners of base metals, construction materials, and agri-minerals (phosphates and potash)- are always hostages to macro-economic fortunes.

This is not all the mining industry has to confront in terms of restraints on its growth. For example, legislation following the recent US Dodd-Frank Act will further curb the trade in "conflict minerals" from the DR Congo. In 2011, the World Bank/IFC tightened the social and environmental safeguards which must be met before the Bank allocates funds to extractive ventures. That year, the OECD revised upwards its guidelines relating to the conduct of multinational enterprises.

So, too, did the association of over 70 financial institutions, signed-up to The Equator Principles - although the latest draft of these (August 2012) has been strongly attacked for its significant underlying weaknesses [See:].

Paralleling these develoments has been increased resistance by local communities to new project proposals. Indigenous Peoples' groups are clamouring for strict observance of their right to exercise "Free, Prior and Informed Consent" (FPIC)to proposed mining developments.

Climate of Changes

The 2009 international Climate Conference Accord anticipated that greenhouse gas emissions will reach unacceptable levels over the next forty years unless global temperatures fall at least two degrees below their pre-industrial levels. To secure this threshold, says a November 2012 report by PricewaterhouseCoopers (PwC),there must be dramatic transformations of present-day industrial "scenarios".

Presuming this occurs (and it's a big "if"), a number of high-carbon emitting plants will have to cut back or close production: notably those producing steel, cement, alumininium and, above all, those burning coal [See: "PwC's annual Low Carbon Economy Index report", PricewaterhouseCoopers, London, November 2012].

Power utilities that currently depend on coal have placed their faith in a technology known as Capture and Storage (CCS) to sequester the egregious amounts of carbon, spewed from coal-fired power stations. However, there is sparse evidence that CCS is viable on a commercial basis; and, even if it were, that it could be deployed on the scale required to neutralise carbon dioxide emissions effectively [See:].

For the most part, the expenses of extracting, processing, and transporting minerals and metals are mounting. Companies are being told to meet higher bars on toxic waste disposal and their contributions to ambient air, water and soil pollution. Morever, they are being increasingly pressured - by governents from Argentina to Zimbabwe - to pay a far greater proportion of their profits to state, regional, or local administrations, in the countries where they operate.

Meanwhile, some of the metals or building materials on which we have traditionally depended, are being supplanted by cheaper or more sustainably-produced alternatives. (For example, in the past two years, there has been a substantial substitution of natural gas for coal to power US electricity supplies. See: "To Slow Warming, Tax Carbon", New York Times, 11 November 2012:]). The recycling of “scrap” (secondary) metals is also gaining pace (albeit far too slowly). Inevitably, the rate will grow as the rising costs of primary extraction combine with a depressed, or uncertain, metals and materials market.

Perhaps of most significance is that conventional growth rates in China and India have failed to rise as predicted a mere five years ago - a point dealt with in more detail below. It would be a foolhardy investor indeed, who deigned to put their money into mining on the scale which many of them were doing half a decade ago.

Even while some gold and silver prospectors continue to ride out the storms, this has not been the case for miners of a number of base and ferrous metals, diamonds and other minerals. Arguably, only investment in "greenfield" production of rare earth elements and agriminerals currently look relatively secure for long-term investment.

To quote James West, writing in Resource Investor on 15 November 2012:"[W]e’re entering an investment cycle, in the junior resource sector, where there is a lot of cash, diminishing opportunities, and diminishing returns" [See:]

West's warnings don't only apply to the smaller companies. Those with far larger cash reserves are not putting anything like the amounts they did earlier into substantial new ventures, or in making Mergers and Acquisitions (M & As). (Across the board, such deals fell by 30% during the first half of 2012 [MJ 21 September 2012]).Rather, they are spending on the expansion of existing mines. At the same time, they confront mounting pressure to shell out larger dividends to their own shareholders [See: "Ernst & Young Mining Eye Index", November 2012]. Clearly, these investors prefer to hold "a bird in the hand", as opposed to speculating on two or more gambits "in the bush".

The dance of finance

In the wake of the 2008-2009 "nuclear winter" there was the fleeting prospect of a collective end to the parceling-up of bankers' debt, and its offloading into ever-more obscure, risk-laden fiscal instruments, that had blighted the previous fifteen years.

By and large, this hasn't happened.

In fact, some of those potentially toxic financial products are being strengthed. Since 2008 there has been a rapid proliferation of so-called Exchange Traded metals' commodity funds (ETFs), whose lack of transparency should be of considerable concern (See: Appendix - 1).

Derivatives' contract trading in metals continues apace, although it was precisely the use of these instruments that lay at the heart of the recent toxic storm (See: Appendix - 2).

The Canadian government has done nothing to limit the issue of "Flow-Through shares" to the hundreds of junior mining companies hosted on its stock exchanges, despite a consequent loss to the citizen taxpayer (See: Appendix - 3).

Even more shocking has been the extent to which corporations are still allowed to use offshore domiciles so as to evade paying taxes in the domains where they are registered. Almost all the major, and a significant number of other, mining companies mentioned on our database conceal their true profits in locations such as the Bahamas, the Cayman and Channel Islands, and Mauritius.

And behind, or complicit in, all these stratagems are some of the very banks and institutions which bear primary blame for the 2008 credit meltdown.

2008-2012: Statistics, damning statistics…

Even so, it would appear that mining companies haven't substantially benefited from these recondite and opaque financial ploys (and may well be as suspicious of them as the majority of us).

Instead they continue to depend on three well-established funding recourses for the bulk of their "walls of money":

1) Bank loans and other debt financing issued for specific projects and general corporate purposes;

2) Corporate bonds, issued by mining-mineral companies themselves, through a bank or broker; and convertible bonds - ones that can be exchanged for company shares at a later stage;

3) Equity – in other words, shares or stock – which is purchased directly in a company, either when it launches an IPO (Initial Public Offering) or in a later tranche of shares.

Let's examine in some detail the extent to which use of these primary sources of funding has changed in recent years:

Loans & Bonds

Between 2000 and 2006, direct loans to, and debt financing of, mining involved at least 53 banks (both private and state-owned), insurers and other financial institutions - each providing between $5 million to US$5.7 million in any one year. This resulted in around US$178 billion being disbursed to mining companies during that period.

The amounts of money arranged, syndicated, or raised in corporate bond issues for specific mining projects, merger and acquisitions, and general corporate purposes, was significantly higher: not far short of US$250 billion between the start of the new millennium and 2007. In 2008 alone – until the bankers’ credit and credibility crash later that year - 919 mining merger and acquisitions took place, with an aggregate value of US$126.9 billion.

Corporate bond issues numbered 150 in 2009, raising $61 billion – a marked 60% advance on 2008, with China responsible for almost a third of this type of financing.

However in 2009, despite a slightly increased number of merger and acquisition deals (to 1,047), their overall worth had plummeted by over 50% to just US$60 billion. Moreover, only 2% of bank loans were used that year to fund new corporate acquisitions, with China accounting for 27% of them.

In contrast, 97 convertible bond issues were made in 2009, raising US $14.4 billion - around US$ 2.2 billion more than in 2008. Corporate bond issues numbered 150 and were valued at $61 billion, representing a marked 60% increase on 2008. Once again, China accounted for almost a third of these deals.


Between 2000 and 2006, just over US$9 billion was disbursed to mining projects - strikingly, more than a third of which was spent in 2006 alone. 2008 was a record year for project funding, with $7.7 billion deployed on 16 projects, until the banking crash.

Little wonder then, that only ten project deals achieved “financial closure” during 2009, at a cost of $5.4 billion - the biggest chunk of which landed in Latin America. Just one project (Antofagasta Copper’s Minera Esperanza in Chile) came in at more than a billion dollars.

However, London-based global accountancy firm Ernst & Young estimated that, during the first half of 2010, the volume of completed deals in the mining and metals sector had risen by 20% (to 544 transactions) over the same period in 2009; and their overall value increased by 46% (to just over US$40 billion).


A total of US$91.2 billion was spent by investors on equity in mining companies during 2009.

Although a hundred and eighteen 'IPOs (Initial Public Offerings of shares) had been completed the previous year, they raised only $12.4 billion. On the other hand, secondary share and rights offerings (those made once a company has already been “floated”) secured US$71.8 billion in 2009 (compared with $48.8 billion in 2008); while purchases of “follow up” equity rose slightly, to US76.8 billion [1].

In early 2010, Ernst & Young predicted that “equity will play a greater role in the next wave of growth, with the IPO market starting to recover” [Ernst & Young, “2009: the year of survival and revival: Mergers, acquisitions and capital raising in the mining and metals sector”, London, February 2010].


But,although Ernst & Young’s own “Mining Eye index” - a weekly tracker of share values of the top 20 London Alternative Investment Market (AIM)-listed mining companies - gained 173% in 2009, as of March 2010 the index overall was still 40% down on the all-time high achieved a year before. [Mining Journal, 12 March 2010].

AIM is the London Stock Exchange’s Alternative Investment Market, on which junior mining companies were, at that time, heavily represented. According to Financial Times analyst, Jonathan Guthrie, only US£38.6 billion worth in equity was raised on AIM in 2011 - around half the £75 billion invested in 2007.

Moreover, since then, “the tally of AIM-quoted companies has dropped from 1,694 to 1,117 and small-cap shares remain more deeply under water than larger peers" [Financial Times, 15 May 2012. See also:].

Six monhs later, Ernest & Young observed that a positive recent upward movement in commodity prices, “while providing some support, has not been fully reflected in equity prices".

The financial services firm went on: "This continuing disconnect is leading companies to consider themselves significantly undervalued by the market...The market values of nearly two-thirds of AIM miners were trading at over 30% below their 52-week highs at the end of Q3 (third financial quarter) 2012” [See: "Ernst & Young Mining Eye Index", November 2012].

Another trend, revealed in the E&Y Mining Eye Index, has been the global retreat of mining IPO volumes to 2009 levels, “with average proceeds raised by junior IPOs just US$3.3 million. On AIM, there was only one mining IPO (Wishbone Gold) in the third quarter, taking the nine months total to just four IPOs”. The Index also disclosed that global equity proceeds from secondary offerings of equity by junior miners had fallen 41% year-on-year, “indicating the extent of negative investor sentiment and the expensive financing option that equity has become” ["Ernst & Young, ibid].

In 2010, the world’s leading minerals trading company, Glencore, purchased assets it sold earlier to Xstrata to help the latter out of debt, and 26 months later, Glencore launched the biggest mining-related IPO in history, priced at around £35 billion.

However, potentially the most profitable London IPO of 2008-9, by UC-Rusal, the world’s premier aluminium conglomerate, was jettisoned in favour of a listing on the lower-profile Hong Kong Stock Exchange.

The following month, Vedanta Resources – the largest-ever Indian entrant on the London Stock Exchange back in 2003 – also announced that it would seek an IPO for its Vedanta Aluminium subsidiary. But this would be performed on the Mumbai (Bombay) Stock Exchange with only a secondary registration in London and, to date, no offering has been announced. Meanwhile, many other largescale mining IPOs have been abandoned or deferred, both in London and Hong Kong.

Fast money ?

