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Anglo American: Resource Nationalism

Anglo American: Resource Nationalism



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    Anglo American: Resource Nationalism Anglo American: Resource Nationalism Presentation Transcript

    • RESOURCE NATIONALISM AND MINING –ISSUES AND POTENTIAL RESPONSESJon Samuel, Head of Social Performance, 19 February 2013
    • ANGLO AMERICAN’S FOOTPRINTKey Corporate and rep officesE Exploration Offices Platinum Diamonds Copper Nickel E Iron Ore and Manganese Metallurgical Coal Thermal Coal 22
    • RESOURCE NATIONALISM – SOME DEFINITIONS• “Resource nationalism…encompasses efforts by resource-rich nations to shift political and economic control of their energy and mining sectors from foreign and private interests to domestic and state-controlled companies”• “The threat of tax increases, renegotiation of terms, larger participation of state- owned companies and ultimately nationalisation.”• “Resource nationalism, the terms used to describe situations where governments assert increased control over the natural resources located in their territories”• “Resource nationalism is a term used to describe a tendency of people and governments to assert control over natural resources located on their territory.”• “Situation where producer countries want to maximise their (future) revenues from present production by altering terms of investment” 3
    • RESOURCE NATIONALISM – DRIVERS• Economic drivers: - High perceived profits in the mining industry - Lack of perceived benefits to host countries / communities: “fair share” - Changing balance of power between resource owners and developers: general industry shift from capital to opportunity constraints as demand has grown• Socio-cultural / technological drivers: - Communications revolution - Growing intolerance of poverty, and greater expectations on business to play a constructive role in its alleviation other than through “business-as-usual” measures - Mining generally perceived to be a part of the problem on many global issues (climate change, water availability, biodiversity, food security, human rights etc) - Negative legacies• Political drivers: - Emerging economies striving to have their voice heard, and to assert their national interests as their economies and foreign interactions grow - Rise of democracy and local empowerment• As an industry we communicate poorly: - We don’t articulate the benefits we bring in a credible manner - The risk / reward trade-off is not understood, so profits are deemed excessive 4
    • RESOURCE NATIONALISM – IN PRACTICE Taxes and royalties From our perspective… Changing the rules of the game while playing Local content / value-add requirements (labour, procurement, beneficiation) State participation in mining projects Indigenisation (private) Expropriation 6
    • RESOURCE NATIONALISM – MANIFESTATIONS INSELECTED COUNTRIESCountry Tax / royalty Local content State Indigenisation changes required participationAustralia MRRT (2010) Royalty increase (carbon tax)Botswana Desires for greater Debswana 50/50 beneficiationsBrazil Currently under review Pressure for local Vale government (incl internal debate supply contracts shareholding, state between federal and (especially in oil and ownership of state level) gas) PetrobrasChile Voluntary royalty Codelco increase in 2010Colombia Under discussion/reviewMozambique Talk of increase Will be an important Degree of free carry part of license to (5-20%) operate 7 7
    • RESOURCE NATIONALISM – MANIFESTATIONS INSELECTED COUNTRIESCountry Tax/royalty Local content State Indigenisation required ownershipPeru Negotiated Several local voluntary windfall benefit schemes in taxes place (often negotiated locally)South Africa SIMS report Range of Nationalisation Broad-based Black suggests requirements debate and state Economic increasing both under mining mining company Empowerment charter (likely to (26%) increase)Venezuela Strong focus on Nationalisations community and and expropriations. union benefits Mixed companies required in oil and gasZimbabwe Yes 51% requirement (threat of expropriation) 8 8
    • RESOURCE NATIONALISM AND OIL AND GASPrivateshare ofglobal oilresources National Oil Companies account for ~55% of production and ~88% of reserves globally (in the 1970s it was the other way around) 9
    • DID HIGH OIL PRICES LEAD TO NATIONALISATION? OPEC led oil market ? Source: OPM analysis for Anglo American 10
    • OWNERSHIP PATTERNS IN OIL AND GAS Saudi Arabia1960 18% In 1960: • World oil reserves Kuwait were 291 bn bbls; Non-OPEC OPEC 22% 32% 68% Iran • of which: 85% were 12% privately held; and Iraq • two-thirds were in Venezuela 9% OPEC 7% countries, and also Kuwait1980 10% privately held Saudi Arabia Iran 25% 9% In 1980: Non-OPEC OPEC 35% 65% • Reserves were 668 UAE bn bbls; 5% • of which: two-thirds Iraq were in OPEC, and 4% Other OPEC state-owned. 12% Source: OPM analysis for Anglo American 11
