Global and Regional Trends in Mining Investments

Presentation by Andy Whitmore

London Mining Network / PIPLinks

International People's Conference on Mining

30 July 2015

Introductory comments

Very difficult task to simply summarise the state of the global mining industry in a short time I represent different organisations, but am primarily here with London Mining Network, which supports communities badly affected by UK mining companies. Personally my work has been in support indigenous peoples – which is still a big issue in terms of proportions of mining on indigenous land (between 50-80% for some resources)

Outline of presentation

i. Current global trends in mining

l  Boom and bust – current state of commodity prices l  Who are the major companies & their relative size l  Global breakdown of the industry l  Profits and losses l  Trends in policies, mechanisms, and legislation

ii. What to watch out for in the next 5 years iii. Concluding remarks

Boom and bust

Capitalist mining moves in a boom-bust pattern

It works in cycles, where ... there is a growing demand for mined products ... so the price goes up … so the miners invest in bigger mines ... so they produce more mined products ... so the price goes down ... so they have to close mines ... so when they have closed enough mines … the price goes up (again)

Boom and bust

Mining works in long “super-cycles” of boom & bust

In last one from 2001-11 iron ore production up 180%

Boom and bust

So even as I talk of the short term, remember the long-term pattern will appear again ... the industry will come back The OECD estimates that metal demand will grow by 250% by 2030 compared to 2005 levels The IEA says demand for energy is set to grow 35% by 2035 compared with 2010

Boom and bust

In the short term the industry is in a very bad way... “Mining stocks, metal and coal prices plunge” (Business in Vancouver, 24

July 2015) “For big miners, the pain’s only likely to get worse” (Bloomberg, 12 July

2015) “Gold majors skating close to the precipice” (Mineweb, 22 July 2015) “Copper prices hit 6-year low, blame China” (Mining.com, 7 July 2015) “Prepare for sub-$40 iron ore on glut” (Bloomberg, 29 June 2015) “Gold stocks crash – Barrick plummets to 25-year low” (Mining.com, 17 July

2015)

Boom and bust

Source: Lawrence Williams, Mineweb, 24 July 2015

Commodity Price 2 Jan 2015 Price July 23 % fall

Gold 1184/oz 1097 7.3

Silver 15.71/oz 14.75 6.10

Platinum 1208/oz 975 19.20

Palladium 796/oz 616 22.60

Aluminium 0.82/lb 0.72 12.20

Copper 2.86/lb 2.39 16.40

Lead 0.84/lb 0.78 7.10

Nickel 6.75/lb 5.14 23.09

Zinc 0.97/lb 0.9 7.20

Boom and bust

Yet some companies either can't - or won't – stop increasing production ...

Boom and bust

When is the bottom of the cycle? Difficult to say, but probably not yet – much depends on Chinese economy Mick Davies (ex-CEO of Xstrata) has not invested the money he has been given in his new company, X2 After 10 years of price rises, it will probably take longer to boom again. Investec estimate that prices are unlikely to start recovering until at least 2017

Boom and bust

What will be the industry reaction? Primarily it will be:- l  Companies going out of business l  Cutting production i.e. closing mines, reducing production

or stopping development l  Consolidating in bigger, low-cost (open pit) mines l  Cutting costs at individual mines – workers losing jobs &

fears over health & safety l  Cuts in 'corporate social responsibility' & exploration l  Cuts to shareholder dividends, so people will be less

likely to invest

Who are the major companies?

Company Nationality Capital ($bn) %share in top 100 BHP Australia / UK 24.08 8.35 RTZ UK / Australia 13.62 4.73 Anglo-American UK (SA) 12.38 4.30 CVRD Brazil 9.17 3.18 Barrick Gold Canada 8.90 3.09 Alcoa US 8.28 2.87 CRA Australia 7.97 2.76 Alcan Canada 6.65 2.31 Placer Dome Canada 6.03 2.09 Western Mining Australia 5.90 2.05

Source:James Cappel Global index, 1995

Top 10 Multinational companies in 1995

Who are the major companies?

Top 10 Multinational companies in 2010

Company Nationality Capital ($bn) %share in top 100 BHP Billiton Australia/UK 209.11 10.45 Vale (CVRD) Brazil 165.70 8.28 Rio Tinto UK/Australia 135.45 6.77 Shenhua China 83.70 4.18 Anglo American UK (SA) 60.99 3.05 Suncor Canada 58.15 2.91 Xstrata UK/Switzerland 57.13 2.85 Barrick Canada 40.98 2.05 FreeportMcMoRanUSA 37.87 1.89 NMDC India 37.20 1.86

Source: Barry Sargant, Mineweb – 12 January 2011

Who are the major companies?

Top 10 Multinational companies in 2014

Company Nationality Capital ($bn) Loss from 2011 ($bn) BHP Billiton Australia/UK 122 87 Rio Tinto UK/Australia 77 58 Shenhua China 61 22 Glencore UK/Switzerland - - Vale Brazil 56 110 Coal India India - - Potash Corp Canada - - Anglo American UK (SA) 32 29 FreeportMcMoRanUSA 22 16 Grupo México Mexico - -

Source: PWC, Review of Global Trends – March 2015

Who are the major companies?

Mergers & acquisitions suffered a down-turn (including de-merger of BHP Billiton & huge losses)

Global breakdown

A summary of exploration spending by region ...

Global breakdown

Although much of the mining is in “traditional areas” (Canada, Australia, Peru), there is a development into so-called “commodity frontiers. New “emerging markets” have become increasingly prominent over the last decade, with these regions accounting for 60-80% of new reserves globally in 2013. Examples include Oyu Tolgoi in Mongolia & Tasiast in Mauritania which dominate national economies.

Global breakdown

There is a new wave of miners (e.g. in Russia, India and China) who are expanding beyond their national borders, following the example of Brazil’s Vale An example is Coal India, which reportedly had an estimated $6.7 billion to invest in coal mines over the next five years, in order to satisfy a rising demand for coal in India Finally, global warming & new technology are opening up whole new frontiers e.g. Arctic & deep sea mining

Profits and losses

Job creation was only at 197,000 in 2010 (0.5% of total) Amount of tax collection was only at 11% of theoretical maximum GDP contribution only 1% (US $1.98bn) and 4% exports (much of it exported as unprocessed ore) Agriculture GDP contribution at 16.5%, yet is often ignored in national policies

Trends in mechanisms and legislation

For producer governments the main issue is “resource nationalism” i.e. attempts to get more income. Yet countries are still not as powerful as companies (e.g. Zambia back-tracking on plans to hike royalties). Increasingly companies are taking countries to international 'arbitration' i.e. suing governments. In Western (consumer) governments there are increasing attempts to legislate over conflict minerals (& in the EU & Japan on recycling, i.e. cutting down mining).

Trends in mechanisms and legislation

In company investment, there is less 'public money' i.e. development banks as opposed to private money. Also there have been successful divestment campaigns e.g. especially over coal. There is growing social conflict around mining, and a recognition this is important – ranked 3rd or 4th most important risk in EY survey.

Trends in mechanisms and legislation

Company CSR policies are shifting – from the idea of 'charity' to human rights-based (in line with UN Guiding Principles) – including recognition of right to FPIC in company policies Companies are continually pushing the idea of 'voluntarism' i.e. voluntary guidelines to stave off regulation The industry body, the ICMM, has done a very good job of advancing myths about “sustainable mining”

The next 5 years

Take advantage of down-turn in struggles (which is easier for communities opposing projects than labour) Do your best to prolong slump, with increasing linking to put pressure on consumers of metals Anticipate what the industry will do in the slump – especially look out for cuts in health & safety Climate change campaigning will have a huge impact on investment in fossil fuels, especially coal – but divestment should include “Just Transition”

Concluding remarks

Companies are powerful, but they are vulnerable to price fluctuations and investor withdrawals, and – generally - concerned about their reputations. There is a growing grassroots resistance to mining / global networking, and it is our challenge to better coordinate our campaigning. Opportunities at the UN to push for oversight of extractive companies, including through the SDGs. Collectively strategise to counter the ICMM's myth of 'sustainable mining'.