Writing in April 2010, Mark Carnegie, the head of Lazard Australia Private Equity, was in little doubt that: “The current high levels of the equity markets are a by-product of the bond market. People invest in shares as an alternative to earning a fixed rate of return by putting money in a bank or buying longer term investments that pay a fixed rate of interest ... The money has to go somewhere, so lots of it is going into the share market …" Carnegie went on:

“The real nuttiness in the global capital markets is that our overspending western governments can borrow at such low rates of interest…[I]t is…certain that the ability for the US and other profligate nations to borrow at these rates will end and, when it does, it will be ugly for all capital markets, including shares. As interest rates increase, the investment alternatives to shares become more attractive and so people sell shares to buy bonds and put their money in cash” [Mark Carnegie, “MARK-2-MARKET: The coming storm”, Business Spectator, 9 April 2010].

Two years since then, and Carnegie’s prediction has not been fulfilled – at least in regard to the direction in which minerals-related investment has been flowing. Neither bond nor shares markets have been a preferred destination on a major scale for “fast” cash looking for a home. Rather, such money has increasingly gone into metals’ Exchange Traded Funds (ETFs) or into derivatives’ betting. (See: Appendix 1 for more information).

Derivative instruments – the trading of options and futures contracts - are widely recognised as being at the root of the post-September credit collapses. They have certainly not left the scene. Once again, they pose a threat to maintaining long-term market stability by promoting an illusory demand for raw materials which are actually not required to meet real human need. (For a further discussion of this phenomenon, see Appendix 2).

Labour woes

Scores of thousands of workplaces have also been sacrificed over the past four years, not only at the pit face but also in construction and automobiles - two industries intrinsically dependent on processed minerals. These workplaces may never be recovered. Without the billion dollar bailout of General Motors by the Obama administration in 2012, many metalworkers’ jobs would have disappeared for ever.

Companies around the world have been replacing unionised workers by contract labourers who are fated to toil on low pay, without any security of tenure or basic social security provisions. This attrition was summed up by the global mineworkers federation, ICEM, at the dawn of the new decade:

"From Russia to Chile, at Europe’s largest zinc deposits in Ireland’s County Meath, where 670 were retrenched by Tara Mines, to the hundreds of thousands of migrant miners across the world who are out of work with no place to go, it is workers who are paying the unjust price of capital’s failure" [ICEM, Brussels, 12 January 2010].

Nor has their plight materially improved over the past 30 months. In fact the opposite is true, especially in South Africa where miners striking for better pay were mown down by police last August, and only a few have so far managed to negotiate wage rises with mine managements [See:;].

In a June 2012 survey of selected global mining company executives, undertaken by the Mining Recruitment Group, 20% stated they had already begun laying-off existing employees, while 24% had implemented “company-wide hiring restrictions”; 32% noted a reduction or elimination of incentive pay, while 8% had cut salaries.

“With drastic cost cutting measures having been implemented and a fear of the availability of capital”, according to Mining Recruitment Group, 60% of its respondents did not expect to recruit over the following six months. Even the remaining 40%, which planned to do so, primarily sought blue-collar, rather than relatively unskilled, workers [Mining Executive Outlook, Mining Recruitment Group, Summer 2012, cited on Mineweb, 22 June 2012].

Far from secure mining futures

In an attempt to evaluate the previous 15 months’ attrition of the minerals industry, Ernst & Young in early 2010 concluded that: “At this point in the cycle, Asian investors [have] emerged as the new buyers, cash-rich and ready to take advantage of the opportunities that abounded as valuations dropped and struggling companies became the target of bargain hunters.”

Ernst & Young went on: “The emergence of these new investors, combined with a quick rebound in demand in Asia and prudent spending, allowed the industry to weather the storm of unsustainably low metal prices and emerge into the calm as prices reached more realistic levels.”

Ernst & Young said it was now banking on China and India in particular, to “promote a strong seller’s market” in the near future, judging that “[t]he events of 2008 have fundamentally changed the way the industry will be financed in future” [Ernst & Young, “2009: the year of survival and revival: Mergers, acquisitions and capital raising in the mining and metals sector”, London, February 2010].

A cursory glance at China’s mining-related merger and acquisitions at the time initially confirmed this prognosis. The regime’s mineral-dependent industries have undoubtedly snapped up sizeable chunks of - and a few entire - mining companies, benefiting from depressed commodity prices prevalent during 2009-2011. Nonetheless, those new “ways” of promoting investment, mentioned by Ernst & Young, have yet to be developed - let alone deployed.

It's a no-brainer that, if China (and to a lesser extent, India) are to stimulate new spending, these two huge emerging economies must achieve accelerating levels of traditionally-defined “growth”, let alone ones that match the criteria set by the UNDP’s Human Development Index.

However, China’s rate of growth has been accelerating downwards. Although the Beijing government recorded growth in GDP (Gross Domestic Product) of 13% in 2007, this descended to 9.2% in 2011. According to a recent forecast, China's economic growth in the second quarter of 2012 will be only 7.6% on the previous year - “its weakest performance since the 2008-09 financial crisis” [Reuters, 5 July 2012].

India’s GDP growth rate slipped from a previous high of 9% to 6.7% in 2009. As with its vast Asian neighbour, during the first quarter of 2012 the rate slumped even further, to only 5.3%.

In the interim, socio-economic and environmental pressures in both countries, are curbing the amount and extent of new mineral ventures. For instance, India’s costliest-ever proposed extractive project – by South Korea’s POSCO, for an integrated iron-steel venture in Orissa - has been curtailed for no fewer than seven years, thanks largely to local and national opposition [See:]. Outrages over massive child lead poisoning, and worker fatalities at numerous Chinese coal pits, have led to many abrupt closures of plants and mines.

The administrations of both Asian mega-states also acknowledge the urgency of limiting their contributions to adverse climate change. While neither the governments of India nor China have paid a proper regard for the Kyoto Climate Treaty, under the 2009 Copenhagen Climate Accord, the Chinese administration undertook to cut between 40% and 45% of carbon-dioxide emissions per unit of Gross Domestic Product (GDP) by 2020.

An independent report of November 2011 suggested that, between 2006 and 2010, China's proportionate reduction in carbon emissions - including those from coal-powered plants - was the most significant recorded by any state in the four years between 2006 and 2010

China has also set a target of producing around 15% of primary energy from non-fossil fuels within the coming decade, and has been slowly advancing in this direction [Engineering News, 22 April 2010].

However, if good intentions are to translate into action, many more coal mines will have to be closed in both countries. This is not likely to happen – in India at least - for another decade. Even if India can't feed its hunger for coal from the country's own resources, it will do its utmost to locate supplies of the black stuff from abroad.

Investment conundrums

On the one hand, Ernst & Young’s February 2010 report conceded that “[t]raditional investors will be looking for safe options in 2010”, while “fewer lower risk projects are now available”. On the other hand, somewhat quixotically, it went on to claim that investors would then be willing “to consider acquisitions with greater political risk”.

Little evidence of this has been forthcoming. On the contrary, long-betting, mining-dedicated, investment funds have largely shirked taking on increased risks. Hedge Funds, which have a focus on short-term profit (sometimes even making money by betting that a company share price will go down, known s “shorting”), have certainly not disappeared from view.

Nonetheless, their distinct role as cash-rich moguls, betting against a rise in share prices, rather than supporting them, has diminished. RAB Capital, not long ago the most significant of these mining-focussed funds, found the value of its investments drop drastically by 80% to only $1.4 billion in February 2010, and then to under $1 billion in May 2011 [Mining Journal, 26 February 2010;].

Let’s examine Ernst & Young’s February 2010 report a little further, for it represented perhaps the best attempt at the time to put an optimistic spin on how the mining industry might rescue itself.

According to Ernst & Young: “[T]he changes in available capital will continue to increase the complexity and variety of deal structures, with joint ventures, partial sales and de-mergers becoming common, along with alternative financing arrangements, such as partial equity sales and asset swaps”.

“Following the decline of the project finance model”, said Ernst & Young, “we could see a return to individual mines being floated, with the proceeds used for development, and investors sharing in the profits when the mine goes into production. Off-take customers [those investing in return for the mined produce] could also emerge as key sources of funding to develop mines, as is already occurring in the junior mining space.” Thus, asserted Ernst & Young: “Eventually, borrowing will return to historic averages, but from new lenders and more diversified pools of resources. These will include multilateral development agencies, and Middle Eastern and Asian banks.”

There is little sign of these significant new lenders, or more diversified resources’ pools, having emerged. Although Chinese banks appear still to be in the market for further strategic mining investments, we are unlikely to see such transactions brokered at the rate, or to the extent, they were in 2007-2009. India’s State Bank recently set up a European financing arm in London; however, its only major minerals-related outlay so far has been on the Jharsuguda aluminium smelter, being constructed in Orissa by Vedanta Resources plc.

Private investors responded “to the [recent] crisis with a combination of equity issuance, corporate bonds, assets disposals and inward equity investment from strategic investors”. This is partly borne out by the figures provided above. However, while 2009 may have been “a record year for follow-on equity issues and corporate bonds”, Ernst & Young’s own data paints a far from optimistic picture of innovative strategies being used to attract substantial funding.

Importantly, Ernst & Young itself recognised that “[P]erhaps the most profound effect of the global financial crisis on the metals and mining industry is that the world has lost as much as two years of growth in the supply of scarce resources. The deferral of projects pending financing will lead to a construction bubble that will compete with other lagging fiscal stimulus for resources.”

Now, that did seem to be a reasonable prediction of a crisis that the global minerals industry continues to confront, particularly with regard to China – as I will shortly elaborate.

Ernst & Young told us in early 2010 that “equity [purchase of shares] will play a greater role in the next wave of growth, with the IPO Initial Public Offering market starting to recover in 2010”. What has been the evidence of this so far?

By the end of 2010, Ernst & Young estimated that the volume of completed deals in the mining and metals sector during the first half of that year was up 20% (to 544 transactions) on the same period in 2009, with a 46% increase in their overall value (to just over $40 billion).

Ernst & Young also predicted that"[t]he pace of deal activity will continue to accelerate”, driven by China and the other Asian economies, envisaging that big, globally-diversified mining companies would “pursue bolt-on acquisitions” for up to another year, especially ones from North America which had “dominated the bigger value deals in the first half of 2010”.

The report continues: "While resource security continues to be the driving force behind increased deal activity in the mining and metals sector, a number of other factors are also helping to fuel transactions - including the improved cash flow and availability of capital to do deals, ongoing industry rationalisation and the desire for greater vertical integration."

Importantly, Ernst & Young judged that equity (selling shares) was still “the preferred source of capital in the sector” and that this pattern would continue for some time to come, due to “the lack of availability of bank debt, particularly among the mid-tier companies" [Ernst & Young, 2 September 2010].

A year later, the Metals Economics Group also estimated that 2011 nonferrous exploration budgets would increase by around 50% from the 2010 total - signifying a new record, with Latin America as the industry’s favourite regional exploration target. Nonetheless, the Group anticipated that the proportion of “overall industry exploration effort committed to long-term project generation” would remain close to historically low levels [International Mining, 16 September 2011].

At the same time, PricewaterhouseCoopers (PwC) reported that the first half of 2011 saw 1,379 mining transactions globally, worth a total $71-billion. But, as a result of “volatile equity markets”, the value of such deals had shrunk by 49% during the third quarter of 2011 ["Riders on the Storm", PwC, London, 2011].