    • COULD THE SAME THING HAPPEN TO MINING? ? Nationalisation Privatization Pressure on rents and Source: OPM analysis for Anglo American state-owned equity 12
    • COULD THE SAME THING HAPPEN IN MINING?• Our view is that large-scale nationalisation in the mining sector is unlikely: – Prices rises do not appear to have been the trigger for nationalisation in oil and gas (in fact the converse appears to be true) – There was a spate of nationalisations in mining, but these tended not to be successful and led to subsequent privatisations or closures – The economic rents from mining are generally much lower than in oil and gas, – Mining operations are technically challenging to run, and require very high levels of ongoing capital expenditure to sustain them – Very limited ability to control markets, given wide distribution of most minerals across the world – The increasing inter-connectedness of the global economy makes the cost to implementing countries of unilateral nationalisations much higher – Governments have realised that they don’t need to nationalise: the tax system and other policy tools provide other means – We have a better understanding of what we need to do to respond to the threats posed by resource nationalism 13
    • HOW SHOULD MINING RESPOND?• Be clearer about the existing economic impacts of the mining sector, at both local level and at more macro levels, including addressing the resource curse debate• Ensure that mining is seen as a responsible industry: – Sound business ethics – High standards of safety, health and environmental management – Fair treatment of workers – Good neighbours• Perhaps most importantly, deliver more effective responses to the demand for a greater share of benefits by enhancing the industry’s contributions to local and national socio-economic development 14
    • RESOURCE CURSE: POTENTIAL CAUSES Rent Terms of Seeking Trade Resource Curse Impacts Volatile of Mining Markets Dutch Disease 15
    • RESOURCE CURSE: RESPONSES Revenue transparency and governance The price of reform can help to reduce rent seeking manufactured goods is alsoResponsible fallingmanagement of Rent Terms of Productivityimpacts and Seeking Trade improvements canproactive development increase benefits toinitiatives can create local economiespositive economiccontributions Resource Curse Impacts Volatile of Mining MarketsReallocating factors of production Volatility can and hasto resource sector may be efficient Dutch been managed byOnly a problem if adjustment after Disease instruments such asresource extraction is not planned hedging andfor and / or not possible stabilisation funds 16
    • ANGLO AMERICAN’S APPROACH TO SUPPORTING LOCALSOCIO-ECONOMIC DEVELOPMENT * Our approach to community development is based on understanding local contexts and leveraging our core business to create sustainable upliftment • Leveraging our $13.8 billion supply chain Local (approximately 100 x social investment Procurement budget each year) • Ensuring that host communities have the Local Training best possible chance of securing and increasingly skilled jobs on our Recruitment operations • Focusing in particular on how local Governmental municipalities can use tax revenues to Capacity provide effective public services Development • Offering equity and loans on a Enterprise commercial basis to support local Development entrepreneurs, both within and outside our supply chain • Providing grants to welfare-enhancing Social initiatives where more market-based Investment approaches are not possible. 18* 2011 data
    • ENSURING WE UNDERSTAND THE LOCAL CONTEXT • Our Socio-Economic Assessment Toolbox (SEAT) is at the heart of our management of social performance and developmental issues • SEAT is an award-winning manual that provides extensive guidance on: – Profiling and engaging with host communities – Assessing positive and negative impacts – Managing relationships with host communities – Contributing to community development • SEAT provides extensive guidance on understanding our local context, and how we should respond to that • Freely available at www.angloamerican.com/seat 19
    • LOCAL PROCUREMENT ObjectiveSupply-side Measures Encouraging more suppliers to Localising Suppliers locate in mining areas (e.g. near-mine supplier parks) Build capability, capacity Supplier Development Programmes and size of suppliers (building capacity of existing suppliers) Creating formal Support for Small and Medium-size Business Start- businesses ups (e.g. Emerge / Zimele) Supporting the Alternative Livelihoods and Micro-credit Programmes grass-rootsDemand-side Measures Set framework, show Policy: Local Procurement Strategy leadership support Build Anglo American capacity Resources: and incentivise Appropriate people and budget Operationalise SC Local Procurement Initiatives (eg commitments Ring Fencing) Demonstrate Communication and Reporting: commitment Targets and KPIs 20
    • CAPACITY DEVELOPMENT • As a business we pay very significant sums in taxes • Clear that these revenues are not always well spent, typically due to a lack of capacity • Meanwhile, we often suffer because of poor pubic service provision • We are now engaging on a structured basis in South Africa and Brazil in initiatives to build the capacity of host municipalities and regions • Working with partners, we have undertaken structured assessments and designed tailored implementation packages • Focus is on revenue management, accountability mechanisms and basic service delivery 21
    • ENTERPISE DEVELOPMENT• Through our Zimele and Emerge schemes in South Africa and Chile we are now supporting over 47,000 jobs in small businesses• We provide a mixture of equity, loans and technical assistance to businesses, and help them understand how our supply chain works – Our ongoing procurement needs create a very strong platform from which to support local entrepreneurs• Currently expanding our ED initiatives to Botswana, Brazil and Peru• Current focus areas include: – Reducing costs: substituting social investments (i.e. grants) with enterprise development activities (i.e. loans, equity participation and business training) – Increasing efficiencies: in existing schemes by outsourcing some of the activities to specialist delivery partners (e.g. Technoserve, CARE) – Partnering with development finance institutions to increase the capital available – Creating revenue: for example by generating captive, low-cost sources of carbon credits – Creating more stable host communities and a more robust and competitive supply chain 22
    • SOCIAL INVESTMENT• $128 million spent on social investment in 2011, about $0.5 billion in the last 5 years• Monitored using a Group-wide database and set of indicators to help ensure value for money 23
    • CONCLUDING REMARKS• Resource nationalism has emerged in recent years as one of the major risks facing the mining industry• However, this isn’t a new phenomenon, and in some ways current manifestations are less threatening than in previous decades• Some of the drivers of resource nationalism are due to poor understanding of the economic realities of mining• The mining industry needs to do a better job of understanding and communicating its economic contributions• It also needs to work with partners, in particular governments and host communities, to enhance current economic contributions, with a strong focus on leveraging the core business 24
    • TIMELINE OF A TYPICAL MINE Exploration Studies Development Operation Closure1 4 7 10+ 30+Year from acquiring exploration permits (assumes continuous intention to develop)• Only approx 1% of exploration targets are ever developed into mines• Capital Expenditure for “Tier 1” mine typically between $1 and $10 billion• Some of World’s biggest deposits have been mined for over 100 years 27
    • MANAGING SOCIAL RISK Respect human rights Identify and manage social impacts Engage employees and stakeholders Deliver lasting, positive net benefit Efficiently utilise resources Obey all laws and regulations Ensure contractors follow our standards Set targets, review performance Develop staff competencies Report and investigate incidents 28
    • SOCIAL PERFORMANCE WORK PROGRAMME Anglo American Values and Good Citizenship Business Principles Policies and Standards: the Anglo American Social Way Group Social Strategy: Partner of Choice for Host Governments and Communities 1. Education 2. Guidance 3. Social 4. Leverage 5. Internal 6. External and Training: Documents: Initiatives: Core Business: Alignment: Engagement:• SEAT training • SEAT • Enterprise • Local • Business Units • Communities• Post-grad • Mine Closure Development procurement • Functional • Governments diplomas Planning • Social • Local workforce liaison and multi-• Advanced Social Toolbox Investment development laterals Management • Capacity • Synergies from • Industry Programme development infrastructure associations• ABET • HIV/AIDS provision • Multi-lateral • Housing initiatives 29
    • SEAT: STRUCTURE Engagement throughout Step 1 – Profile your operation, including Step 6 – Develop a Step 7 – Prepare a existing community social management SEAT report and feed development plan back to stakeholders initiatives Step 2 – Profile and Step 5 – Deliver engage with enhanced socio- stakeholders economic benefits Step 3 – Assess and Step 4 – Improve prioritise impacts and social performance issues management 30
    • RECURRING ISSUES THAT SEAT ADDRESSES• Access to jobs and training• Access to land and alternative livelihoods• Access to supply chain opportunities• Balance / distribution of social investments• Rivalries between stakeholder groups• Perceptions of environmental impacts• Health and public services A strong• Transport issues emphasis on the level and• Communication and transparency distribution of benefits Generally very pragmatic issues 31