Day 2 - Session 6: Sustainable Mining & Conflict Resources

GLOBAL MININGINVESTMENT CONFERENCE 2010

STATIONERS’ HALL CITY OF LONDON TUESDAY-WEDNESDAY, 28-29 SEP 2010www.ObjectiveCapitalConferences.com

Investment Conferences

What next for the Kimberley Process?Andy Bone – Director, World Diamond Council

Sustainable MiningAidan Davy – Senior Programme Director, ICMM

Transforming Artisanal & Small Scale Mining Andre Van Zyl – Managing Director, Oak Ridge Mining Solutions

Conflict Resources Mike Davis – Chief Campaigner, Global Witness

DAY 2 - SESSION 6: SUSTAINABLE MINING & CONFLICT RESOURCES

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GLOBAL MININGINVESTMENT CONFERENCE 2010

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GLOBAL MININGINVESTMENT CONFERENCE 2010

What next for the Kimberley Process Andy Bone – Director, World Diamond Council

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Sustainable Mining:Extracting value from ESG performance

Aidan Davy, Senior Program Director

Overview of presentation

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Growing pressure on ESG disclosures

Mining sector risks overall and ESG issues

Investor interest in ESG risks

Selected ESG risks and ICMM activities/ members performance

Conclusion

Growing pressure on ESG disclosures

www.icmm.com

Dodd-Frank Wall Street Reform and Consumer Protection Act (2010) includes provisions to:

Report payments by project and by recipient government (1504)

Provide quarterly reports on a variety of Health & Safety related matters (1504)

Due diligence measures on “conflict minerals” from the DRC (1502)

SEC issued guidance on Climate Change Disclosures (02/10):

Requires listed companies to disclose impacts of climate change

‘Physical impacts’ includes changes in water availability or quality

Investor-led calls to listing authorities and stock exchanges to require companies to consider the sustainability of their business model

Mining sector risks

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Commodity price Interest rate risks

Currency Risks Equity risks

Political instabilityWar/civil disturbanceExpropriationBreach of contract

Life cycle aspects, e.g. recyclability, disposalChemicals management/

inherent HSE risksSupply/value chainMarket access

Business interruptionH&S and ESGFailure of systemsRegulatory non-

compliance

Resource access –land, energy, waterAccess to capital &

talentClimate changeReputation

Risk convertibility in the mining sector

www.icmm.com

Commodity price Interest rate risks

Currency Risks Equity risks

Business interruption H&S and ESG Failure of systemsRegulatory non-

compliance

Life cycle aspects, e.g. recyclability, disposalChemicals management/

inherent HSE risksSupply/value chainMarket access

Political instabilityWar/civil disturbanceExpropriationBreach of contract

Resource access –land, energy, waterAccess to capital &

talentClimate changeReputation

ESG operational issues in mining

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Anti-corruption stance

Transparency

Political involvement

Ethical Business Practices

Labour relations

Diversity and equal opportunities

Occupational Health & Safety

Labour issues in supply chain

Labour & Working Conditions

Energy and Greenhouse Gases Water resources (use, pollution, management)

Biodiversity Land (use, contamination, management)

Tailings management Solid waste management

Air emissions (excluding GHG) Emergency Preparedness Closure

Artisanal and Small Scale mining Communities (impacts and social investment)

Conflict and security provision Involuntary resettlement of communities

Cultural heritage Local economic development

Environmental Responsibility

Social and economic contribution

Top 10 Global Pension Fund Markets ($20.4 trn)

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Source: UNCTAD (2010). Investment and Enterprise Responsibility Review

Scope and influence of Responsible Investment

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Source: UNCTAD (2010). Investment and Enterprise Responsibility Review

No. of Responsible Investment indicators

No. of Responsible Investment indicators

No.

of p

ensi

on fu

nds

Aver

age

AU

M p

er fu

nd (S

US

bn)

51

2227 66

73

135

UNCTAD analysis of world’s 100 largest pension funds:

As of February 2010, PRI had 700+ signatories (currently 800+) with AUM of over US$20 trn

Do sell-side analysts give a XXXX?

www.icmm.com

Investigated overall impact of CSR strategies on securities analysts recommendations (16yr horizon)

Examined perceptions of analysts on value creation (or value destruction) potential of CSR strategies