The situation had not changed by mid-2012. Only 22% of mining executives, responding to the Mining Recruitment Group’s survey in June this year, thought their sector would perform better in the second half of 2012, compared to the first; while another 41% suggested its performance was likely to be worse [Mining Recruitment Group, "Mining Executive Outlook", Summer 2012].

Nor was the outlook for Asia-Pacific focussed metals and mining companies less gloomy According to a May 2012 report by Standard & Poor’s: "A tighter labour supply and likely higher energy prices will pressure the profitability of many commodity producers” in the Asia-Pacific region. The stock market ratings agency predicted that metal producers would also have to wrestle with more expensive raw materials, saying: "For Asia-Pacific steel and aluminium companies, we forecast a negative outlook…due to a global slowdown and abundant supply"[Standard & Poor's, cited by Mineweb, 4 May 2012].

PwC also recently published a commentary on the chequered state of the industry last year. It asserted that, despite the top 40 mining companies posting record profits (of $133 billion) in 2011, their market capitalisation actually fell by 25%.

Only six of these companies saw “positive market capitalisation movements” – namely China Shenhua, Ivanhoe Mines, Industriales Penoles and low-cost gold miners, Goldcorp, Randgold and Yamana Gold. The leading companies’ price earnings ratios were also “at one of the lowest levels seen in years”. PwC said that Europe’s debt crisis and fears of a slowdown in global growth “dominated the markets during the second half of the year”, while “mining company share prices were hit particularly hard [PwC: "Mine – The Growing Disconnect, 2012"(undated)].

Chinese syndromes

In 2011, PwC anticipated a “drop off” in mining deal making, but predicted it would not cease altogether – placing its faith in China's demand for metals “continu[ing] to drive long-term fundamentals”, specifically “in the mining merger and acquisition market" ["Riders on the Storm", PwC, London, 2011].

A decade earlier, the mining industry had indeed set its cap at the Peoples' Republic of China as the world’s most vital single market for its ferrous and nonferrous metals, fuel minerals (in particular coal) and a wide range of construction materials.

As of March 2012, China dominated global trade in iron ore (representing 47% of world trade), copper (38%), coal (47%), nickel (36%), lead (44%) and zinc (41%)[, 13 March 2012]. More recently, China has itself become the leading producer and consumer of gold.

During intervening years, Chinese State Owned Enterprises (SOEs), backed by state banks and sovereign wealth funds, along with private firms, also invested substantially in foreign mining projects, making important corporate acquisitions - notably in Australia, Peru and Canada.

Underpinning these moves was the regime’s core aim of building-up its raw mineral stocks, especially when costs of acquisition were low, in order to bulwark domestic requirements, and in anticipation of future rises in domestic demand.

This strategy has long had its limitations. Financial Times analyst, William MacNamara, warned in 2010 that mining companies have a specific “problem”, relating to the tendency of state fiscal managers to “restock" materials at the start of an expected new economic cycle.

According to MacNamara, this could lead to their building-up supplies well beyond their country’s existing requirements. During 2009, he said, such restocking was especially evident in China, with the result that its “stimulus-boosted manufacturing helped carry metals prices around the world [William MacNamara, “Mining and metal trends radically affected by speculative investments embedded in prices”, Financial Times, 8 February 2010].

Apparently heeding this warning, by early 2010 China began reining-in such spending. Meanwhile, according to MacNamara, there was also “little evidence that restocking is happening in developed countries in the way it once did” [William MacNamara, ibid].

Deutchse Bank analyst, Daniel Brebner, seemed to agree, conjecturing that product manufacturers in general were “holding lower stock levels permanently to avoid being caught out as they were in 2008.” Brebner predicted that “…the inventory cycle in the western world will be a shadow of its former self” [William MacNamara, ibid].

However, this is only part of the story. China acquired full membership of the World Trade Organisation (WTO) in 2001, prompting an unprecedented flurry of overseas trade in its finished and semi-finished goods. As a consequence, the treasury accumulated an unsustainably high level of dollar-denominated funds. Some analysts have suggested that this parlous dependency has recently driven Beijing’s autocracy to promote a shift away from the Mighty Dollar - to IMF Special Drawing Rights, back to the gold standard, or even towards promoting a new form of international exchangeable currency based on trading of commodities.

If that’s true, it helps explain why, during 2010 and much of 2011, the state created those huge stocks of raw materials it clearly didn’t require for short-term use. It also adds weight to the argument that we won’t see similar excessive accretion of minerals by China for a long time to come – if ever again [2].

Of equal, if not deeper, concern to the regime is that many Chinese citizens have been spending at levels never seen before, while the vast majority of them have no means or incentive to save. At the same time, investment in socially productive sectors at home – such as agriculture and human services - has been dramatically drying up.

For these reasons, the Chinese administration has been assiduously seeking to 'cool down' state economic growth - part of which involves measures to reduce consumption of coal, shut down numerous small, dangerous coal pits, and “consolidate” steel foundries, in order to cut operating costs, and reduce pollution.

Until now, these measures have failed to substantially reduce overall domestic demand for mined materials, or what they are turned into. On the contrary, China’s “rising” middle classes continue demanding more and better housing, and access to consumer items. Nonetheless, the regime has started to limit exports of finished products – notably to Europe and the USA – in order to balance its huge trading deficits.

Then, during the early months of this year, it became clear that the regime was also determined to stem the importation of some metals and coal. In March 2012, the world's third biggest iron-ore exporter, BHP Billiton, warned that Chinese demand for iron ore was “likely to flatten out”. At the same time, a Barclays Capital economist judged that China had now become “the least supportive factor for copper prices” [Business News Americas, 21 March 2012].

It’s not hard to see why. Suddenly, between January and February 2012, China’s $27 billion trade surplus turned into a $31 billion deficit – the largest such in twelve years. The announcement triggered a fall in the fortunes of mining and energy companies “almost across the board” [, 13 March 2012].

At the heart of China’s economic malaise is the recent boom in property prices. The Beijing leadership now regards this as a potentially huge, damaging “bubble”, which is threatening the country’s fiscal stability. And it’s not difficult to predict that, if China’s property sector is “tamed”, demand for its key “building blocks” – steel, aluminium, copper, cement, aggregates and fossil fuels – will also be significantly curtailed ["The sum of all China fears", Karen Maley, Business Spectator 21 March 2012].

Chinese Rising

Chinese citizens have rushed headlong into investing in real estate and massive infrastructure projects required to service building programmes and expanded transportation. This has placed hundreds of thousands of citizens at risk of losing their land and small business enterprises, thus triggering mass protests across the country.

At least some of those in the country’s top power-elite seem to comprehend the urgency of curtailing the state’s recent profligacy in mining and metals output in order to reduce such conflicts.

Not doing so is a recipe for increased civil strife, especially among poorer communities, which the regime will be unable to suppress. So far, officials have reacted with a confusing mixture of "stick and carrot". (For example: in July 2012, the city government of Shifang in south western China cancel construction of a US1.6 billion copper smelter, after thousands of citizens had taken to the streets for three days in strident opposition to the plant [PlanetArk, Reuters, 6 July 2012].

On the other hand how can the regimen meet the expectations of its rising middle class - for greater private ownership of property and access to (mostly imported) luxury goods? Of course this dilemma is not confined to China. But its dimensions are unequalled anywhere else in the world - even in India to date.

A 2010 commentary by Economics Professor Martin Hart-Landsberg drove to the heart of this dilemma, and his analysis may well be even more relevant, three years on

According to Hart-Landsberg: “In the first half of 2009, state banks loaned three times more than in the same period in 2008. Approximately half of these loans have gone to finance property and stock speculation, raising incomes at the top while fuelling potentially destructive bubbles"[Links International Journal of Socialist Renewal at:].

Hart-Landsberg pointed out that: “Much of the other half has gone to finance the expansion of state industries like steel and cement, which are already suffering from massive overcapacity problems. It is difficult to know how long the Chinese government can sustain this effort. Property and stock bubbles are worsening. Overcapacity problems are driving down prices and the profitability of key state enterprises. Both trends threaten the health of China’s already shaky financial system.”

Even more threatening, however, may be “…the deepening mass resistance to existing social conditions. The number of public order disturbances continues to grow, jumping from 94,000 in 2006 to 120,000 in 2008, and to 58,000 in the first quarter of 2009 (on pace for a yearly record of 230,000). The nature of labor actions is also changing. In particular, workers are increasingly taking direct action, engaging in regional and industry wide protests, and broadening their demands.”

“While this development does not yet pose a serious political threat to the Chinese government, it does have the potential to negatively affect foreign investment flows and the country’s export competitiveness, the two most important pillars supporting China’s growth strategy”.

Hart-Landsberg concluded: “The Chinese government’s determination to sustain the country’s export orientation means that it can do little to respond positively to popular discontent. In fact, quite the opposite is true. In the current period of global turbulence the government finds itself pressured to pursue policies that actually intensify social problems.[Links International Journal of Socialist Renewal. ibid].

In November 2012 a new communist party oligarch came to power in Beijing, rising from the ranks of the old home guard. It's by no means predictable that such policies will be radically changed.

Is China neo-colonialist in all but name?

While some commentators have welcomed the unprecedented spurt in mineral prices, triggered by Chinese demand between 2001 and 2010, other observers are deeply concerned about the negative effects of Chinese ventures on the socio-economic health of smaller mineral-dependent states (especially in Africa). Take, for example, Hanjing Xu of Canadian mining company, Eldorado Gold. He told an investment conference in March 2010 that: “[The Chinese] lack an appreciation for community relations, worker health and safety, and environmental protection.”

So, to what extent have Chinese foreign mining ventures corrupted politicians in their host countries, displaced internal labour forces, introduced lower operating standards, and hazarded peoples’ livelihoods? Are these companies, in effect, outsourcing social conflicts - ones often triggered by mineral exploitation - partly in order to reduce the intensity and spread of similar confrontations at home?

In November 2009, in an astute examination of Chinese business practices in two vital African mineral producing countries (DR Congo and Gabon), researchers from South Africa’s Stellenbosch University dismissed the concept of a monolithic “Chinese Inc” that rigidly follows the central Communist Party line. Instead, they claimed, mining companies from the Peoples' Republic of China have tried conforming to operational rules set by overseas governments. They have dealt as best they can with unfamiliar social and political norms.

Whether addressing issues of “transparency”, corruption, relationships with workers, or cultural disparities, said the researchers, Chinese firms have proved adaptable and quick to learn from their hosts. They are not necessarily more prone than other corporate players to taking or offering bribes. Indeed, they are often at a disadvantage, compared with other foreign companies, some of which have much more relentlessly exploited the continent, and over a far longer period.

Following a similar theme, in May 2012 two non-Chinese researchers also attempted demonstrating that China’s bilateral engagements should be seen as “a positive-sum catalyst” for African governments to further their own economies, diversify their foreign relations, and achieve economic “freedom”.

No doubt some Chinese extractive companies have been attracted to working offshore, specifically in order to externalise environmental and social costs, thereby avoid the onus of bearing them at home. But the extent of this “proxy pollution” is often exaggerated. When environmental despoliation does occur, it doesn’t necessarily result from a consciously-framed political intent to “dump” on communities abroad. One of the most notable instances of unacceptable Chinese project management is alleged to be that of the Metallurgical Construction Corporation (MCC) in pursuance of its Ramu nickel operations in Papua New Guinea. In this case, the company’s intention to jettison potentially toxic tailings into the sea is demonstrably unsound. Nonetheless, it is not unique: Newmont employs a similar waste disposal system at its huge Batu Hijau gold mine in Indonesia; as does Barrick Gold at Porgera in Papua New Guinea itself.

