ICMM publishes Annual Review

Taking EITI to the next level

Investor priorities at Indaba

The Newsletter of the International Council on Mining and Metals Vol 11 Issue 1 May 2013

Beyond transparency

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Page 3Driving transparencyThe Extractive Industries Transparency Initiative (EITI) is adding value for the investment community notes David Diamond of Allianz Global Investors.

Page 4Building trustICMM’s 2012 Annual Review is all about building the confidence of stakeholders and reducing what President Anthony Hodge terms the “trust deficit”.

Page 5ICMM at IndabaSustainable development was again a hot topic at African Mining Indaba as ICMM hosted two sessions with a keynote address from then AngloGold Ashanti CEO Mark Cutifani.

Inside this issue

C O M M E N T

Contact InformationICMM, 35/38 Portman Square, London, W1H 6LR, United KingdomTelephone: +44 (0) 20 7467 5070 Fax: +44 (0) 20 7467 5071Email: info@icmm.com Web: www.icmm.com

To subcribeGood Practice is the newsletter of the International Council on Mining and Metals (ICMM).

ICMM comprises many of the world’s leading mining and metalscompanies as well as regional, national and commodity associations,all of which are committed to improving their sustainable developmentperformance and to the responsible production of the mineral and metalresources society needs.

To receive future issues and updates on ICMM activities, please emailinfo@icmm.com or subscribe at www.icmm.com.

Cover picture: Rio Tinto’s Oyu Tolgoi mine in Southern Gobi, Mongolia invests in protecting the country’s camel population and native lifestyles.

Welcome to an issue of the newsletter which is almost entirely focused on the latest developments and progress of the Extractive Industries Transparency Initiative (EITI). This is timely – and of course intentional – as the publication of this issue coincides with the 6th EITI Global Conference in Sydney in which ICMM is playing a part (Page 12). We hope that the items you read on the following pages resonate either

with the discussions you hear at the conference or subsequent feedback and actions designed to strengthen the EITI process. The content of this newsletter captures a number of different perspectives on key issues and thus reflects the multi-stakeholder EITI process. We have in depth articles on EITI from an investor perspective (Page 3), from an individual country viewpoint (Page 10) and from industry representatives (Page 11). In each case we get an honest appraisal of just how far the EITI approach to transparency has gone in making a difference to some of the world’s poorest people – or as chair of the EITI Board Clare Short puts it in 60 Second Profile (Page 12) – towards helping to lift some of the most disadvantaged communities out of poverty. A number of measures to strengthen EITI are being tabled at the Sydney conference. The theme of “Beyond transparency” is thus appropriate. EITI is continuing the evolution of its rules and processes. It now rightly wants to bring more pressure to bear on practical and effective implementation from the national through to the local level. In addition to the Analysis articles noted above, this issue of the

newsletter also features a special report on progress to date in a number of EITI signatory countries (Pages 7-10). These include Mongolia where an environmental monitoring program is designed to support traditional lifestyles, Madagascar where participation has increased significantly and Liberia which is praised for its implementation of EITI after 14 years of civil war. Among developed world examples of EITI, we report on progress in the conference host country Australia which is currently engaged in a multi-stakeholder

pilot. In her interview, Clare Short points out that it is important that developed countries play their part in the EITI process rather than simply be seen to comment from the sidelines. ICMM has been involved with EITI from the beginning. Our members are fully committed to the ideals that drive EITI and we welcome the opportunity to play a part in this conference. As EITI demonstrates, mining revenues can act as a catalyst for positive change among peoples who have traditionally been extremely disadvantaged. We are very proud of playing our part in seeing that this be done.

Anthony Hodge, President, ICMM

“Our members are fully committed to the ideals that drive EITI”

Page 10Liberia’s progress after the stormAfter a 14 year civil war which claimed the lives of 250,000 people Liberia is benefitting from its commitment to EITI believes former Minister of Lands, Mines and Energy Dr Roosevelt Gasolin Jayjay.

Page 1260 Second ProfileAfter a career in frontline politics, chair of the EITI Board Clare Short believes there is an opportunity to lift some of the world’s poorest people out of poverty.

Page 7Special Report: Beyond transparencySix EITI signatory countries tell their story as delegates gather for the 6th EITI Global Conference in Sydney and commit to new rules to ensure the future effectiveness of the initiative.

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Today, 37 countries, totalling a population of over 900 million people, implement the Extractive Industries Transparency

Initiative (EITI) which is increasingly recognized as a global transparency standard supported by the G8, G20 and such institutions as the World Bank. Key stakeholders supporting the initiative include over 60 of the largest oil, gas and mining companies, 80 institutional investors and dozens of civil society organizations. Under EITI, country signatories voluntarily commit to a public reconciliation of the financial payments made by extractive companies and the revenues received by the governments. EITI is a multi-stakeholder initiative whereby governments, companies, civil society and investors oversee the full process, locally in each country, supervised by the EITI International Board. For their part, ICMM member companies all support the EITI process and are committed to engaging with governments that have signed up to this level of transparency and support the public disclosure of relevant information.

