ECPI - LAND GRABBING IN THE MINING INDUSTRY: THE CASE OF NEWMONT MINING

8/2/2019 ECPI - LAND GRABBING IN THE MINING INDUSTRY: THE CASE OF NEWMONT MINING

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LAND GRABBINGIN THE MINING INDUSTRY

THE CASE OF NEWMONT MINING

By Daniela CarosioECPI, Director Institutional Relations

MARCH 2012


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Copyright 2012 by ECPI Group S.p.A., ECP International S.A. and ECPI S.r.l. All rights reserved .

WHICH IS THE PROCESS OF LANDGRABBING IN THE MINING INDUSTRY?

Land grabbing in the mining industry is generally theresult of a development project which involves one ormore mining companies, the Government and thelocal communities.

The majority of the new mining locations are in remoteareas in developing countries.In most cases the Central Government lacks financialcapital as well as know-how for big infrastructuralprojects. Therefore it incentivizes foreign directinvestment and new developing activities in histerritory by multinational enterprises.Big mining projects are often managed through thecreation of a New Company with mixed domestic andforeign shareholders. Sometimes it is asked for afinancing by the International Finance CorporationIFC, member of the World Bank Group, the largestglobal development institution focused exclusively on

the private sector. To be eligible for an IFC funding aproject must meet a number of criteria, among whichalso benefit the local community and beenvironmentally and socially sound, satisfying IFCenvironmental and social standards as well as thoseof the host country. In some big projects IFC evenenters in the capital up to 5%.

In big projects many players are involved and privateplayers do not hold themselves accountable to localcommunities as long as the host country does notrequire it. This happens in most poor countries ordeveloping ones that dont have strong rule of law withhuman rights enforcement as well as environment andbiodiversity protection regulations.Whereas no such guarantees are provided, the landwhere local communities have been living is grabbedto develop new projects and the people who areaffected are dislocated with minimum or insufficientcompensation.

Most of the projects are in far remote areas whereindigenous people are living and where thebiodiversity is rich as well as there are abundantreservoirs of water.

WHAT ARE THE ESG THEMESINVOLVED?

E- ENVIRONMENTThe most severe impact is the water pollution andcontamination and the unsound practice of riverinetailings disposal. E.g. in the case of open-pit goldmining, the minerals are encased in rocks and toobtain a paste of pure gold, poisonous chemicalcyanide is added to rocks, as well as zinc and sulfuricacid. The tailings are thrown in the water and in the

soil.

There is also a relevant impact in terms ofdeforestation, soil erosion and desertificationendangering local biodiversity.

Another serious environmental issue is the climatechange impact both in terms of higher GHG emissionsdue to the energy intensive mining production and

relevant decrease in CO2 absorption capacity as aresult of deforestation, soil erosion and desertification.

S- SOCIETYThe consequences of mining activities on localcommunities are severe and have to do with thehuman right to a sound living, health and safety aswell as the basic human right to access to water(CERES Aqua Gauge).Highly impacting projects meet the opposition of localcommunities and strong protests as well as violencecan be expected in case of no dialogue with them.

Ultimately land grabbing for mining could lead toviolation of basic human rights if native communitiesare massively displaced without free, prior andinformed consultation (FPIC) and compensation or iftheir sources of drinkable water and food arecontaminated or deplenished.

G- GOVERNANCEThe whole Board of a mining company must beresponsible to its stakeholders. There is a seriousgovernance risk in case of no responsibility andaccountability at top management level towards thestakeholder and no attention to communitysrelationship and engagement. A sound governanceprocess with strong and enforced anti-corruption andanti-fraud provisions is required, in particular forinvestment and operations in countries with lack oftransparency, and corruption risk at Government level,whereas there is no respect of human and indigenousrights, no certainty of propriety rights and weak rule oflaw.

WHAT ARE THE RISKS FOR INVESTORS?

Investors run serious reputational risks if they investin a mining company which does not adopt a propercommunity relationship program and has a poor trackrecord or is accused of not respecting human rightsand the environment.

In case of investment in companies vulnerable toaccusations of complicity in corrupt behavior,investors run operational risks from interruption inthe production up to most material one, i.e. the loss ofthe license to operate. These are significant businessrisk rendering companies vulnerable to local conflict
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and insecurity, and possibly compromising their long-term commercial prospects in these markets.

BEST PRACTICE CODES ANDREGULATION IN THE MINING INDUSTRY

Specifically in consideration of the governance risks ofinvesting in the mining sector, stakeholders industryinitiative such as The Extractive IndustriesTransparency Initiative(http://eiti.org) has nowbecome a standard, improving transparency andaccountability in the majority of mineral and metalsrich countries.

TheDodd-Frank Wall Street Reform and ConsumerProtection Act, which regulates the U.S. financialmarket, has two provisions on disclosure intended topromote transparency and governance in naturalresources in countries outside the United States.1

Companies operating in areas of political instability,violence, bribery and corruption face business risksthat can significantly affect their commercial prospectsand returns to investors. Companies in the extractivesindustries oil, gas and mining are increasinglysubject to these risks as they move to source moreproduction from assets in countries with higher riskprofiles.

HOW CAN RESPONSIBLE INVESTORS

MITIGATE THE RISK OF THEIRINVESTMENT IN THE MINING SECTOR?

It is very important that investors engage onpromoting transparency and communityrelationship in mining projects in developingcountries. A double check should always be done alsoat country level: if the Government is not transparenthigh risks of corruption in the market are to beexpected.

A relevant engagement initiative by responsibleinvestors has been the support of the EITI initiative.

Over 80 investment institutions, which collectivelymanage over US$ 16 trillion of assets, have signedthe Investor Statement on Transparency in theExtractive Sector. Institutional investors withexposure to extractives companies have an interest in

1Section 1504 mandates oil, gas and mining companies, registered

with the Securities and Exchange Commission (SEC), to publiclydisclose the tax and revenue payments made to any government;Section 1502 requires that companies using minerals from theDemocratic Republic of Congo provide disclosure that thepayments did not fund armed groups in that conflict country, oradjoining countries, under what conditions those minerals were

mined, and measures taken to exercise due diligence on thesources of minerals and their chain of custody.

encouraging the implementation of the EITI as a meanto contribute to improvements in governance andtransparency.

Also the high social and environmental risks of landgrabbing in the mining sector particularly in developingcountries are to be carefully considered by investors.

The major obstacle is to guarantee communities theFree Prior and Informed Consent (FPIC) whichmeans aligning the interests of the shareholders andthe stakeholders (specifically the affectedcommunities). This is a necessary condition forextractive projects to be successful in contributing tosustainable development.

Since 2006ICCR2 members, among which CBIS,Calvert, Wespath, etc. managing several billion ofUS$ in assets have been engaging in dialogue withNewmont Mining and filing resolution on theintroduction of the FPIC, with the goal of preventing

some severe reputational and operational risks of theirinvestment. These dialogues are meant to improve thesustainability, transparency and accountability ofinvestments in mining to which the investors commit,inviting also other investors to follow their lead.

THE CASE OF NEWMONT MINING

ECPI ESG RATINGSince 2007 ECPI has rated Newmont Mining asineligible (F) because of serious environmental and

social concerns.In the last decade community protests occurred in theNewmont Mining sites in Indonesia, Ghana and Perubecause of severe environmental pollutions caused bythe mine tailings and waste disposal contaminatingcommunity water sources and as well as poor healthand safety labor conditions.These severe impacts have prompted violentcommunities demonstrations and complain againstland grabbing and poor compensation for thedamages caused by the mine operations.

In the recent 2012 review of the US mining company,

ECPI confirmed the rating F for its still relevant highsocial and governance concerns, but with an higherscore because of improved standards inenvironmental management.According to ECPI Environmental analysis thecompany has a fair environmental performance. It hasa wide and ambitious environmental strategy.

2ICCR includes 275 faith-based institutional investors, including

national denominations, religious communities, pension funds,foundations, hospital corporations, economic development funds,asset management companies, colleges, and unions. Each yearICCR-member religious institutional investors sponsor over 200

shareholder resolutions on major social and environmental issues.ECPI has been a member of ICCR since 2002.
http://eiti.org/http://eiti.org/http://eiti.org/http://www.sec.gov/about/laws/wallstreetreform-cpa.pdfhttp://www.sec.gov/about/laws/wallstreetreform-cpa.pdfhttp://www.sec.gov/about/laws/wallstreetreform-cpa.pdfhttp://www.sec.gov/about/laws/wallstreetreform-cpa.pdfhttp://www.iccr.org/http://www.iccr.org/http://www.iccr.org/http://www.iccr.org/http://www.sec.gov/about/laws/wallstreetreform-cpa.pdfhttp://www.sec.gov/about/laws/wallstreetreform-cpa.pdfhttp://eiti.org/


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However, it is involved in several environmentallitigations and had significant scandals in the recentpast.

From the S and G analysis, after entering the dialoguewith responsible investors, who are members of ICCR,the company made some progress such as the

release of the Community Relationship Review,commissioned by the Board in 2008 to the Law FirmFoley Hoag. However the Review has not yet beenimplemented across the five mine sites evaluated.

PENDING DISPUTES

GHANANewmont Mining has recently been accused by NGOsof human rights abuses. Specifically, the NGOLivelihood and Environment Ghana recently releaseda documentary which chronicles the accounts of

people alleged to have been affected by theoperations of Newmont Ghana in the Brong AhafoRegion.Wacam, a human rights and mining advocacyNGO, has called on the Government to investigate thecauses of death of 15 persons in the course of thecompany operations in the same region. In thePeruvian Amazon (Bagua) in June 2009, 40indigenous people protesting against the exploitationof natural resources in the forest were killed and atleast 200 injured.

PERU - MINAS CONGA

The massive US$ 5 billion Mina Conga mining projectin the Perus northern Cajamarca province is subjectto strong protests by the local population. This isPerus largest ever mining investment. Newmont isproposing to mine a high-altitude ecosystem at a siteat the headwaters of multiple rivers and wants toremove 4 lakes and replace them with 4 man-madereservoirs, 3 for drinking and the fourth one to holdmining waste.

Civil society groups are making pressure tolawmakers to ban mining in the headwaters of riverbasins because of risks of water pollution and

depletion. They also want Peru's constitution torecognize water as a human right and resource thatcannot be privatized, as in nearby Ecuador.

The EITI initiative has contributed to raise thestandards of awareness and accountability in thehosting countries.Ghana has been designed compliant by the EITIBoard in October 2012 and Peru in February 2012.Indonesia must complete EITI validation by April 2013.

However Perus new Government ofPresidentHumala is under tension on how to address the mass

protests against the project and to keep the line of

dialogue. Consultations, community relationship andengagement are common in developed democracies,they are however rather delicate issues implying along process which takes into consideration pros andcons of project and finds ways to align incentivesamong all those players who have a stake in theproject itself. E.g. Mina Conga is a contentious project

which is imposing a trade-off between exploring one ofthe world's top sources of base and precious metalsand the right to preserve the blue gold, water. Thisdelicate balance of interests is causing growingtension within the Government, between the Ministryof Mining and the Ministry Environment and betweenthe President and the Prime Minister

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WHICH ARE THE INDICATORS TODETECT AND MITIGATE THE RISK ININVESTING IN MINING?

As for the return, the risk of an investment is to bemeasured over its life cycle.In order to address, assess and monitor the risk ofinvesting in mining it is important to identify the mainphases of its life-cycle and analyze how each phase isconnected to ESG/Responsible Investing.For mining investment the phases are define asfollowing:

Evaluation of the investment: careful analysis of theGovernment and major contractor transparency, nocorruption, ESG impact and dialogue with affected

community. FPIC for indigenous people has to beguaranteed as well as fair compensations.

Operations have to prove the soundness of theenvironmental management as well as of the socialimpact, appropriate waste disposal, andreplenishment of water sources;

Dismissal of the mine according to a sound ESGimpact analysis.

For each phase there are general ESG KPIs andsector specific ones. It is also relevant to refer the

sector-specific indicators to the country ESG rating.I.e. the legal framework of enforcement of HumanRights, Labor Rights, Health & Safety, Environmentprotection is related to country governance and ESGrating.

3The Ministry of the Environment has reviewed the Newmonts

Environmental Impact Study (EIS) for the Conga mine approved bythe Ministry of Mining and concluded that it needed furtherevaluation because it would cause drastic changes to theecosystem. The declaration of the state of emergency in Cajamarcaregion last December caused the protest and following resignationof the Prime Minister, replaced by a retired army officer and marked

a reversal in the relations of the Government with the communitiesand a closure to any dialogue.3
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ECPI - LAND GRABBING IN THE MINING INDUSTRY: THE CASE OF NEWMONT MINING