If Professor Hart-Landsberg’s analysis is sound, the Chinese regime’s failure to resolve domestic political, social and economic contradictions at home will weigh more heavily, and on far more poorer people, than any abdication by Chinese companies from implementing better standards abroad. Conclusion

It would be a rash analyst indeed who claimed they could predict what shape the minerals industry will be in, at the dawn of 2013. Will there be further mergers and acquisitions in order to reduce operating costs and consolidate existing leases?

Will the Chinese government fulfil its aim of reducing excess metals-based consumer exports, and restrain parts of its “over heated” domestic economy? And – a question highly apposite to policy deliberations in the Peoples’ Republic - is it remotely likely that so many mineworkers around the world will be re-employed?

These are important issues, but not necessarily the most urgent to address, if you are a poor farmer living in a mineral-rich district, or belong to an indigenous community where livelihoods are in grave jeopardy from a proposed mine.

Undoubtedly, many communities will depend on income from some type of mineral extraction for some time to come. Meanwhile, citizens of “mineral-dependent” states will certain expand their struggles, either to overcome such dependency, or squeeze much greater income from extractive enterprises, before “all the wells run dry”.

And, if we’ve learned one lesson from the past four year’s descent into financial chaos, it is surely this: never to trust again those who promise us the earth, when the very lineaments of Our Earth have already been stretched to breaking point.

But this is not because the banks were committing substantial new capital to the sector. (Indeed, they are still having enough trouble trying to raise funds to bulwark their own collapsing balance sheets and pay off the vast debts they have accumulated.) Instead, it appears that gold miners are profiting from what is termed “bought deals” – and to a lesser extent the trading of stock via ETFs, or Exchange Traded Funds (Footnote 4). Bought deals occur when a small number of brokers buy an entire stock issue from a company, then on-sell the shares (or bonds, convertible into shares) to their own clients in what may then become a series of smaller transactions. By February 2009, such transactions had been valued at nearly US$ 4 billion since late 2008, including ones with Eldorado Gold, Great Basin Gold, Victoria Gold, Allied Gold and Gold Wheaton, as well as some silver producers [Barry Sergeant, Mineweb, 25 February 2009]. Nonetheless, although the gold market price shot to new heights during the rest of that year, as this update was being written the share prices of individual global gold mining companies had slipped (in one case, by nearly 50%) below their level a year earlier [Barry Sergeant, Mineweb, 24 February 2010]).

At the same time, it is important to recognise that Canada’s government is unique among its peers in the extent to which it underpins exploration expenditures of hundreds of its domestic mining outfits. The principal incentives for exploration are a 100% deduction from taxable income, accompanied by a 10% credit once mining is underway, and a system dubbed “Flow-Through Shares” (FTS). This allows an extractive company to “flow” its exploration expenses “through to their investors for deduction against their personal or corporate taxable income” [See: “Incentives for Mineral Exploration”, a power point presentation by Robert Clark, Natural Resources Canada, undated, 2010]. Given a perceptible recent expansion in use of these Flow-Through Shares, it is reasonable to suggest that much of the apparent improvement in some companies’ fortunes is stimulated by the use of FTS as a quasi-tax haven by individual investors. For further discussion of FT, see below under “Content of this Report”).

The Peoples’ Republic acquired full membership of the World Trade Organisation (WTO) in 2001, leading to an unprecedented flurry of overseas trade in finished and semi-finished goods. The result has been an unsustainably-high level of Chinese accumulation of dollar-demominated funds. According to some pundits, this parlous dependency has driven the Beijing autocracy to promote a shift away from the “Mighty Dollar “to IMF Special Drawing Rights, back to the gold standard, or towards promoting a new form of international exchangeable currency, based on trading of commodities. If so, this helps explain why the state has recently been creating massive stocks of raw materials that it clearly doesn’t require for near-future use. It also adds weight to the argument (just mentioned) that we may not see similar excessive accretion of minerals, for a long time to come [See:]. Of equal, if not deeper, concern is that many of the country’s citizens are spending at levels never seen before, while the vast majority of them have no means or incentive to save, and investment in socially productive sectors at home has begun dangerously parching.

For these reasons, the administration has been assiduously seeking to “de pressure” the Chinese economy. To an extent this has already happened - if involuntarily - thanks to a reduction in demand for Chinese processed and manufactured goods, occasioned by recent fiscal meltdowns in countries importing such goods. Part of the regime’s more conscious and pre-emptive strategy has been to strive for limits to own industrial pollution caused by over-production, and to double the recycling of scrap metals [Interfax China M&M, 30 October 2010]. Whether these gambits will succeed is open to question. (One Chinese correspondent has suggested that the closure of the country’s numerous outdated and dirty metal refineries and smelters, may actually increase overall pollution [Interfax China M&M 25 September 2010]). Yet there seems little doubt that Beijing’s top power-brokers understand the urgency of curtailing the state’s recent profligacy in mining and metals output. (In 2006 the administration of Tibet’s “Autonomous Region” banned all gold mining in the region, and later closed nine cement plants and seven steel mills “to protect the fragile envronment” [China Daily, 4 March 2010]). The urgent question is whether they can do this before it proves too late - thereby averting even greater civil strife thanevinced on the mainland over the past fewyears, while continuing to meet the expectations of a rising middle class for private ownership of property, their own capital concentration, and access to luxury goods.

A commentary by economics Professor Martin Hart-Landsberg (published online in the Links International Journal of Socialist Renewal in February 2010 []) drives right to the heart of this “dilemma”. According to Hart-Landsberg: “In the first half of 2009, state banks loaned three times more than in the same period in 2008. Approximately half of the loans have gone to finance property and stock speculation, raising incomes at the top while fueling potentially destructive bubbles.”

But, Hart-Landsberg points out : “Much of the other half has gone to finance the expansion of state industries like steel and cement, which are already suffering from massive overcapacity problems. It is difficult to know how long the Chinese government can sustain this effort. Property and stock bubbles are worsening. Overcapacity problems are driving down prices and the profitability of key state enterprises. Both trends threaten the health of China’s already shaky financial system.”

Even more threatening, though, may be “… the deepening mass resistance to existing social conditions. The number of public order disturbances continues to grow, jumping from 94,000 in 2006 to 120,000 in 2008, and to 58,000 in the first quarter of 2009 (on pace for a yearly record of 230,000). The nature of labor actions is also changing. In particular, workers are increasingly taking direct action, engaging in regional and industry wide protests, and broadening their demands. While this development does not yet pose a serious political threat to the Chinese government, it does have the potential to negatively affect foreign investment flows and the country’s export competitiveness, the two most important pillars supporting China’s growth strategy.

Hart-Landsberg concludes with the severe warning that: “The Chinese government’s determination to sustain the country’s export orientation means that it can do little to respond positively to popular discontent. In fact, quite the opposite is true. In the current period of global turbulence the government finds itself pressured to pursue policies that actually intensify social problems.”

This prompts our asking an important question: one that has exercised a number of commentators. Although uncritically welcoming the unprecedented spurt to mineral prices, triggered by Chinese demand a few years ago, these commentators are now parading concerns about the negative effects exerted by Chinese ventures on the socio-economic health of smaller mineral-dependent states (especially in Africa). Take, for example, Hanjing Xu of Canada’s mining company, Eldorado Gold, who told an investment conference in March 2010 that: “[The Chinese] lack an appreciation for community relations, worker health and safety, and environmental protection.” [Mineweb, 9 March 2010]. To what extent, then, have Chinese mining ventures corrupted overseas governments, displaced their internal labour forces, introduced lower operating standards, and hazarded peoples’ livelihoods?

According to Hanjing himself, overseas mining companies “only received 10% of China's foreign investment in 2009” – hardly squaring with a press-generated image of the “Sino-assault” on global resources. Last November, in an astute examination of Chinese business practices in two important African mineral producing countries (DR Congo and Gabon) researchers from Stellenbosch University’s dismissed the idea that there was a monolithic “Chinese Inc” - rigidly following a central Communist Party line. Instead, the researchers said, mining companies from the Peoples Republic have tried conforming to operating rules set overseas, dealing as best they can with different social and political forces. Whether addressing issues of “transparency”, corruption, relationship with workers, or cultural disparities, Chinese firms have proved to be adaptable, and quick to learn from their hosts. They are not necessarily more prone to take or offer bribes. Indeed, they are often at a disadvantage, compared with other foreigners, some of whom have relentlessy exploited the continent for much longer [“Gabon/DRC: Chinese companies in the extractive industries” by J. Jansson, C. Burke, W. Jiang, Stellenbosch, Centre for Chinese Studies, Stellenbosch, 23 November 2009].

No doubt some Chinese companies, by working offshore, have externalised environmental and social costs, in order to avoid bearing them at home. But the extent of their doing so may often be exaggerated. To harken back to Professor Hart-Landsberg’s prognosis the Chinese leadership’s successful resolution of its own internal political contradictions will have more impact, on far more poor people, than the standards that Chinese companies implement (or don’t) beyond their shores. At the same time, if Beijing fails to peacefully resolve the country’s numerous social conflicts, the savage repercussions may become truly global.

The future role of private capital?

On the one hand, Ernst & Young’s February 2010 report concedes that “[t]raditional investors will be looking for safe options in 2010”, while “fewer lower risk projects are now available”. Somewhat contradictorly, on the other hand, it claims that investors will be willing “to consider acquisitions with greater political risk in 2010.” Little evidence of that is yet forthcoming. More likely, long-betting, mining-dedicated, investment funds will shirk taking on increased risks, especially after the scorching they suffered within very recent memory. Indeed, E&Y itself expects funding to remain scarce, “especially for speculative high-risk companies”. Yet, as we have already seen from the disastrous 2009 fall in share prices, virtually no mining company should now be regarded as a safe bet. (BHP Billiton, the world’s most diversified “natural resources” firm, is arguably an exception - largely because of its geographical and product diversification. As well as being invested in a large range of metals, BHP Billiton is also a significant oil producer, and moving towards control of significant desoits of phosphates. Nonetheless, this pre-eminent Australian-UK conglomerate has progressively withdrawn from nickel mining and exploration. While the market price for the metal has improved of late, it seems unlikely that the company will return to nickel. The point here is not that the company might have misread the market signals, but that these “signals” prove bewilderingly difficult for anyone to accurately read at the present time).

According to E&Y’s report: “[T]he changes in available capital will continue to increase the complexity and variety of deal structures, with joint ventures, partial sales and demergers becoming common, along with alternative financing arrangements, such as partial equity sales and asset swaps.

It conjectures that: “Following the decline of the project finance model, we could see a return to individual mines being floated, with the proceeds used for development, and investors sharing in the profits when the mine goes into production. Off-take customers could also emerge as key sources of funding to develop mines, as is already occurring in the junior mining space.”

Thus, asserts E&Y: “Eventually, borrowing will return to historic averages, but from new lenders and more diversified pool of sources. These will include multilateral development agencies, and Middle Eastern and Asian banks.”

This is such a speculative statement that it verges on the fanciful. As already mentioned, Chinese banks are still in the market for further strategic mining investments, but we are not likely to see these being made at the rate, or to the extent, they were in 2007-2009. India’s State Bank (SBI) recently set up a European financing arm in London; however, its only major minerals-related outlay so far has been on a project (Orissa’s Jharsaguda aluminium smelter), being constructed by Vedanta Resources plc.