Governments in resource-rich countries are tempted to favour the export of natural resources in order to benefit from the financial bounty that they represent. It is often easier to generate income from extractive industries than to build a strong and diversified economy. On the face of it, this activity is very profitable – at least in the medium term – for the governments themselves, the oil, gas and mining companies involved and their shareholders. However, this does not necessarily translate into a sustainable long term approach. In regimes that are more frequently autocratic than democratic and rife with corruption, the income derived from resource extraction is more commonly distributed to the political, military and commercial elites rather than being invested in economic and social development projects. Key is the fact that many countries rich in natural resources have under-performed economically. Over 3.5 billion people live in countries rich in oil, gas and minerals and the vast majority see few benefits. With good

governance, the exploitation of these resources could generate large revenues to foster economic growth and diversification, while reducing poverty. However, when governance is weak, it often results in corruption, poverty and increasingly conflict. These effects are not inevitable and encouraging greater transparency in countries rich in these resources could mitigate some of the potential negative impacts. Benefits to companies and investors focus on limiting political and reputational risks. Political instability caused by opaque governance is a clear threat to investment. In extractive industries, where investments are capital intensive and dependent on long-term stability to generate returns, reducing such instability is beneficial for business. Transparency of payments made to a government can also help to demonstrate the contribution that the company’s investment makes to a country.

For investors, the added value of EITI is linked to the fact that financial markets are beginning to recognize the value of the EITI label. Of the 37 countries now implementing EITI, Azerbaijan was the first country to be declared EITI Compliant by the EITI Board in 2009. In May of the following year Fitch Ratings announced that they upgraded Azerbaijan’s long-term foreign and local currency Issuer Default Ratings (IDRs) to ‘BBB-’ from ‘BB+’. In the press release, Fitch indicated that it “draws comfort from the transparency of the SOFAZ [the state oil fund that leads on EITI], underlined by Azerbaijan being the first country to be fully compliant with the international Extractive Industries Transparency Initiative.” Although other rating agencies such as Standard and Poor’s (S&P) have not yet followed suit so explicitly, the S&P Sovereign Government Rating Methodology and Assumptions includes a “political score” , where the “transparency and accountability of institutions, data and processes including [a country’s] perceived level of corruption” are considered. As such, a commitment to EITI may contribute to a country

improving its sovereign credit rating over the long term. Beyond such voluntary initiatives, however, regulation is likely to play an increasing role in assuring transparency for extractive companies. In the United States, Dodd Frank legislation, as per the Security and Exchange Commission (SEC), now requires all SEC registered companies from the extractive sectors to publish government payments on not only a country-by-country basis but also project-by-project. The European Union is now following suit. Whether voluntary or regulatory, the investment case for transparency is clear. It is the first step leading to better governance in resource rich countries. Ultimately, this should produce a more stable investment climate of benefit to extractive companies, their shareholders and local populations.

Driving transparencyThe Extractive Industries Transparency Initiative (EITI) is continuing to gain momentum, promoting greater revenue transparency in some of the world’s poorest countries notes David Diamond of Allianz Global Investors and EITI board member.

A N A LY S I S

The human element

Improving performance

EITI Fast Facts

Launch date October 2002

Implementing countries to date 37

Supporting companies 70

EITI reports published 120+

Revenues reported on US$1 trillion

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Building TrustAs its name implies, ICMM’s recently released 2012 Annual Review Building Trust is all about winning the confidence of stakeholders and reducing what ICMM President Anthony Hodge terms the “trust deficit”.

In his foreword to the publication, former ICMM Chair Marius Kloppers (former CEO, BHP Billiton) notes that “ICMM’s Council of CEOs recognizes

the value of strong trusting relationships among the industry and its key stakeholders. It is why we as a group of CEOs, ordinarily in competition with each other, come together at ICMM to collaborate in strengthening environmental and social performance and through that, our contribution to sustainable development.” For the fourth time in an ICMM annual review, member progress was assessed against their reporting and assurance commitments. Twenty out of the 22 member companies obtained a G3 A+ application level compared to 17 in 2011 and 15 in 2010. This means 20 companies reported on all the indicators required in the Global Reporting Initiative (GRI) Mining and Metals Sector Supplement and sought independent third party assurance of their reports.

ICMM’s Annual Review 2012 highlights achievements made throughout the year including:• setting out ICMM’s strategic direction for the next three years with its new Strategy and Action Plan• launching an important new series of publications that hope to inform and prompt dialogue and discussion about mining’s contribution to sustainable development• holding the successful ICMM Health and Safety Conference in Santiago, Chile where the “inevitability” of injuries and fatalities was put aside in favour of an unequivocal commitment to fight fatalities.

“ICMM has much to be proud of”, said Anthony Hodge, ICMM President. “Yet we know that the mining and metals industry continues to

face a substantial trust deficit. Trust must be founded on more than words – it needs concrete actions that demonstrate consistent delivery of commitments and requires efforts to understand the perspectives of others and solution building that respects the values of all interested parties.”

ICMM puts the spotlight on climate change ICMM has launched a series of reports on climate change intended to demonstrate that our members in the mining and metals industry are ready and able to play a constructive and pragmatic role in climate change policy discussions.

Three areas covered include: • responding to the risks associated with the physical impacts of climate change• examining options for revenue recycling out of carbon pricing policies• impacts of carbon prices on the competitiveness of commodities in four regions.

