political risk and the mining sector establishing best practice in the new risk landscape tanya...
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Political risk and the mining sector
Establishing best practice in the new risk landscape
Tanya CostelloAssociate Director, Control Risks
Finex 201028 October 2010
About Control Risks
Johannesburg
Nairobi
•Control Risks is the leading international business risk consultancy.
•Through our international network we enable our clients to succeed in complex and hostile environments around the world.
Control Risks and the mining industry
• Control Risks has advised clients in mining, minerals and assorted services sectors for more than 30 years.
• More than 500 consulting engagements for industry clients in the last five years.
• Recent projects in Peru, Venezuela, Congo (DRC), Liberia, Tanzania, and Mongolia.
• Clients include the majority of the largest mining companies by market capitalisation, including from North America, Europe, Africa, Asia and Australasia.
• Engagements across metallurgical groups: gold, silver, diamonds and gemstones, copper and cobalt, uranium, iron ore, PGM, potash, phosphate, tantalum, coal…
“Drug gangs threaten Mexican mining industry” October 2010
What’s new?
“Beware the brown envelope as UK's Bribery Act looms” October 2010
“Mining stocks wobble on uncertainty over minerals tax” September 2010
“Little known to the West, superpowers are investing in Central Asia as they rush for raw materials” September 2010
“Record [share price] Fall as Criminal Gangs Hit Mine in Tanzania” October 2010
“Mining ops still suspended at gold mine on strike” October 2010
“Taxes take a toll on global mining companies” October 2010
CANADA MUST GUARANTEE ETHICAL MINING PRACTICES WITH BILL C-300, SAYS PANEL OF EXPERTS October 2010
Emerging and continuous trends
• Uncertainty around tax and contract sanctity will remain – A mixed picture across the globe, but political debates around terms for extractive
companies continue.
• Companies are moving further afield, raising risk profiles– More hostile and remote environments often present more challenging political, security
and social risks.
• Security risks are gaining complexity– Risks linked to HIV infection, population movements and resource scarcity require
sophisticated risk mitigation.
• Corruption is moving up home country government agendas– New home country legislation and political will to enforce
The new risk landscape: pressure from two sides
Host country risks
Political uncertainty
Red tape and regulation
Corruption and fraud
Infrastructure deficiencies
Physical security risks
Home country regulation and political will to enforce
UK Bribery Act
FCPA
Canadian ethical investment law
Host country risks
n Kyrgyzstan: Mining investors face political volatility, social unrest and repeat, targeted strike action.
Chile: Ongoing tension over plans to increase mining tax
Venezuela: Chavez seeks greater control
over the mining sector
Peru: Opposition expected to challenge
government’s pro-investment stance
Brazil: New government may seek changes to
tax regime
Mauritania: Persistent political instability undermines pro-
investment stance
South Africa: Electricity, looming water shortages to present operational,
security risks
Zimbabwe: Ongoing political and military
interference
Mongolia: Lack of clarity over mining legislation
longer term
Philippines: mining laws applied unevenly at
national and local levels
Australia: Resource super profits tax
prompts confrontation between government
and companies
Home country regulation: the UK Bribery Act
UK Anti-Bribery Act:
• The most stringent anti-corruption legislation in the world
• Vast reach, encompassing any company with part of its activities in the UK
• Prosecution for failure to prevent
• Facilitation payments no longer acceptable
• Risk of third party contractorsAdequate Procedures
The Bribery Act: Strategic opportunity or compliance burden?
• New regulation promotes a holistic view of risk
• A chance to establish best practice in the industry, rather than a compliance burden.
• Bribery Act can provide a framework for operations in high risk jurisdictions
What are ‘adequate procedures’?
• Understand and communicate the risk
• Understand your partners
• Whistle blowing
• Train your people. Establish an anti-corruption, pro-transparency culture.
A holistic approach to risk management
Step 1
Do your homework
Step 2
Plan, prepare, practice
Step 3
Engagement
Step 4
Monitor and adapt
• Anticipate problems
• Threat assessment
• Vulnerability study
• Due diligence into counter-parties
• Map stakeholders
• Research legal and bureaucratic framework
• Anticipate problems
• Threat assessment
• Vulnerability study
• Due diligence into counter-parties
• Map stakeholders
• Research legal and bureaucratic framework
• Political scenarios
• Community strategy
• Factor possible delays into project timeline assumptions
• Security risk management strategy / policies
• Integrity programme
• Training and awareness
• Contingency planning (crisis management)
• Political scenarios
• Community strategy
• Factor possible delays into project timeline assumptions
• Security risk management strategy / policies
• Integrity programme
• Training and awareness
• Contingency planning (crisis management)
• Zero tolerance on corruption
• Community development
• ‘Soft security’
• Focused infrastructure development
• Whistle-blowing
• Building relationships, not fences and walls
• ‘Long-term view’
• Zero tolerance on corruption
• Community development
• ‘Soft security’
• Focused infrastructure development
• Whistle-blowing
• Building relationships, not fences and walls
• ‘Long-term view’