Initially, CSR strategies perceived as value-destructing. Later, CSR strengths seen as value-creating: shift from sell to buy recommendations

Higher ability analysts more likely to reward CSR strengths

ESG risks and project finance

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International Finance Corporation (IFC) has set the standards for addressing ESG risks

IFC Performance Standards embraced by EPFIs – represents over 90% of project finance deals

Mining investments of over $26 bn between 2005 and 2009

Despite a dip in 2009, likelihood is that activity will increase

IFC Performance Standards under review – bar likely to be raised

US$

bill

ions

(tot

al)

Project finance rise.... and fall

US$

bill

ions

(min

ing)

5

10

15

20

25

30

35

Source: Harvard Business Review (2010). An overview of project finance and infrastructure finance

Value of global mining sector M&A deals (US$ bn)

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(September)

Source: PwC (Sept, 2010). Mining Industry Briefing: M&A in the Global Mining Sector

Transaction service providers increasingly address ESG risks as part of M&A due diligence

Carbon Disclosure Project – Global 500 (2009)

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Note1: Materials includes: Metals & Mining (45%), Chemicals (35%) and Construction Materials, Containers & Packaging, and Paper & Forest Products (20%).

Includes mining & metals

Source: PwC (2009). On behalf of The Carbon Disclosure Project

Disclosure scores

Perf

orm

ance

sco

res

Note 2: As of September 2010, CDP initiative backed by 534 institutional investors with more than $64trn in AUM

ICMM activity on Climate Change

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Climate change is of significant interest to ICMM member companies

Mining industry estimated to contribute approx. 1.8% to global GHG emissions

Many metals produced are essential to pollution prevention ‘green technologies’

ICMM members working to establish themselves as part of the solution to the climate change challenge

Current efforts involve sharing information to improve understanding of issues and drive implementation of best practice technology

Water availability & quality

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Source: CERES (2010). Murky Waters? Corporate Reporting on Water Risks

Water disclosure scores by sector (out of 100):

Increasing importance of Indigenous Peoples

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Indigenous Peoples are increasingly important in terms of resource access

EIRIS, CAER and The Ethical Funds Company all promoting FPIC (ideally large ‘C’)

Not just NGO’s advocating: Co-Operative Bank’s support for Beaver Lake Cree Nations vs. Tar Sands in Alberta

EIRIS analysed 250 companies from FTSE All World Developed Index: Oil & Gas (47%), Mining (36%); Forestry (10%) and Agribusiness (7%)

Indigenous Peoples – selected indicators

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% %

% %

Agribusiness

Forestry & Paper

Oil & Gas

Mining

Indigenous Policy FPIC (consent/consultation)

ResettlementIndigenous employment

Source: EIRIS (2009). Indigenous rights: risks and opportunities for investors

ICMM member ‘policy’ commitments

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1. Implement ethical business practices and apply good corporate governance

2. Integrate SD in corporate decision-making 3. Uphold fundamental human rights

4. Manage risks based on sound science 5/6. Improve EHS performance

7. Conserve biodiversity & participate in integrated land use planning

8. Encourage life cycle approach to materials management

9. Contribute to community development

10. Publicly report, independently assure and engage openly and transparently

Mining and Protected Areas Mining: Partnerships for Development

Climate Change Mining and Indigenous Peoples

Mercury Risk Management Transparency of Mineral Revenues

10 Principles for Sustainable Development

6 Position Statements

Reporting & Assurance by ICMM members

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Adopting systematic approaches to reporting material risks, which reflects enhanced ESG performance

Undertaking robust assurance of sustainability reports to enhance credibility and trust

Understanding how/which ESG efforts contribute to value creation/protection

Enabling investors & analysts to better differentiate between companies

Do mining investors respond to ESG factors?

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Vedanta resources share price (2010)

Concluding remarks

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“ESG analysis will benefit from improved reporting and corporate governance structures. But attention should also be paid to the need for improvements in the coherence and consistency of ESG analysis itself.”