It may be true, as E&Y says, that private investors “responded to the [recent] crisis with a combination of equity issuance, corporate bonds, assets disposals and inward equity investment from strategic investors”. While this did result in “a record year for follow-on equity issues and corporate bonds”, the accountancy firm’s own data paints a far from sanguine picture of other strategies being successful in raising substantial funds. In fact, the value of IPOs, loans (debt finance) and the amount of money spent on mergers and acquisitions, all fell dramatically in 2009. So too, did funding aimed at specific projects (See below).

Finally, Ernst & Young itself recognises that “[P]erhaps the most profound effect of the global financial crisis on the metals and mining industry is that the world has lost as much as two years of growth in the supply of scarce resources. The deferral of projects pending financing will lead to a construction bubble that will compete with other lagging fiscal stimulus for resources.”

Now, that does seem to be a fair measure of the crisis that the global minerals industry continues to confront.

Unanswered questions

These are important questions but not necessarily the most critical ones to ask – especially if you are a farmer living in a mineral-rich village, or (say) the conscientous leader of an organisation intent on forging truly secure livelihoods for her or his members.

Most of us warmly welcome the prospect being able to switch from further global output of coal or oil to promoting “renewable” ways of generating electrical ower. But how truly sustainable are these green technologies? Switching from lead to using lithium and nickel for batteries still depends on extracting one of the most toxic of heavy metals; while lithium reserves occupy huge wathes of territory - to a large extent in the Andean region.

Whether we choose to mine silicates for solar cells; copper for wind farms and turbines; or to rely on biofuels as the fuel motor vehicles, many alternative energy scenarios will still rely upon potentially highly destructive use of land and pose risks to a community’s own renewable resources.(In the case of biofuels, such as ethanol, the dependency is indirect, via increased extraction of phosphates and potash to fertiise the crops – but may be no less destructive for that).

Unfortunately, even quite powerful environmental lobbies have neglected to factor these consequences into their campaigns. If they did so, it could lead to the postponement of some projects, cancellation of others, and more studied application to finding “alternatives to the alternatives” (For example, towards financing neighbourhood hydro power schemes, not big dams dams; advocating small windmills, constructed from recycled materials, rather than huge new wind farms; siting local coal-methane powered generators, as opposed to relying on “carbon capture and storage” as a spurious clean development mechanism).

In any event, campaigners should focus much more attention than they have paid so far on judiciously assessing the full product-chain costs of moving from “dirty” fuels to purportedly sustainable ones.

Precious little social value would be derived from such a strategy unless the communities, hosting the minerals required to implement these energy transformations, gained significantly more from the profits of mining than they do now. (At present many of them get virtually nothing at all). But the reality is that, in response to dramatic falls in commodity prices, the opposite has been happening. At least one mineral-dependent–state has reversed a recent decision to recoup more value from the exploitation of resources under its peoples’ ground. In January 2009, Zambia significantly diluted the more stringent taxation regime introduced the previous year, as its government succumbed to mining companies’ threats to pull out of the country [“Zambia abolishes 25% windfall mining tax”, Reuters, 30 January 2009; “Zambia faces uncertain mining outlook”, Reuters, 8 December 2009].

Botswana is often cited as a model of success in conquering the “resource curse.” But it has been staring at the possible collapse of its 50% -owned diamond industry, as its private partner De Beers announced that it couldn’t predict when global demand would recover. Just three years ago, Argentina was widely canvassed as one of the most mineral prospective countries in Latin America. In 2009 it was named by prominent mining consultancy, Behre Dolbear, as the least attractive on the subcontinent because of "the populist policies of the government, the seizure of pension funds, and the expectation that things will get much worse than they were in 2008." [Dorothy Kosich: “Exercise much caution when investing large sums on mining projects-Behre Dolbear”, Mineweb 16 February 2009].

These examples (and there are others) illustrate that, although a government may have responded to citizens’ demands for an end to destructive mining and a guarantee of improved rural livelihoods, they are still at the mercy of largely foreign-controlled mining companies. This is never truer than in a “bear” market, especially one of the ferocity experienced recently Even though the World Bank had itself counselled the Zambian government not to cave in to industry demands ("This is a perishable resource. Once it's gone the country has no more access to it. It should be benefiting from it more now." [FT 20 January 2009]) the advice has not been heeded. If the world’s most powerful “development agency” makes no headway in this direction, how can anyone else?

And the attrition continues. In February 2009, the Tanzanian government had promised its citizens that it, too, would increase royalties on gold and diamonds [MJ 20 February 2009]. However, with a much more conservative Mining Bill on the table the following year, civil society organisations were still struggling to squeeze a more equitable share of profits out of the mining companies [See: “Tanzanians are more cursed than blessed!” by Mvuyisi April kaDathini, Africa Files, 2 March 2010].

There is an unfortunate paradox at the root of discourses, centred around the division of various “cakes” of mineral wealth. Put simply: if market prices become depressed due to falling demand, then investment in mining also contracts and so do the values of corporate shares tendered on global stock exchanges. The classic “race for resources” - where companies compete with each other for access to new mineral deposits - is thereby substituted by governments vying with each other to sell (both practically and metaphorically) the country’s minerals at a relatively reduced price. Thus, in order to “sustain” economic mineral returns, governments may end up sustaining the industry, leaving many citizens as badly, if not worse off, than before. This is the most wounding aspect of what’s customarily called “The Resource Curse” [see: Roger Moody, “Cursed by Resources” in Rocks & Hard Places: The Globalization of Mining, Zed Books, London 2007, pps 43-68]. If the two parties had similar aims, then an accommodation between them might result in greater income.

In theory, there has never been a more propitious moment - when mineral exploration and extractive companies as well as materials’ traders, are struggling as never before, in many cases simply to survive - to re-examine the relationships between natural resource exploiters and exploited and thus change them permanently.

Could this be the time to ensure that the most dubious of planned mines will never surface, and that the most parlous of current operations are closed once and for all? Already, there has been some welcome stemming of investment in bad ventures. (For example, Rio Tinto has off loaded its water-threatening phosphates mining scheme in Argentina; BHP Billiton, the world’s leading “natural resources” company, has abandoned its Gag Island nickel venture in West Papua – and, as mentioned earlier, may now well withdraw from the nickel market altogether).

Or has this opportunity already slipped away?

Peoples’ strategies for the coming decade

Based on lack of evidence that the minerals industry is anywhere close to a substantial revival of its fortunes, that question is still a very open one. The challenge ahead is to ensure that all new investments are firmly directed towards projects enjoying the full support of local people, as well as contributing directly towards truly sustainable economic and social development.

This requires a three-fold strategy.

First, we all need to better inform ourselves about the methods used to dispense mining-related finance and how current or future related debt may be “securitised”. This means keeping close track, not only of any newly-emerging financial instruments, but also recently-discredited ones (such as the “shorting” of stock, practiced by hedge funds) which may creep in under different guises. Demystification of terms and tactics is an essential part of this endeavour.

Second, we must become considerably better acquainted with who is paying whom for what and in what form (whether as direct equity, bonds, credit derivatives and “swaps”. other forms of derivatives; the use of exchange traded mechanisms, or specific project finance). To be informed is to be forearmed.

Third, with this information under our belts, we should be able to mobilise more effective shareholder actions, and form broader consensuses when directing our concerns at those investment institutions which must be held to social and ecological account,

These tasks are certainly demanding, but nonetheless achievable. Never has the time been riper to challenge previous assumptions about who should control the flows of money into mining and the legitimacy of their raising and dispensing it. Many people who, just two years ago, would have dismissed such issues as too erudite or remote, are now rudely discovering for themselves how widespread and endemic are the manipulations and concealments, characteristic of modern capitalism. It is the power of our own purses and pensions which should determine the nature of global financial architectures, not the other way around.

Hopefully, the present research assists in fulfilling these aims.

Content of this report

The database which follows (Part Two) records names and some details of nearly 1,000 banks, private funders, insurance companies, hedge funds and private equity firms, as well as some individuals, which provide, or have recently provided, financial stimulus to numerous mining companies.

Not included are state-owned investors, or purportedly publicly-accountable bodies such as government agencies for overseas development or which grant export credits and provide political risk insurance. Regrettably, for the moment, it also excludes most multilateral development banks (MDBs)/multilateral financial institutions (MFIs), although these often underwrite critical investments in questionable extractive ventures. [For example, see the critique of the European Investment Bank by Heather Stewart: “The shadowy bank that has loaned £150 bn of your cash”, The Observer, London, 2 March 2008]

Outside the scope of this paper, too, are the profits generated by commodities’ trading, essentially in derivatives (see Glossary), on mercantile exchanges such as NYMEX (New York Mercantile Exchange), CME (Chicago Mercantile Exchange), Euronext.Liffe (a subsidiary of the NYSE) and, most important in terms of metals trading, the LME (see Glossary).

When funders won’t come clean

Diligent reading of trade journals, the financial press, company annual reports and announcements, will usually, though not always, reveal which funds have provided what money for specific projects and purposes (2). However, it is in the nature of equity purchases (buying shares in companies) that holdings will change over time – indeed often over a short period and especially in volatile market conditions such as those of the past 18 months. An investor may purchase a stake one month, sell it the next, and then buy it back again. In 2006, RAB Capital (until 2008 probably the most significant hedge fund involved in mining) was pressured by Friends of the Earth Canada to sell its stake in Ascendant Copper (later renamed Copper Mesa Mining), following allegations of that company’s human rights violations in Ecuador. RAB did so – but apparently re-invested shortly afterwards when the pressure was off.

Funders will often refuse to divulge the identity of recipients of a specific equity investment, claiming client confidentiality or breach of a host country’s laws: Germany’s Commerzbank, for instance, cites the country’s “Banking Secrecy Act” [see: Letter from Commerzbank, Frankfurt-am-Main to ACSTA, London, 16 January 2008]. HSBC bank argues that respect for “client confidentiality” renders it “unable to confirm whether specific companies are clients of HSBC or not.” The bank did this in 2005, following publication of a joint Nostromo Research-India Resource Center report on Vedanta Resources plc [“Ravages through India, Vedanta Resources plc Counter Report”, Nostromo Research and India Resource Center, London & San Francisco, September 2005]. HSBC’s then-advisor on corporate social responsibility (CSR, aka SRI or Socially Responsible Investment) had promised earlier to diligently read the report and get his employers responding to its allegations. No such response has yet been forthcoming.

Banks and fund managers use a variety of equity instruments – such as options, warrants and derivatives – which do not in themselves grant voting rights to determine a company’s transactions. By and large, the owners of ordinary (or Class A) shares do have such rights and therefore surely have an obligation to use them according to their own benchmarked “principles”. But, even if they do not possess voting rights, arguably the very fact that they have invested should make shareholders concerned about whatever the company gets up to.

Many investment institutions hold shares on behalf of clients, either through a “managed” fund, or by acting as a “nominee” (effectively as a stockbroker) (3). A quick glance through the database below shows that most major global banks offer this service to investors wishing to put their money where the mines are. Nominee accounts are particular favoured by HSBC and Credit Suisse, but many other banks follow the practice even while they may proclaim an “ethical” policy on behalf of their retail customers. The UK Coop Bank, which refuses to invest in companies with major involvement in coal production, may still offer such “exposure” through its unit trusts [Correspondence between author and Coop Bank ethical team, December-January 2008-2009, on file]. Adding to this lack of transparency, banks may also allow their nominee accounts to be administered by other fund providers - as did RAB Special Situations on behalf of Credit Suisse Client Nominees for its 2007 investment in Cambridge Mineral Resources plc [see Credit Suisse].

The nominee service is provided for external organisations and individuals by setting up a named investment account, with the result that the bank or fund “[does] not have the rights of shareholders and [is] not entitled to make approaches to a company about any of its planned operations.” This was offered as a defence by both UBS and CS-First Boston in late 2007, when tackled by various NGOs demanding the banks disinvest from London-listed GCM Resources, leaseholder of the Phulbari coal project in Bangladesh. A similar response came from HSBC in January 2008 when tackled by ACTSA (Action for Southern Africa) – once again over the UK bank’s investment in Vedanta Resources plc. [John Laidlaw, Senior Manager, Group Corporate Sustainability (sic), HSBC, London, to T Dykes, ACTSA, 8 January 2008].

Barclays Bank plc explains (rather, seeks to explain away) its failure to account for such investments being channelled into dubious companies, by arguing that: “[The bank] through our asset management business holds shares in thousands of companies around the world. The funds are invested according to client instructions and the majority are in index tracker funds (4) that do not distinguish between companies other than their being in a particular index.” Barclays goes on to proffer its own brand of “socially responsible investments” as a means by which clients can “omit certain industries” from their portfolios. [Christine Farnish, Director of Public Policy & Sustainability, Barclays, London, to Tony Dykes, ACSTA, 11 January 2008]

This is fairly common practice, but no less objectionable for that. Even setting aside the anomaly of running two potentially morally contradictory “books” under the same brand name, it is likely to confuse and mislead many who seek an “ethical” portfolio. One of Standard Life’s “Ethical” funds (as of November 2007) listed Xstrata plc among its top ten biggest investments – as did the same UK insurer’s Pension Ethical Fund. [see:]. Yet Xstrata – has come under consistent attack from trade unionists, environmentalists and Indigenous Peoples Rights organisations in several countries, including Argentina, Australia, Canada, Colombia, the Philippines and South Africa. Moreover, as pointed out at the time by John Hilary of War on Want, there are purportedly ethical “fund of funds” which themselves invest in “stand-alone” funds of doubtful provenance; surely the former should share responsibility for what the former gets up to? [John Hilary, WoW, to author, 24 November 2007]

Thus, we confront some significant problems when it comes to ascertaining who is a shareholder, at any given moment, in a mining (or indeed any other controversial) company. Although the two main conventions on global accounting – US GAAP (General Agreement on Accounting Principles) and IFRS (International Financial Reporting Standards) – have much in common, they differ when it comes to publicly identifying the ownerships of equity in a given corporate enterprise. Moreover, there are national variations in GAAP, while some companies may adopt what they call “non-GAAP” methods of reporting.

We may consider it reasonable that all firms registered on a stock exchange should have to divulge information about their shareholders and changes in equity. However, such data is rarely published in the main body of Canadian company annual reports and accounts; it is contained in supplemental notes that are more difficult and time-consuming to find. Whether the expected convergence between IFRS and GAAP standards will overcome this significant lacuna remains to be seen. [See “Similarities and Differences: A comparison of IFRS and US GAAP”, published by PriceWaterhouseCoopers, October 2007:]

Even if a company’s reports do not publish shareholder information, or the information is outdated, this may still be located from a stock exchange or perusal of industry journals (2) and via specialist investor services (5). Nonetheless, as testified to by the many weeks spent compiling this document, such data ought to be much easier to access, if not made electronically “live”. Transparency of this kind is burningly relevant, especially for registered charities and pension funds whose duty of care for client’s money extends to public employees, their own and other workers, and to society at large.

Limitations to this research – and challenges ahead

Setting out a comprehensive global table of funds linked to mining/mineral companies, would stretch to encyclopaedic length if, as well as logging specific deals, it were also to include all Chinese banks and mining companies (6), all project and debt financing (loans), bond and securities’ issues; and every “arrangement” made for companies to list on a stock exchange (IPO’s or Initial Public Offerings). Nonetheless, this paper does attempt a summary of such tools (see Part One: Main types of mining finance) – and provides many examples of how they are used.

Critical though it is to be familiar with these and other financial “vehicles” (such as those mentioned in the Glossary) many of them defy easy definition and considerably more investigation is needed into how they function. Welcome research in this direction has already been performed by Mining Watch Canada; by Netwerk Vlaanderen and BankTrack for their late 2007 “Bank Secrets” report (7); and by WISE (World Information Service on Energy) in its “Mined U” survey (see Sources, below). However, project and debt finance (though not bond issues) are usually announced only after the event. These faits accomplis therefore do not provide much for campaigners to bite upon – except in urging a funder not to repeat the error in future.

Initially it proved impossible within the limits of this research to include many small, so-called junior, mining enterprises - those mostly registered on Canadian, Australian stock exchanges, the LSE/London Stock Exchange’s AIM (Alternative Investment Market), and the new Johannesburg alternative exchange, AltX. Some such outfits are only at an initial stage of financing; they or their projects might be bought out by a fund or other mining company at any time. Thanks to the support provided by the Heinrich Boell Foundation these developments are nowbeing closely monitored and recorded.

Drawing lines between the money and the miners

Of late it has become increasingly difficult to distinguish between a “hands on” mining firm and an investor putting their money into the sector; primarily because they reckon this is where new profits are to be made (and little else).

In 1995, Canadian mining junior Bre-X contracted with the Indonesian regime for a gold deposit in East Kalimantan (Borneo) which it proceeded – with the assistance of compliant advisors and “gurus” – to vaunt as one of the world’s richest. Within two years, however, the lode was demonstrated to be virtually worthless. This criminal act shook Canada’s venture capital markets to the core, resulting in a few cosmetic changes to stock exchange regulations. (Indeed, the amalgamation of the Toronto Stock Exchange Group TSX and the Montreal Stock Exchange - essentially a derivatives market – might well lead to even less accountability of Canadian venture capital companies). In the wake of the Bre-X fiasco, some junior mining companies vanished from the scene; others switched with alacrity to launching penny stock “” companies. A decade later, similar tactics have emerged, as new enterprises pledge their faith in bio fuels; or have ostensibly moved from banking into gold. Just how credible these ventures are, or how long they will last, is anyone’s guess. For example, Yellowcake PLC, registered on LSE’s AIM in September 2005 as the market price of uranium started soaring, in order to “offer investors a vehicle to invest in the market for quoted and unquoted uranium companies.” [Yellowcake PLC, Annual Report and Accounts 30 June 2007]. Within a year, however, Yellowcake was swaying on a wing and a prayer (or a speculative vein capped with a good measure of hype). (In Financial Year 2007, the company earned less than ex-Labour party leader Tony Blair could demand for a single bout of public speaking!) Other juniors claim to have a similar strategy of centring investment on a specific mineral whose fortunes appear to be rising- as does Coal International plc which is both a miner and an investor. (The company was targeted for takeover in mid-2008 by Cambrian Mining PLC (see below) as it planned to transform from an “investment holding company” into “an operating mining group” [MJ 6 June 2008]). In practice it is often difficult to distinguish the modus operandi of “holding” companies from those of “dedicated” miners. Beacon Hill Resources’ description of itself as a “holding company” is transparently self-serving; while Minmet Plc Group, in dubbing itself an “incubator” of minerals exploration and extraction opportunities, seems to leave most of us guessing as to what its intentions are.

These gambits should not be altogether dismissed. Some smaller companies are beneficiaries of fairly well-established miners, or may be profit-takers for larger, better-known financial institutions. Mineral Securities Limited is a creature of former down-under mining supremo Robert de Crespigny and is not to be sniffed at. (De Crespigny founded Australia’s Normandy mining company, was an advisor to the government of South Australia, and is also Chancellor of the University of Adelaide). Its aim is to become a “21st century mining house that owns and controls resource assets at all stages from exploration to production”. As such it is classified in this report as an investor. Anglo Pacific Group PLC enjoys a major investment from Rathbone Brothers PLC (which incidentally prides itself on its ethical policy) and its shareholders benefit from royalties on coal mined by BHP Billiton and Rio Tinto. City Natural Resources High Yield Trust PLC may be a little-known equity investment outfit whose direct shareholdings in a wide range of mining companies constitute little more than a foothold. However, more than half of City Natural Resources is owned by ten major asset managers: among them JP Morgan Fleming, UBS AG, Barings, and Jupiter with a 3.3% stake held by the county of West Yorkshire’s Pension Fund. A third horse of this ilk is Cambrian Mining PLC, in whose stable are to be found AXA SA, HSBC, the Bank of New York (BNY) Nominees and Credit Suisse. Then there are some much bigger companies whose acquisitions are ruthless and concerted enough to rank them as investors as well as miners. Toronto Stock Exchange-listed base metals group, Lundin Mining Corp, took over four European mines in 2006-7 and holds a quarter stake in Freeport McMoran’s vast copper-cobalt project in DR Congo. Lundin shelled-out around US$2.1 billion for its entry to what could be the largest deposit of its kind on earth and secured for itself a 300% rise in profits for the third quarter of 2007 alone [MJ 16 November 2007]. Although this massive project was delayed while the DR Congo government conducted a review of all mining contracts in 2008-2009, it now seems to be close to fruition [Financial Post, 11 March 2010]. Corporate interlocks may also operate in a slightly different direction. For instance, Canada’s Edco Capital Corp and Balinhard Capital Corp are both controlled by directors of Imperial Metals Corp which has four major gold properties in British Colombia and Nevada.

Campaigning for disinvestment

To disinvest or not?

Even where an equity holder in a company has strong doubts about the way in which that company operates, they may argue for “engagement”. Don’t let’s repudiate the company altogether (runs the argument): this will reduce – may even nullify - any influence we have in encouraging a change in practice for the better. The argument is not to be dismissed lightly. At the outset few Funds (including some “ethical” ones) do more than write letters to the chairperson of an offending company. While this may well result in meetings between the parties to discuss “concerns”, such “tete-a-tetes” risk simply being repeated over weeks, if not months. Meanwhile the root causes of the concerns fail to be meaningfully addressed.

True, some investors may stay the course - fighting for improved corporate behaviour and apparently achieving some concessions in return. But will they ever know whether, by selling all their stock in the first place – and thus morally disassociating from the unacceptable – they couldn’t have achieved their objectives earlier in the day? Of their very nature, many discussions between companies and their critics are bound by protocols of confidentiality (like the so-called Chatham House Rule), behind which corporate executives can hide. Precious few funders are as committed as Boston Common Asset Management (qv), which help file transparent shareholder resolutions at company business meetings. (Moreover, it is much easier to do this in the US than under company laws in other countries).

Many funds identified here hold comparatively small stakes in controversial companies. Some - such as Merrill Lynch’s Gold and General Account (now part of BlackRock (qv), or Best Asset Class’ Platinum Fund – take bets on the fortunes of a specific metal; in effect trading the price of metals’ commodities. Most others investments are above a cut-off point below which the proportion of the equity need not be declared. London’s Stock Exchange (LSE) fixes this at 3% (of total stock held in a given company). Both the SEC (US Securities and Exchange Commission) and the Australian Stock Exchange (ASX) set the bar at 5% - and Toronto’s Stock Exchange even higher, at 10%.