The cost of carbon pricing: competitiveness implications for the mining and metals industry assesses how best to develop carbon pricing policies that work towards transitioning to a low carbon economy without compromising the ability of national industries to compete internationally. ICMM recognizes that it is the right of governments to set their own specific targets, policies and measures to manage their emissions. That said, this report demonstrates that careful consideration in both design and implementation

phases is required for such policies and measures to be both environmentally and economically effective. Options in recycling revenues generated through carbon pricing examines how 16 regulatory authorities are managing their carbon revenues. As far as we are aware, this is the most comprehensive review of current revenue recycling activities that has been published. We hope this analysis will help to inform the public policy debate around this critical issue. Adapting to a changing climate: implications for the mining and metals industry explains why it is important for the mining and metals sector to understand the impacts from a changing climate and to develop strategies to adapt. It looks at relevant climate impacts and how mining and metals companies can evaluate risks and opportunities associated with those impacts. The report also examines the available options for adapting to climate change impacts. Ultimately, our aim is to ensure that we strengthen our contribution to sustainable development by playing our part in addressing the climate change challenge, while at the same time securing the continued competitiveness of the mining and metals industry.

Find it on icmm.comICMM has launched a new look website, modernizing the design and improving the site’s navigation to provide a more user friendly website. The improvements are based on a usability study conducted in 2012 and feedback from ICMM staff and members. The new website includes an improved navigation menu and search function where users can search for content by region, topic, work program or year. The homepage also links directly to ICMM’s social media platforms – Twitter and Linkedin. ICMM welcomes feedback on the site which can be emailed to info@icmm.com.

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Stakeholder focus at Indaba

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In Brief

Anne-Marie Fleury travelled to Washington, DC to launch a cross-sector biodiversity initiative (CSBI) in partnership with IPIECA (the global oil and gas industry association for environmental and social issues) and the Equator Principles Association. The initiative has been created to develop and share good practices and tools to apply the new International Finance Corporation’s (IFC) Performance Standard 6 on biodiversity conservation.

Kate Carmichael attended the Minerals Council of Australia’s Sustainability Conference in Bangkok, Thailand. The conference featured project-based sharing of good practice in sustainability across issues such as biodiversity management, occupational health and safety, water management and socio-economic development.

John Atherton attended the 27th Session of the UNEP Governing Council/Global Ministerial Environment Forum in Nairobi, Kenya. A number of important decisions were made, including those related to sustainable consumption and production and chemicals and wastes.

Benjamin Davies attended a meeting of the ICMM Chemical Management Working Group in Toronto, Canada. Participants discussed aspects of technical policy relating to minerals and metals supply chains – most notable the application of the Unit World Model in assessing chronic toxicity for metals.

Ben Peachey travelled to Vancouver, Canada to participate in a CSR panel at Mineral Roundup. Ben presented on mining’s contribution to sustainable development during the panel session, which was well attended by an audience of around 250.

Sustainable development was once again a hot topic at African Mining Indaba where some 7,700 delegates from more than 100 countries gathered in Cape Town’s International Convention Centre.

ICMM hosted the sustainable development session at Indaba for the third year running and for the first time this year hosted an investor panel Sustainability and Investors: a critical relationship. Both sessions featured a series of challenging presentations and discussions around sustainability topics. In his keynote address at the sustainable development session, former AngloGold Ashanti CEO Mark Cutifani examined the importance of mining to the global economy, whilst acknowledging the challenge of maximizing its contribution to development. He also called for all stakeholders – including industry and governments – to “acknowledge their differences and work together to change South Africa for good”. This was followed by an interactive panel discussion on mining’s economic contribution to sustainable development featuring Joyce Aryee (Communications and Management Consultant), Roger Baxter (Chamber of Mines of South Africa), Rafael Benke (Vale), Philip Daniel (International Monetary Fund) and May Hermanus (University of the Witwatersrand).ICMM’s second panel focused on the global challenge of revenue transparency and anti-corruption and included Roosevelt Jayjay (Extractive Industries Transparency Initiative), Emmanuel Kuyole (Revenue Watch Institute), Xolani Mkhwanazi (BHP Billiton) and Greg Thompson (Transparency International, Australia).The discussions explored issues such as the need for improvement in skills development, infrastructure and social investment in local communities and the progression from transparency into accountability.

The panelists called for multi-stakeholder collaboration to tackle the serious challenges the industry still faces. The video of the sessions, as well as the written remarks from speakers can be found on the ICMM website. Moderated by Aidan Davy, ICMM Deputy President, the investor panel brought together four prominent South African experts to discuss the increasing relevance of environmental, social and governance (ESG) factors in the investment industry and their link to a company’s long-term profitability. Jon Duncan (Old Mutual Investment Group), Abdul Davids (Kagiso Asset Management), Carron Howard (Cadiz Asset Management) and Malcolm Gray (Investec Asset Management) discussed a variety of issues, including integrating ESG considerations into investment-related decisions and the need for companies to provide more

accurate and comparable ESG data to enhance investment research.“The interests of long-term investors and ICMM are increasingly aligned,” said Aidan Davy. “Both parties care deeply about how mining companies manage sustainable development issues. Investors expect companies to have policies, systems and controls in place to manage these issues and report on performance. These are also fundamental expectations of ICMM member companies.” Recent research carried out by ICMM, based on engagement with over 30 responsible investment firms, shows that investors have more confidence in companies that have effective risk management systems in place and provide high quality disclosures on their social and environmental performance.

Former AngloGold Ashanti CEO Mark Cutifani

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In BriefKate Carmichael travelled to Chicago, USA to attend the first Mining Company of the Future - Kellogg Innovation Network workshop to review, explore and discuss key components of a draft partner framework. This initiative aims to link mining companies with stakeholders to extend community development.

John Drexhage travelled to New Delhi, India to participate as a panellist at the Clean Energy Ministerial summit on Energy Management Systems for large industry. Attended by 23 of the world’s major economies, the focus of the summit was on clean energy transition and incentives towards strong energy management regimes.

Anne-Marie Fleury and Gemma James attended the World Water Summit in Seville, Spain. Anne-Marie hosted a roundtable on adapting to a changing climate. Discussions on the roundtables were focused on investor and shareholder pressure on industry to reflect adaptation activities and also the pressure received from communities.

Benjamin Davies attended the inaugural Sustainable Ocean Summit in Washington, DC, organized by the World Ocean Council. The summit aimed to develop collaborative industry leadership to tackle shared ocean sustainability risks and opportunities through World Ocean Council programs.

Claire White travelled to Washington, DC to attend the IFC expert dialogue on human rights due diligence in high-risk contexts. The meeting considered the circumstances where specific human rights due diligence might be appropriate.

ICMM hosts second CEO panel at PDAC International Convention ICMM hosted its second CEO session at the 2013 Prospectors and Developers Association of Canada (PDAC) International Convention, Trade Show & Investors Exchange on Tuesday 5 March.

The topic of the panel was Mining’s Contribution to Sustainable Development

based on ICMM’s recently published series of publications of that name.Five CEOs – Jamie Sokalsky (Barrick), Jochen Tilk (Inmet), Chuck Jeannes (Goldcorp), Joe Conway (Primero Mining) and Andrew Cheatle (Unigold) – addressed an audience of over 300 delegates in a session moderated by ICMM President Anthony Hodge. Ross Gallinger, PDAC Executive Director, provided opening remarks at the session. The CEOs discussed the benefits, costs, risks and responsibilities relating to mining and metals in today’s world. Jamie Sokalsky said, “As an industry, we all recognize the benefits of mining and we communicate those regularly to governments and communities. However, many of the risks and costs associated with our business are less understood and I think we need to do more to educate our

Pricing nature

stakeholders on these issues and how we are managing them.”Jochen Tilk added, “We need to know our stakeholders, but more importantly, listen to and understand their perspectives so we can effectively communicate the contribution our companies can make.” All the CEOs acknowledged that the industry still needs to improve. Joe Conway said, “Where the industry gets it wrong is when we do not take the time to understand the values of host communities.”Andrew Cheatle agreed, saying “The perception of mining starts from the moment the first boot hits the ground. You have to get it right from the very beginning.” Chuck Jeannes told the audience that it is not just the mining companies who are responding to this challenge. There is now greater recognition from investors that companies need to incorporate ESG (environmental and social governance) performance into their operational processes and expect senior

leadership to be held accountable for performance on those metrics. He said, “For the most part in the past, investors have just wanted to know you are managing these issues. More and more, they are taking a greater interest in how we do that.” In the second half of the session, the CEOs addressed questions from the audience on topics ranging from the industry’s sometimes poor track record in environmental performance to the importance of understanding and respecting community wishes. The question and answer session was interrupted for a short time by a small group of protestors. In concluding the session, Anthony Hodge said, “The interruption to the meeting shows the strength of feeling that mining activities can spark – this underlines the importance of building trust and demonstrating the industry’s commitment to improving its contribution to sustainable development.”

ICMM and the International Union for Conservation of Nature (IUCN) have released a report on current trends and key issues regarding biodiversity offsets.Biodiversity offsets are ways to counterbalance or make up for the disturbance of land, ecosystems and habitat which occurs in mining and processing operations. The Biodiversity Consultancy was commissioned to write the Independent report on biodiversity offsets for ICMM and IUCN. It is the latest product to be released as part of the five-year memorandum of understanding between the two organizations.

“IUCN welcomes this report which also highlights that the effectiveness of biodiversity, in practice, is dependent on the importance of an enabling policy environment and good governance across the sectors,” said Gerard Bos, Head of the Global Business and Biodiversity Program, IUCN. The report explores the practical issues of implementing biodiversity offsets, along with factors that can cause offsets to fail. It also makes the business case for using offsets and explains how companies can use them to reduce risk.

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Special report: Beyond transparency

The mining boom in Mongolia can change people’s lives for the better and EITI is starting to play its part. Mongolia, which has a population of 2.8 million and covers 1.5 million square metres of Central Asian plateau, became EITI compliant in 2010. This is a country where 50 per cent of tax revenues come from copper alone and where an abundance of natural resources – copper, coal, iron ore, gold, oil and uranium – are now being exploited to drive a predicted doubling of GDP by the end of the decade. Before becoming compliant, the country produced a series of annual EITI reports between 2006 and 2011 which showed significant progress in the coverage of mining companies and the various payments they were making. The number of companies reporting has grown significantly during this period and the reports contain data from just under 1,000 companies. They also show a steady rise in government revenues from mining to just over $1bn in 2011 and a strong correlation between the revenues going from central government to the regions. This in turn is placing a new emphasis on regional development, ranging from the roads, railways and other infrastructure which is needed for large mining projects to employment and the wider protection of traditional

Supporting transition

As delegates gather for the 6th EITI Global Conference we are picking up on the “Beyond transparency” conference theme

for this special report. Appropriately enough, the report features a number of EITI signatory countries which tell the story of progress made in taking up the EITI process and honestly outline some of the challenges which lie ahead. Peru, for example, is looking forward to the type of much needed infrastructure development which well targeted mining revenues can deliver. Mongolia

is hoping that the EITI process will help to protect traditional lifestyles while also facilitating the development of new business skills. Madagascar is looking for an improvement in quality of life for a broad cross section of Malagasy people. By the same token countries like Canada and Australia confirm their commitment to EITI as a means of involving stakeholders and extending participation in the decision making process. In the case of Liberia, the report includes a more in- depth analysis article which acknowledges the part EITI is playing after

14 years of civil war in the country. For their part, the mining constituency EITI Board representatives stress mining’s contribution to the evolution of EITI rules but also note the importance of keeping requirements manageable. Overall, these and all 37 EITI signatory countries – not to mention those nations which are preparing to commit to the initiative – are facing up to the challenge of going beyond transparency.

livelihoods and lifestyles. For example, Rio Tinto’s Oyu Tolgoi copper mine in South Gobi has implemented a participatory environmental monitoring program which is designed to support community groups such as local herders. In this case, herders are monitoring changes to pastureland and water levels as part of future resource planning and there is also help for non herding families who want to learn new business skills. As in other countries, the challenge for EITI in Mongolia is to ensure that more people have access to information. More importantly, that they understand the contents of the EITI report about available funding and potential support and can take part in decision-making in relation to social and community projects.

An EITI stakeholder meeting in Mongolia

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R E P O RT B E Y O N D T R A N S PA R E N C Y

The working group is developing a framework for the mandatory disclosure of payments to host governments for Canadian extractive companies operating both domestically and internationally. Once

complete, the working group will bring the framework forward to Canadian policymakers and regulators, at both the federal and provincial level, for its adoption. The working group’s efforts are underpinned by a memorandum of understanding, along with a common belief that the mandatory disclosure of payments to governments can have a multitude of benefits for all stakeholders. The framework’s overarching goal is to provide citizens of resource-rich countries with the tools they need to achieve accountable, responsible and sound management of natural resources. This partnership comes at a time of great demand from communities, civil society organizations and investors for mining companies to be more transparent in their payments to governments. This information will help assure communities that they are receiving appropriate benefits from both mining operations and governments, as well as reduce instances of corruption and bribery. Furthermore, transparent payment information also puts investors in a better position to analyze the financial and political risks associated with development. A number of jurisdictions have moved towards mandatory disclosure of payments to governments. On 22 August 2012, the US adopted new reporting

Canada extends transparencyIn September 2012, the Mining Association of Canada and the Prospectors and Developers Association of Canada entered into a partnership with Publish What You Pay-Canada and the Revenue Watch Institute known as the Resource Revenue Transparency Working Group.

rules under the Dodd Frank Act that require publicly-listed oil, gas and mining companies to disclose payments to governments on a country-by-country and project-by-project basis. On 9 April 2013, the European Union also reached a deal on its accounting directive which will see the disclosure of payments by extractive companies. The working group has drawn significantly from these rules, and is attempting to create a framework in Canada that is consistent and aligned with these jurisdictions in an attempt to move towards a globally-consistent standard. The working group’s efforts were warmly welcomed by Canadian stakeholders, including the Government of Canada, mining companies, civil society organizations and investors. A group of 24 institutional investors with $362 million in assets under management endorsed the working group in a statement of support released in January 2013.

Peruvian pilots target the right investmentPeru’s involvement in the EITI process started in 2004. Jaime Quijandría, the then Minister of Energy and Mines, expressed the country’s interest in playing a part in a series of G8 initiatives aimed at combatting corruption.

Later that same year, a mission led by the United Kingdom’s Department for International Development visited Lima to meet different stakeholder groups, present the EITI process and invite the country to follow its principles. Peru’s commitment to EITI was formalized by the government in May of 2005. Peru achieved EITI country compliant status

in 2012, becoming the first country in Latin America to do so. From the outside, it looks as if Peru took a long time to achieve this. In reality, however, it was a great achievement given the numerous challenges faced by those involved in the implementation process. This is particularly so, given that Peru is notorious for the historical mistrust between the various stakeholder groups involved in issues around the extractive industries. The Peruvian EITI multi-stakeholder working group, which acquired official status in 2011, is now focused on maintaining the country’s compliant status in line with an evolving EITI process. This process is developing new requirements aimed at making transparency not an end but a means to achieve more meaningful objectives. Since the 1990s in Peru, the issue of revenue transparency has had much less to do with the tracking of the monies generated and their final destination, but the actual use

of those monies. Unfortunately, there are numerous examples around the country of still impoverished jurisdictions that have received significant flows of extractive industry revenues over the years and a key challenge is to ensure that resources generated from mining is spent more effectively. To address this specific challenge, the 2012-2014 Action Plan for Peru, currently under development, will feature up to three pilot studies that will track extractive industry revenues to three resource-rich jurisdictions. The selection of the studies will be based on carefully determined criteria with the aim to identify opportunities to maximize the developmental opportunities generated by the revenues. It is hoped that these pilot experiences will demonstrate the enormous possibilities that can be generated from efficient and effective investments and that other jurisdictions will be inclined to follow these examples.

Rio Tinto

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I ts mine, processing plant and refinery began production in 2012 and the company is now ramping up to its design capacity of 60,000

tonnes of fully refined nickel and 5,600 tonnes of fully refined cobalt a year. The Ambatovy joint venture is a strong supporter of EITI and a member of the EITI Madagascar National Committee. Ambatovy has fully disclosed all payments to all levels of government and is an active participant in the concerted effort to inform the Malagasy

public about EITI’s important role in promoting transparency on the revenues generated for the government from the country’s natural resources. A key objective is to ensure that all Malagasies have access to reliable information on these revenues given the vital contribution they can make to economic and social development. The EITI Secretariat in Oslo has noted “impressive progress” in EITI implementation in Madagascar. The quality of the EITI reconciliation report, issued in September 2012, was of a high

standard and covered an increasing number of participating companies. The report determined that in 2010 the discrepancy between the taxes and royalties paid, as reported by the companies, and the taxes and royalties received, as reported by the government, was no more than 0.43% of the total. EITI has gained a strong public profile in Madagascar, thanks to increased coverage in the media as well as effective outreach by the EITI National Committee and Secretariat. Furthermore, the Minister of Mines, who is also the EITI Champion, took the important step on 10 July 2012, of issuing a decree making participation in the EITI mandatory for all major mining, oil and gas companies in the country. This was a key milestone in establishing a nationwide standard for all operators in the sector. Looking ahead, the EITI National Committee is already engaged in implementing the agreed workplan for 2013-2014 and preparing for the next reconciliation report, which is due to be issued by 30 September 2013. Madagascar is blessed with significant natural resources and the responsible development of these resources should play a key role in improving the quality of life for the Malagasy people.

EITI progress in MadagascarThe Ambatovy joint venture, operated by Toronto-based Sherritt International Corporation, is among the largest industrial enterprises in Madagascar*.

Australia puts EITI to the test As host to the 6th EITI Global Conference in Sydney, Australia has every reason to be pleased with the progress of its own EITI pilot. Australia began supporting EITI in 2007 and has made significant contributions and commitments to the initiative through the Australian Agency for International Development (AusAID). In October 2011, Australia announced that it would undertake a domestic pilot to test the applicability of EITI rules and principles to Australian conditions, and to inform whether Australia should move to full implementation. The pilot will test the governance and transparency of Australia’s financial reporting arrangements for the resources sector against EITI principles and criteria. It will also look at possible enhancements of the EITI methodology that might be appropriate for Australia. The Australian pilot was launched with an inaugural meeting of a multi-stakeholder group (MSG) to oversee the process. The MSG brings together representatives of government, industry and non-government organizations and has the responsibility of developing and overseeing implementation of the pilot’s methodology. It is chaired and supported by the Department of Resources, Energy and Tourism (RET) through a funding stream for pilot activities, and through provision of a Secretariat. RET will contribute AU$500,000 towards the initiative.

The Australian pilot is using information and data gathered from participating state governments and a sample of Australian and multi-national companies operating in the country’s extractives industries. The sample includes companies of various sizes and geographical locations across a range of resources and jurisdictions. Former Australian Foreign Minister Kevin Rudd commented that “Given Australia’s very significant mining sector, we hope that this decision will encourage other countries to adopt EITI.” Progress to date with the Australian pilot is being discussed as part of the EITI Global Conference in Sydney.

Rio Tinto

*Madagascar is currently suspended by the International EITI Board pending the resolution of a political crisis.

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R E P O RT B E Y O N D T R A N S PA R E N C Y

After a long and bitter civil war the Republic of Liberia has taken the EITI process to its heart. The country has much to be proud of notes former Minister of Lands, Mines and Energy Dr Roosevelt Gasolin Jayjay.

In a letter inviting the President of Liberia, Her Excellency Ellen Johnson-Sirleaf, to address the EITI’s 6th Global Conference, EITI

Board Chair, Clare Short, made some extremely encouraging comments about the country’s progress in promoting both transparency and accountability. The sharing of benefits from the country’s significant natural resources was emphasized. Ms Short’s letter noted that: “Liberia’s EITI implementation has been exemplary, from the publication of contracts in the extractive sectors to the planned audits of payments of extractive companies. This is a reminder that strong commitment to transparency can translate to comprehensive efforts to increase accountability along the revenue chain and, ultimately, contribute to good governance of the extractive sector”.

Liberia’s record in the EITI community is indeed very strong. It was the first country to pass legislation that supports EITI implementation; the first country to embrace and include public disclosure of mining, oil and gas contracts in its EITI program; the first country globally to include agriculture and forestry in its EITI program. It has regularly published EITI reports since it became compliant. In 2009, Liberia became the recipient of the 2009 best implementing country award. These achievements are particularly noteworthy when you look at the recent past. Liberia’s entry to EITI in 2007 was largely influenced by the country’s bitter experience relating to the mismanagement of its resources. For decades, Liberia’s vast natural resources (including diamond, gold, timber, iron ore, etc), instead of generating wealth and contributing to economic transformation and national development, have been susceptible to abuse, being the subject of much of the corruption that has plagued the economy and contributed to the country’s instability. It is documented that Liberian timber

and diamonds played a major role in the 14 year civil war; a war that took the lives of over 250,000 people and displaced several thousand others. Several reports point to warring parties illegally engaged in the exploitation and trade of these natural resources with proceeds facilitating the purchases of arms and ammunitions used to perpetuate the crisis. In fact, in some cases, obscure and fugitive legislations, influenced by the existing powers, posed even greater challenges to the efficient governance of the sector. For instance, the Strategic Governance Act of 2000 granted the president the sole power to negotiate, execute and conclude all commercial contracts or agreements with any foreign or domestic investor for the exploration of any of the strategic commodities (including timbers and diamonds) of the country.

With a history of gross resource abuses, the gains noted above reflect the commitment of all stakeholders, particularly the government, to make transparent resource governance a cardinal part of national development and ensure equitable distribution of the country’s wealth. This strong political will has been clearly demonstrated in the passage of the Liberia EITI (LEITI) Act of 2009, which, beyond the core requirements of the EITI process, mandates the LEITI to conduct audits of the processes by which contracts, rights and licenses in the extractive sectors were awarded and make all such contracts accessible to the public. The government’s financial support for LEITI in 2012-2013 was 183 per cent up on the previous year. Needless to say, Liberia has already

begun experiencing substantial benefit from the process. For instance, over the past three years, public reporting of taxes has boosted government’s revenue generation, with revenue contributed by the extractive sector growing from $29m in 2007-2008 to $71m in 2009-2010. With new access to revenue data, Liberians are beginning to raise critical concerns on issues of benefit sharing of the proceeds from their resources. To ensure even greater transparency, LEITI has modified its reporting. Liberia’s 5th Reconciliation Report, which is expected to be published in May 2013, will not only reflect revenue generated and its use but will also capture what ought to have been paid. LEITI continues to identify relevant platforms for constant dialogue, critical thinking, awareness and participation of all stakeholders in key areas of resource management.

Liberia’s progress after the storm

Stakeholder commitment

Strong track record

GOOD PRACTICE MAY 2013 11www.icmm.com

A N A LY S I S

Taking EITI to the next level Leading mining companies are making an important contribution to transparency argue EITI International Board representatives Jim Miller (Freeport-McMoRan) Debra Valentine (Rio Tinto) and Edward Bickham (ICMM).

W hen the UK Government launched the idea of EITI at the Johannesburg

Summit in 2002, leading mining companies were amongst the first to give their backing. They saw in it an opportunity to combat corruption and to improve governance and accountability around the payment and use of resource revenues. Miners are long-term investors and have an interest in their activities contributing to stability, capacity building, poverty alleviation and wider development in the countries where they operate.

Whilst it is not always possible to quantify EITI’s impacts on governance, there is encouraging evidence that in many countries, the EITI processes are contributing to a better dialogue and more trust between government, civil society and business. That is a big achievement. International mining companies have played a role, in partnership with others, in keeping the process moving forward in situations like in Madagascar, where a political crisis has led to the country’s suspension from the international EITI process even though in-country it remains effective; or in Peru where for a period the government lost interest before the country went on to reach compliance in 2012.

EITI succeeds because of its tripartite nature. There is a shared belief in the power of transparency and of an inclusive dialogue. Each partner respects the other’s views and the principle of consensus is observed.

An independent evaluation, carried out in 2011, argued that EITI was too narrowly focused on tracking revenues and did not have a theory of change for how it can improve development outcomes. But, even if the case for some broadening of focus is accepted, EITI will fail if it ceases to be well-targeted, moves into areas where there is not an underlying consensus or its requirements become so demanding that they overwhelm countries with constrained governance capacities.

The new rules proposed for adoption at the Sydney Conference move from a rigid framework which requires all implementing countries to do the same thing, to a slightly broader core of requirements complemented by a range of encouraged activities which may be adopted according to their relevance to national priorities. The mining companies that support EITI strongly believe in promoting a positive agenda rather than just reacting to the ideas of others. In the 2011 rule changes, for example, we were champions for ensuring that opaque infrastructure for minerals barter deals are made transparent; for promoting greater focus on sub-national payments and transfers; for toughening up the requirement to follow-up on discrepancies and for publishing annual activity reports to ensure continued visibility around activities in compliant countries.

During the negotiations over the 2013 rule changes we:• have pushed for stronger provisions on tracking transfers of resource revenues to sub-national tiers of government• championed the idea that

EITI should provide a forum for discussion of how resource revenues are budgeted and used efficiently (as envisaged in EITI Principles 4 and 8) without questioning the role of governments in making expenditure allocations between areas such as health and education• promoted transparency around the beneficial ownership of mineral resources, measures to improve the reliability of EITI data and reform of the validation process.

Looking to the future, we would strike four cautionary notes. Firstly, EITI should not be an isolated island of good practice but must increasingly link to wider mechanisms for government accountability and the reform of public financial management. Secondly, while EITI multi-stakeholder groups should review the integrity of arrangements between government agencies and companies, they should not second guess agreements reached in good faith. Thirdly, there are significant limitations on the extent to which it is meaningful to compare data

on the revenues generated by projects in different countries. These differences need to be understood. The level of tax generated by a mine will vary widely, for example, depending on the commodity being produced, the quality and accessibility of the ore body, the upfront investment required, supporting infrastructure investment, foreign exchange movements and the cost of capital between jurisdictions and across the mine lifecycle. And finally, generating data for data’s sake is to be avoided – we want EITI to inform debate not to smother it.

We urge colleagues within the industry to become involved in national EITI processes. Such involvement can increase your understanding of stakeholders and their understanding of you. It can improve the operation of government, the way in which revenues are spent and the lives of local people. EITI has potential to make a positive contribution to governance and to building greater trust. Business should be at the heart of it.

Positive agenda

Better dialogue

Increased understanding

The EITI Board take a break for the camera

12 GOOD PRACTICE MAY 2013 www.icmm.com

60 Second Profile

How would you sum up the EITI agenda?EITI is 10 years old. It took five years to build a structure and we have had five years of applying the rules. We are now refining the process to encourage people to use EITI to drive reform in their countries.

How does this fit with your personal beliefs?Potentially, EITI is a vehicle for helping to lift hundreds of millions of people out of poverty towards a better life. That is my cause.

What EITI successes would you single out since becoming chair? The culture of transparency in extractive industries is becoming the norm. There is more contact in member countries between governments, companies and civil society and as we will see in Sydney, EITI is moving from enforcing rules to encouraging local reform through transparency.

Has your former career in frontline politics helped in your current role?Yes, my international development experience is highly relevant. Also in politics it’s important to know when to stand firm and when to compromise. It’s how you get things done.

What do you see as the immediate EITI priorities?To improve the EITI rules through the changes we are presenting at the Sydney conference. These should help to bring about more local ownership which is essential to achieve lasting reform.

What are your hopes for the Sydney conference?Consensus on the above agenda to extend practical EITI involvement which will make a difference to people’s lives in some of the world’s poorest countries.

Should rich countries be setting an example and doing more to combat corruption?This is happening and it’s important that OECD countries like Norway, Australia and the US get involved so that developing countries don’t feel they are simply being dictated to from the North.

How can mining be a force for good in this area?We have miners on the board of EITI and they are conscious of the need to engage with local communities and move away from the resource curse.

Do you see evidence that ICMM members are showing the way?ICMM has certainly held a torch in this area and there are plenty of examples of good practice among the membership. You have to get consensus to bring about change and ICMM has been part of that process.

Where could they be doing more to support the EITI cause?The next big transparency challenge is transfer pricing whereby companies can demonstrate that they are not manipulating costs and prices to reduce their tax liability.

Clare Short became EITI chair in March 2011. She was Secretary of State for International Development in the UK between 1997 and 2003.

The Extractive Industries Transparency Initiative can be an important vehicle for lifting people out of poverty, believes Clare Short.

I N F O C U S

The conference is focusing on the impact of EITI in 37 implementing countries, as well as revisions to the

EITI Standard to increase its effectiveness. A number of new countries are expected to announce their intention to seek EITI candidacy as part of the event. The conference theme ‘Beyond transparency’ provides an opportunity for implementing countries to share lessons learnt and to address future challenges for EITI. ICMM will be a hosting a meeting of mining companies involved in EITI implementation on 22 May. This will be an opportunity for the current Board representatives to brief participants on the implications of the revised rules and for a discussion on country level experiences. On the last day of the conference, 24 May, ICMM will host a breakfast event on the topic of mining’s contribution to sustainable development. The session will feature a panel discussion, moderated by ICMM’s Aidan Davy, where speakers will provide views on the contribution of mining and metals to today’s society and how the mining and metals industry can ensure that it contributes to social and economic development. The event seeks to raise awareness of responsible and sustainable mining activities amongst the wider industry, government and civil society, as well as aiding understanding of mining’s contribution across the full mine life cycle.

Beyond transparencyICMM is participating at the 6th EITI Global Conference in Sydney, Australia.

ICMM’s Aidan Davy

Mercury milestone at Minamata UN delegates from more than 140 countries have agreed on a set of legally binding measures to curb global mercury pollution. The Minamata Convention concludes a three year process that began with all parties recognizing the global significance of the issue. ICMM has been present at all five sessions of UN negotiations, which concluded with this final meeting in Geneva, Switzerland.

The new treaty will result in regulations that are relevant for the mining and metals sector, including:• controls on the supply of and trade in mercury, notably mercury recovered as a by-product in non-ferrous metals production• the measures to be taken to reduce emissions from power plants and non-ferrous metals facilities producing copper, gold, lead and zinc• the measures to be taken to reduce emissions from artisanal and small-scale gold mining• the environmentally sound management of wastes containing mercury.

ICMM’s members are continuing to fulfil their commitments set out in the ICMM position statement on mercury. It reflects a common desire to continue working towards responsible management of mercury.