ESG factors are increasingly a mainstream concern for investors

Not just buy-side analysts, but increasingly sell-side analysts who have an interest and influence

ESG factors will continue to grow in importance in terms of project finance and M&A activity

ICMM members demonstrate leadership in terms of ESG commitments and performance

UNCTAD (2010). Investment and Enterprise Responsibility Review

For further information please contact:

Aidan Davy, Senior Program Director

[email protected]

www.icmm.com

Other sponsors & participating organisations:

GLOBAL MININGINVESTMENT CONFERENCE 2010

Lead sponsors:

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Transforming artisanal and small scale mining

Intro video

Background to Oakridge involvement

Overview of conflict situation in East Congo

Current situation

The fairmining solution

Project Kivu – first fairmining implementation

The future of fair mining

By invitation - we got involved based on request from local stakeholders groups

Background in corporate business transformation, troubleshooting and root cause analysis

Our approach was region development focused, not mining specific

We spend 12 months detailed on the ground analysis and investigation before putting a proposal together.

We are developing the solution in conjunction with all local stakeholders

We are developing solutions with repeatability in mind

It is not as complex as it seems

It is there by design

Blood minerals – not all minerals are fueling war (Blood Gold)

Resolving the conflict situation will result in many people losing a lot of money

Our initial root cause analysis showed many anomalies when compared with what gets reported in main stream media

Aid is a big cause of corruption

NGO’s creating a false economy

Economic development and job creation is the only solution

Strong and cohesive voice for artisanal mining starting to emerging out of North Kivu Joint meetings between Local Communities, SAEESCAM,

COMIMPA, ANR, Comptoirs, Mining Police, Government and UN Expert Group

This voice does not effectively reach international advocacy and media. We are launching platforms to address this

www.walikali.com and www.habarizakweto.net

Mineral ban in North Kivu, South Kivu and Maniema (Coltan, Wolframite and Cassiterite)

Developing the artisanal mining sector in these regions now high on DRC government agenda.

It is a holistic, generic, business approach to community based mining that is contextual in it’s implementation

Product Scope – All metals and minerals

Key elements Social and economical development

Environmental development

Transparent and traceable (compliance)

Ethical trading

Proprietary communication platform www.fairmining.com

Best in class information and process management systems and infrastructure Fully integrated management information systems Real time KPI monitoring and management facilities Balanced scorecard methodology implemented HF Radio based email facilities in rural areas RFID tracking

Detailed financial and revenue distribution model

Secure chain of custody module (mining certificates of origin)

Trading platform Ethical metals and stones trading platform Baseline traceable and transparent

Level 1 – fully independent certified FT/FM products Gold and associated metals South America – premium 10-15%

Level 2 – internally verified sourced minerals from fairminingpartners/products No premium All metals Incl 2nd party ethical products

Level 3 – recycled metals

Communities and projects (social networking)

Kalminco, the first majority locally owned Congo minerals company in North Kivu

80% of profits stays in the Congo

Very attractive ROI to investors (eg. Phase 2 gives 100% ROI in 12 months)

Will become operational as part of the DRC government’s initiatives to clean up the mineral trade in North Kivu

Project Kivu

Three more Fairmining implementations are under negotiation and will become available soon 600 km2 concessions to be developed in DRC –

business plan available in November 2010 Ghana – early 2011 Sierra Leone – early 2011

Investors that are seriously looking for both high social and financial dividends are welcome to talk to us

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29 September

Global Mining Investment Conference

Mike DavisTeam Leader, Conflict ResourcesGlobal [email protected]

What’s being done to tackle the trade in conflict minerals?

• US legislation – provisions on conflict minerals in financial reform act

• UN Security Council due diligence guidelines for companies sourcing from Eastern DRC

• OECD standards on due diligence for companies sourcing minerals from conflict-affected areas

• Certification schemes: German government and ICGLR• Industry initiatives• UN Sanctions

Key elements of supply chain due diligence1. Conflict minerals policy2. Supply chain risk assessments3. Remedial action4. Audit5. Public reporting

Companies involved in / investing in the minerals sector should:

• Ensure due diligence on supply chains• Back legislation on conflict minerals in Europe to

match what’s just been introduced in US

Companies involved in / investing in the diamonds sector should:

• Ensure due diligence on supply chains• Ensure a stronger commitment to human rights by

the Kimberley Process

29 September

Global Mining Investment Conference

Mike DavisTeam Leader, Conflict ResourcesGlobal [email protected]

Other sponsors & participating organisations:

GLOBAL MININGINVESTMENT CONFERENCE 2010

Lead sponsors:

Media partners: