ANALYSIS: G8 makes ‘transparency revolution’ in mining a top priority

World leaders gathering in Northern Ireland for the economic summit of the Group of Eight (G8) nations this week put mining industry transparency at the top of their agenda.

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Government representatives from Canada, France, Russia, Germany, Italy, Japan, the USA and the UK have pledged to impose closer scrutiny on mining companies’ payments to governments and to help root out corrupt practices.

Hailed as a “transparency revolution”, the Lough Erne declaration agreed by G8 leaders on Tuesday June 18, outlined commitments to stamp out tax evasion, bring transparency to land transactions, ensure the legitimate sourcing of minerals, and push for disclosure of beneficial ownership.

Ahead of the talks, partnerships were announced between G8 nations and eight developing countries to help implement the Extractive Industry Transparency Initiative (EITI).

Canada, the world’s most popular listing venue for junior miners, said last week that resource companies listed in the country would be obliged to disclose all payments to governments, both foreign and domestic.

The move followed a directive voted for by European Union members in Strasbourg on June 12, ruling that all companies extracting natural resources will be forced to disclose payments higher than €100,000 ($133,700) starting in 2015.

Similar legislation was passed by the US Congress in 2010 as part of the Dodd-Frank Act.

Landmark cases
Momentum has been building for the enforcement of greater transparency in extractive industries in recent months, with two landmark cases paving the way for cross-border co-operation on mining sector issues.

UK and US regulators are probing deals made by miners including UK-listed Kazakh group Eurasian Natural Resources Corp (ENRC) and BSG Resources (BSGR), the mining arm of Israeli billionaire Beny Steinmetz’s group of companies.

BSGR employees and agents are being investigated by the USA’s Federal Bureau of Investigation and the UK’s Serious Fraud Office (SFO) in connection with the miner’s acquisition of half the Simandou project in Guinea, one of the world’s largest untapped iron ore deposits

The SFO started a formal criminal investigation into ENRC in April, focusing on allegations of fraud, bribery and corruption relating to the miner’s activities in Kazakhstan and Africa.

Analysts have highlighted the investigations as part of the crackdown on opaque business practices in the mining industry.

“The move is invariably prompted by probes into BSG Resources in the acquisition of its half of the Simandou iron ore project in Guinea, and Dan Gertler’s acquisition of copper assets formerly held by First Quantum Minerals in the DRC [Democratic Republic of Congo] which were then passed on to ENRC,” SP Angel analyst John Meyer said in a research note on June 17.

BSGR denies all wrongdoing.

ENRC has said it is “assisting and co-operating fully” with UK investigators and that it is “committed to a full and transparent investigation of its procedures and conduct”.

Laws such as the USA’s Foreign and Corrupt Practices Act and the UK’s Bribery Act have extra-jurisdictional powers, meaning that companies which are not based in the UK or the USA, but have business operations in either jurisdiction, fall under their remit.

What will greater transparency cost companies? Not a lot, according to former UN secretary general Kofi Annan’s Africa Progress Panel report, published last month.

“Most companies already have extensive internal systems for recording payments and are legally required to submit all payments for auditing and reporting to shareholders,” the panel said in its report.

“There is no credible evidence to indicate that the [USA’s] Dodd-Frank requirements will impose significant additional costs, let alone threaten the competitive position of some of the world’s largest companies,” it concluded.

Miners react
UK-listed Rio Tinto, one of the world’s largest mining companies and the holder of other half of the Simandou deposit, said it was “fully supportive” of moves to spread transparency and good practice globally.

Rio Tinto ceo Sam Walsh said ahead of the G8 summit that tax transparency was not an end in itself, however.

“Building the capability of governments to collect and spend tax revenues effectively, as well as maintaining a positive investment climate, are both critical for growth,” Walsh said.

Sierra Leone miner African Minerals, which has gone from shipping its first tonne of iron ore in November 2011 to becoming West Africa’s largest iron ore producer, said it was pleased to see transparency initiatives being put into practice.

“Sierra Leone established a National Minerals Agency in March 2012 which has responsibility to ensure miners are fulfilling their obligations, and provides greater openness and transparency,” African Minerals ceo Keith Calder told Steel First.

Resources watchdog Global Witness lauded the attempt to roll back corporate secrecy, but said it was disappointing that the majority of G8 countries had not yet matched the ambitions of the USA and the UK to create registers of who ultimately owns companies.

“For the first time, the world’s leading economies have made progress towards ending corporate ownership secrecy,” Gavin Hayman, director of campaigns at Global Witness, said on June 18.

While the G8 transparency initiatives have been well received in theory, some fear that new layers of bureaucracy could slow down progress for law-abiding miners while others continue to operate under the radar of the watchdogs.

“Like so many new rules and regulations,” Meyer said, “we suspect that any new regulations will purely serve to slow down and impede companies which adhere to the rules while the cowboys carry on regardless.”

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