How useful is it, then, to lobby or work with minor investors, or big investors holding small stakes when (or so it seems) their shares grant them merely token voting power and therefore influence over a company’s policies and practices? (8). Even if they sold their entire stake in protest, what impact would it have? Surely the shares will be snapped up swiftly by someone else with fewer scruples – or a hedge fund benefiting from a momentary slide in the share price? In any case, there seem to be precious few examples of investors openly declaring that social or environmental abuses played any part in a specific disinvestment decision.

In reality it may be easier for a small investor to repudiate a company than in the case of far larger funds. Even if a big fund’s holding seems fairly insignificant, it will usually comprise part of a diversified investment portfolio in which extractives are given an allotted role as mandated by the fund’s advisors. These major financial institutions are probably not going to withdraw from the sector altogether, unless the earth moves (or tumbles around mining itself.) But junior investors, especially those which rely on derivative instruments and “play the market”, can switch with greater ease - from gold to bio fuels or into IT, for example. This isn’t to say that the likes of JP Morgan, HSBC or Credit Suisse, should not be lobbied if they are underwriting a manifestly disreputable company, or one performing nefarious deeds, whatever the extent of their holding. But, of course, such considerations do not need to enter the Trust manager’s mind when s/he considers the financial attractiveness of the stock on offer. Campaigners’ energies might, therefore, be better spent urging a lighter-weight shareholder to disinvest, especially if this triggers a “demonstration effect” for others. (This is what apparently happened in the case of Vedanta Resources plc in the first three months of this year – see below).

Nor is it true that all investors clasp their cards so close to the chest that we never know what impact our campaigning has had. Numis Securities, an investment fund believed to have purchased a significant part of Vedanta Resources on its London Stock Exchange IPO in 2003, openly admitted just one and a half years later that it no longer recommended purchasing a stake in this highly controversial company, because of issues raised (inter alia) in an NGO report. [“Ravages through India”, see supra].

Going one step better is the Financial Times’ FTSE for Good Index (FTSE4Good) which outlines the reason(s) for ejecting companies from its index, though without publishing details. It did this in 2006 to Canada’s Inco, (since taken over by Vale, formerly CVRD) after finding the second biggest global nickel producer guilty of human rights violations. [See:]

Nonetheless, the FTSE4Good has, of late, taken a step backwards. While initially excluding all companies involved in uranium mining, it recently accepted Rio Tinto into its fold, arguing that the company is a relatively good performer in a sector which admittedly performs badly overall. [See: Proinsias O'Mahoney, “Profits and Principles”, The Guardian, 21 February 2008].

It is the huge Norwegian Government Pension Fund (aka Petroleum or Sovereign Wealth fund) that truly sets the current pace. This is the world’s second largest government pension fund (after Japan’s), worth an estimated US$300 billion. The Fund, advised by its unique Council on Ethics (ethical investment) over the past three years has sold all its equity in six mining companies (Freeport, DRD Gold, Vedanta, Rio Tinto, Barrick Gold and Norilsk – the last in November 2009) and published comprehensive grounds for doing so. If, in the wake of such indictments, a company’s share price falls significantly, it’s reasonable to surmise that other investors have followed suit. (A number of Norwegian funds are known to have followed the government’s lead on Vedanta as did a Belgian fund).

While this will hardly presage a stock market “bear run”, with substantial other investment quitting the scene, it is impossible to predict whether a knock-on effect will occur and - if so - how great it will be. For example, closely following Norway’s condemnation of Vedanta in late 2007, India’s Supreme Court declared the UK company to be persona non grata for the mining of a highly significant bauxite deposit in Orissa. The Supreme Court pointed to the Norwegian report as a compelling justification for rejecting Vedanta. (Unfortunately, in a display of grotesque inconsistency, the Court promptly invited a subsidiary of Vedanta to re-submit the application under its own aegis. [See: “'Vedanta' out, SC admits Sterlite plea” Times of India, 16 February 2008])

Shortly afterwards, India’s Ministry of Environment and Forests (MoEF) threw out Vedanta’s proposal to expand bauxite-aluminium operations in the state of Chhattisgarh. Although no direct connection can be drawn between the Supreme Court’s judgment and that of the MoEF, the ministry’s decision contrasted sharply with the obeisance to Vedanta that it had displayed just a few months earlier. [For details see:]

Norway’s stake in Vedanta was a mere US$13 million, against the UK company’s then-market capitalisation of over US$ 7 billion. (The Norwegian government does not permit any holding above 5% in a single company). It is therefore not necessarily true that, because an investor possesses an insignificant equity stake, s/he may not be usefully lobbied, either to use their holding to demand improved corporate practice, or sell it should the targeted company fail to respond to just criticism. The Norwegian Council on Ethics always invites companies to make responses, giving them several weeks to present their counter-arguments before making a final judgment on whether to disinvest. (Neither Rio Tinto, nor Barrick Gold, deigned to respond to the Council’s indictments.)

The above discussion is predicated on the assumption that disinvestment is not merely a valid strategy of moral disapproval of inappropriate corporate behaviour; it actually compels desired changes in that behaviour. Or, in the final analysis, that it will bring about the downfall of a transparently “bad actor.”

Simon Chesterman, of the NYU School of Law / National University of Singapore, last year published a paper, discussing the work of Norway's Council on Ethics and seeking to focus "on the ambiguous legal and ethical meanings of ‘complicity’” and the uncertain impact that disinvestment has on behavior." He asks: "[S]hould the ad hoc efforts of investors to shape the human rights behavior of the companies in which they own shares themselves be regulated? That is, by what standard, if any, should the activist shareholder be judged?" According to Chesterman, the Fund's general guidelines "provide that the overall objective remains safeguarding the fund’s financial interests, but that the exercise of ownership rights 'shall mainly be based on the UN’s Global Compact and the OECD Guidelines for Corporate Governance and for Multinational Enterprises.'...[T]he focus of the Council’s work is on avoiding the risk of doing the wrong thing rather than ensuring a desirable course of action is followed. Moreover, the Council’s examination is focused — at least technically — on the potential for Norwegian complicity rather than the actual conduct of the company in question."

In practice, however, the Council's reports and recommendations blur this theoretical differential. How could they do otherwise, given that the rationale for investment in any corporate enterprise is based on what the company does, not on what it claims to be doing? The Council’s research draws on far more varied and heuristic tools than those employed by the Global Compact or the Organisation of Economic Cooperation and Development (OECD). And, as Chesterman himself says: "Though the Council on Ethics is not a court and its recommendations do not have the force of law, it [has] swiftly assumed a legal character. Through careful interpretation of its mandate, evaluation of evidence, and justification of decisions, the recommendations resemble judgments of a rudimentary court of first instance — rudimentary not because of the quality of the reasoning but because of the limited resources available to make independent findings of fact, and the absence of discipline imposed by the possibility of formal appeal. The decisions are ultimately administrative recommendations, yet the nature of the ethical judgments being made and the dispositions of the individuals making them has led to a kind of jurisprudence of ethics.”

Chesterman continues:

"Even though the issue of complicity raises difficult questions, the Committee considers, in principle, that owning shares or bonds in a company that can be expected to commit grossly unethical actions may be regarded as complicity in these actions. The reason for this is that such investments are directly intended to achieve returns from the company, that a permanent connection is thus established between the Petroleum Fund and the company, and that the question of whether or not to invest in a company is a matter of free choice."

However, Chesterman is far from convinced of the logic - or soundness - of these assumptions, "respectfully ask[ing] the Norwegian government and people to fully recognize the seriousness of what Norway is doing with divestment decisions like these. Norway is not just selling stock — it is publicly alleging profoundly bad ethical behavior by real people. These companies are not lifeless corporate shells. They represent millions of hard working employees, thousands of shareholders, managers and Directors, all now accused by Norway of actively participating in and supporting a highly unethical operation. The stain of an official accusation of bad ethics harms reputations and can have serious economic implications, not just to the company and big mutual funds, but to the pocketbooks of workers and small investors."

We may well be somewhat sceptical about Chesterman's assertions: they appear to negate the very act of disinvestment as a valid tool to secure changed behaviour - including improved benefits to workers. (Of course, selling stock in an associated company, or purchasing shares in another enterprise in order to pursue their own business "models", have been essential ingredients of the raison d'etre of corporate bodies themselves - and usually without regard to the vulnerability of employees.)

More challenging, and deserving of response, is Chesterman's conclusion that:

"The appearance of regulation may, in some circumstances, be worse than no regulation at all. The turn to ethics as a means of improving behavior of multinational corporations offers an opportunity but also an opportunity cost: ethics can be a means of generating legal norms, through changing the reference points of the market and providing a language for the articulation of rights; yet they can also be a substitute for generating those norms."

"The Norwegian Council on Ethics demonstrates both tendencies. The tendency to conceive its work in quasi-legal terms, justifying disinvestment decisions by reference to complicity in wrongs, suggests where its work may lead — even as those terms perhaps overstate how much has already been achieved. At the same time, however, the artifice of a trial in which a company’s conduct is examined and judged without serious consequences may create the illusion of accountability and thus reduce the demand for actual change.”

Nonetheless, despite these strictures, Chesterman welcomes the prospect of the Council’s modus operandi setting a global precedent:

"These tensions will, eventually, need to be resolved. How they are resolved will depend on whether the ethical precepts on which the Council bases its recommendations are dismissed as Scandinavian self-righteousness, in which case their publicity and wider significance are suspect, or as the precursor to a wider adoption of normative constraints on corporate entities operating in jurisdictions without the capacity to control their behavior. In the latter case, the Council’s work may serve as this new regime’s foundational jurisprudence." [Simon Chesterman, "The Turn to Ethics: Disinvestment from Multinational Corporations for Human Rights Violations – The Case of Norway’s Sovereign Wealth Fund", Global Administrative Law Series, IILJ Working Paper 2008/2]

Pensioned off

Finally, we should acknowledge that, while a raft of apparently unaccountable and privately-administered hedge funds (as well as Sovereign Wealth/state pension funds) have swept into the commodities’ market place during recent years,they are by no means the only ones with influence. In fact, the most diversified and significant direct profit-taker from the sector is the private commodities’ trader, Glencore, based in Switzerland and listed on the London Stoch Exchange in 2011, which has been operating for some years (and before that, as the notorious Marc Rich company) and is the largest single shareholder in Xstrata Plc. (As of November 2012, a merger between Glencore and Xstrata finally semed to be "in the bag").

Governments (both central and local), along with private Pension Funds, also markedly increased their share purchases in the mining and minerals industry during 2007-2008. Nor should it be forgotten that they invest in trusts and other funds which may also have a high dependency on mining-related stocks. Whether this is advisable in the short-to-medium term is a moot point. Already, in mid-2006, one Financial Times correspondent had pointedly warned that: “[T]he fact remains that a frightening amount of pension and savings money is forced to chase companies exposed to the riskiest parts of the global economy. A true bursting of the commodities bubble would probably only follow a serious slowdown in China…but in the meantime the UK is once again tied to the fortunes of mining.” [Dan Roberts, “A British economy built on mining brings danger”, FT 3-4 May 2006].

At the time this caveat was lost on some Pension Fund managers which (for example) increased their investment in the palladium market during 2007 [MJ 16 November 2007]. In the wake of the 2008 commodities’ market disintegration, Pension Funds began taking new stock of such investments [Russ Mould, Shares magazine, 16 February 2009, op cit]. However, to date little work has been done even to identify such holdings (some are noted below); while few pension funds actively lobby beneficiary companies to adopt an ethical stance, even where they are owned by public service employees. This is not to say that pension funds are oblivious to criticisms of corporate enterprises, but they tend to “follow the trend” rather than forge it. One recent example of this is the decision, taken by BP Pension Scheme (qv) in early 2010, to sell some of its shares in Vedanta Resources plc, citing “concerns about the way the company operates.” The Scheme is one of Britain’s biggest pension funds: it could have signalled these concerns unequivocally if it had sold its entire holding in this mining outfit. The decision appears to have been taken only when four other investors in Vedanta (Church of England, Joseph Rowntree, Millfield House and Marlborough Ethical) also decided to disinvest. In contrast, these offloaded all their shares, without retaining a residual stake by which they could exercise some further influence over the miscreant company.

Meanwhile, few other government pension funds have followed Norway’s 4-year long initiative at welding corporate social and environmental responsibility to individual comany performance (see above). New York City Employees Retirement System is one exception. But, just over the border, the Canadian Pension Plan Investment Board (qv) displays few socio-environmental scruples.

Thus there remains a major challenge to those of us who are gradually becoming aware of the massive negative impacts of extractive industry on thousands of communities and numerous workers across the globe. Is it not manifestly unfair that millions of workers in “developed” or “advancing” economies should continue to benefit from the naked exploitation of millions of their even more exploited counterparts elsewhere?


Appendix 1 – Tracking the Trades

Index Tracker funds attempt to follow the performance of a stock exchange share index, rather than out-perform it, as traditional investment funds try to do.

Exchange Traded Funds (ETFs) are the most popular form of index tracking - a hybrid of an open-ended unit trust (where the fund is divided into units which vary in price in direct proportion to the variation in value of the fund's net asset value) and an investment trust.

Some trackers buy shares in all the companies that make up the specific index (e.g. FTSE 100/500, Dow Jones, and S&P 500). Others use complex financial instruments to track what the index does by buying shares in a cross-section of registered companies, such as those centred on mining.

When market prices rise, trackers are among the best “performers”. But, during a bear ("sellers") market, trackers begin to slip - though tending to do better than many of the large popular funds favoured by small investors.

It is important to note that all the global investment banks, which are heavily invested in mining companies, now use ETFs as a key weapon in their investment armouries.

Trackers are typically run by very large fund management groups such as Fidelity, Scottish Widows, Legal and General and HSBC. There should be no discrepancy between the underlying value of the units and the price quoted, while any dividends that come from holding the shares in the portfolio are paid at regular intervals to the unit holders. An index tracking closed-end fund (aka Investment Trust) issues a fixed number of shares, and may also issue subsequent tranches of shares to raise additional capital.

There are now hundreds of ETFs which enable trading on virtually any stock market “index” in the world, from the NASDAQ and the Malaysian stock market, to Chinese stocks. They have “developed” to the point that clients can put their money into precious metals (such as gold, silver and platinum) but also into base metals (like copper). For its part, JP Morgan (by far the most significant commercial bank involved in granting mining finance) has launched an ETF based on the acquisition of huge amounts of copper.

This posed the alarming prospect of a "removal of all or substantially all of the [copper] stocks in all of the London Metal Exchange warehouses in the US", according to a US law firm. If permitted, the move could cause an immediate spike in the cash price for copper, with manufacturers and fabricators having to pass these increases on to their customers.

However, in late 2012, the US Securities and Exchange Commission (SEC) approved JP Morgan Chase to launch the ETF, "in which retail investors would be able to trade supplies of A Grade copper "easily for the first time" [MJ 21-28 December 2013].

According to Reuters: "Opponents of the ETF said the product would affect supplies and create a boom and bust cycle". Bloomberg also commented that the SEC ruling "ends a two year battle for approval by JP Morgan due to concerns that the ETF would effectively remove a chunk of metal from the market, cutting supply and inflating prices" [MJ ibid]

Of late, ETFss have also included supposed “clean energy” and “clean water” portfolios, although some are distinctly dubious. For example, the Power Resources Water Portfolio includes the giant GE (General Electric) group that invests in nuclear power and defence contracts.

Unlike mutual funds which trade at prices fixed at the end-of-day, ETFs can be bought and sold instantaneously on major stock exchanges throughout the working day. ETFs may also be sold “short” to profit from falling share values. Unlike individual stocks, US-based ETFs are exempt from the “uptick rule”, which was introduced by the Security Exchange Commission to prevent selling of shares at a lower price than that at which they were previously sold.

Appendix 2 – Getting Something from Nothing

“Derivative” is a term simply denoting “something that derives its value from something else”. It’s the ugliest beast in a murky universe inhabited by “products” such as CDOs (collaterised debt obligations), CDSs (credit default swaps), CFDs (contracts for difference) and trading in “futures”.

In March 2010, iron ore became the latest natural resource commodity to join oil, coal and aluminium in this surreal world, as “[b]ankers and brokers gear[ed] up to exploit the new iron ore pricing system by developing a multi-billion dollar derivatives market”.

Since 2008, and in the most graphic manner conceivable, we have seen what this means in practice, in terms of the massive accumulations of concealed, unpaid, unpayable – and even unidentifiable - tranches of debt. Once the value of a material good (such as a tonne of iron or a brick of gold) is determined - not by current demand and supply, but by a contract for putative delivery at some point in future, we are all at the mercy of speculators.

In theory, there should always be physical stocks of commodities, maintained in a warehouse or on the high seas, to back derivative transactions. But, moving these stocks around, and “dealing” them among a coterie of traders, has come to resemble a highly secretive game of poker – with an added frisson of the players sometimes not even knowing which cards they hold in their own hands. No wonder the game has been widely characterised as “Casino Capitalism”. At the time of writing, the latest example of this type of gross speculation has come from Glencore, now not only one of the world's top mining companies, but its premier metals trader.

The London-based firm was recently accused of "tightening its grip on the global zinc market by moving material to inaccessible locations, forcing industrial users to pay high physical premiums for a metal that is in surplus" With a reported 60% of the world's zinc trade under its control, Glencore is allegedly using warehouses monitored by the London Metal Exchange "to stow away the metal and support [its own] premiums".

William MacNamara presciently spelled out, a truth that has since become even more apparent. The year 2010, he said, had already been marked by volatility that reflects confusion among market participants about what is driving metal prices and whether “market forces” mirror fundamental demand that is capable of being sustained:

“Many analysts see metals prices themselves as unreliable, because of the speculative money embedded in the headline price. The search for "hard" asset investments amid depreciating currencies and stagnant returns has pushed pension funds, hedge funds and asset managers to increase their holdings in metals such as copper or zinc.”

Citigroup issued a similar warning, pointing out that “investment inflows will not necessarily destabilise the entire metals and mining complex, but they introduce volatility and uncertainty ... For mining equity investment, it's like building model-foundations on shifting sand dunes"

A month later, Peter Holland of Bloomsbury Minerals Economics reflected the same reality, when commenting that there used to be “a fairly simple mechanism by which LME [London Metal Exchange] prices were kept in dynamic equilibrium: if there was a surplus, stocks rose and prices fell; if there was a deficit, stocks fell and prices rose.”

However, says Holland: “Commodity Index Funds (CIFs) and Exchange Traded Funds (ETFs) have surely added a new dimension to the prices of the raw-materials in which they invest.” After 2004, when pension funds began “to pour money into commodities, CIFs and then ETFs certainly did experience a surge in long-only investments” – in other words, they were stimulated by new investment, made on the assumption that market prices would rise because demand was also increasing.

According to Holland, there shortly followed “two crucial periods when copper and aluminium prices rose sharply despite large surpluses and rising stocks: July 2005 to March 2006; and August 2009 to February 2010 [my italics]”. Thus, “it looks as if there really may have been introduced a new determinant of prices.” Since 2004, “over one million tonnes of long-only copper futures have been bought and held by investors in CIFs.” So, asks Holland: “[H]ow can this not have moved prices?” The shift appeared to defy classic market theory that, when people want something and it’s in short supply, it will become more valuable and thus stimulate production. But, when the commodity is in surplus, the opposite should occur.

Holland went on: “Old-school commodity market analysts used to think in terms of a market balance, which they defined as production minus consumption, with resulting physical stock change and stock levels. In that system of belief, physical stocks were taken to be almost a passive dull burden which weighed down on prices – the more the physical stock sitting on the market’s back, the lower stooped the resulting price.”

However: “Brokers saw things a little differently: balancing took place in the futures market not the physical market. If stocks were below the ‘pinch point’ and prices were backwardated, exchange stocks did not depress prices at all. If stocks were above the “pinch point” and prices were in contango, it was the contango-earning hedge sales of exchange stock owners that depressed prices. In contango markets, exchange stocks were a dynamic, not a passive, force.” The term “contango” relates to a market where the forward – or future - sales of a commodity reach a higher price than those known as “spot” (the price at which it currently has a buyer). Conversely “backwardation” denotes a market where forward sales are lower.

This discussion may well seem obscure to the layperson, and it’s not necessarily very educative to probe it further. The key point is that such trading – effectively betting on a price that is almost entirely removed from the real movement of supply and demand - is increasingly distorting public – and government - perceptions of our requirements for new supplies of metals, and therefore new mines.

Appendix-3 - Flow-Through Shares

There are a number of ways that a government provided overt or hidden subsidies to bolster mining companies engaged in exploration or production.

However, the Canadian government stands out among others for the support it affords the industry through so-called “Flow-Through Shares” arrangements, which allow corporate miners to deduct exploration expenses from their income tax. [MJ and PDAC Exploration 2008, February 2008; see also Salman Partners, below].

As share prices bottomed-out in late 2008 and early 2009, at least one Canadian financial services firm, specialising in flow through brokering since the turn of the new century, was swift to boast the value of such arrangements. The MineralFields Group (qv) argued that “this is probably the best time to make flow-through investments in history, as the bargains are incredible, unprecedented, and we are buying stocks at low or no premium (and increasingly, at a discount), and at 2 year, even 3 year lows!”; adding that the Group offered “the highest possible level of safe tax sheltering“.

Such a manifest “distortion of the tax system” (in 2008 amounting to 60% of all exploration funding raised in Canada) has been criticised from within the industry itself as penalising ordinary citizens. [See: “Flow-through shares put Canadian mining and exploration juniors ahead” Liezel Hill, Mining Weekly 27 February 2008; see also Footnote 1, below].

As will be seen from a cursory glance through the FM2M database, this "distortion of the tax system" has still not been addressed by Canadian regulators - on the contrary.

Inviting your collaboration

You are now invited to examine the FM2M database of institutions offering finance to the mining industry. Please feel free to contribute further data, including corrections and updates, in order to increase its usefulness.

More detailed allegations against the mining and mineral companies referenced below can be found on the Mines and Communities (MAC) website:

Go to the “MONEY” page of the same site, to view critical information (regularly updated) on some of the funders listed in this paper’s data base:

You are warmly welcomed to submit evidence of further violations, or indicate where you think this paper might have got it wrong. Kindly email: