Sunday, November 25, 2012

Latam miners urged to 'future-proof' operations

Latin America’s ability to attract mining investment remains robust despite current global economic pressure. Even from an exploratory point of view, the region’s potential is vast and its rewards tantalising; great swathes of territory have yet to be subjected to modern exploration.
But while Latin America’s allure remains bright, companies either seeking to invest or already well-established in the region often fail to appreciate regional risk and how to mitigate it. Sadly this can ultimately lead to the loss of a project that has taken years of investment and labour to develop.

“Most of the people you talk to at an early stage of a mining project will tell you how much homework they’ve done. They’ll talk about the tax regime, how stable the country is or how great the regulations are. They might discuss 20- or 30-year scenarios. But they should be doing a lot more on the local side,” Control Risks’ VP global services South America Daniel Linsker told delegates at the Mine Latin America conference on November 7.

“Locally you can have everything from licencing trouble to community trouble,” he said. “And always bear in mind that what a national government says and promises might not necessarily translate into help at the local level.”

“Another major issue revolves around illegal or informal miners. They often let a company prospect an area to discover the high-grade ore and then oppose the operation until the company packs up and leaves, allowing them to mine the ore for themselves,” he said. “Remember too that many social movements, NGOs and unions have members who build their political careers simply by opposing mining.”

Deep-rooted problems may even develop during early-stage prior consultation. “Most counties in the region have instituted or are instituting a format for prior consultation. Unfortunately [the process] is being morphed into a sort of local referendum. This poses all sorts of challenges,” he warned. “If it becomes a local referendum you have to careful of how it is organised, what the campaigning rules are and who gets the right to vote.”

One vital solution was to empower communities by involving them directly with the project. “[Companies should] empower communities rather than simply giving money or building projects. Show them what their rights are and involve them from the onset. Enable them to enforce their own rights; this seems the most effective way,” he said.

RIGHT TO REDRESS

Arguments about operational risk in Latin America were expanded on by Norton Rose’s managing partner in Colombia, Glenn Faass and Norton Rose’s co-head for Venezuela mining practice, Rubén Eduardo Luján, in a joint interview with Mining Weekly Online. They stressed the importance of engaging in prior consultation, with Luján highlighting Peruvian legislation and how this might become a framework for Mexico.

On the issue of illegal miners and enforcing company rights both Luján and Faass argued that while the laws to protect mining companies are in place, many of the problems stemmed from ensuring their enforcement.

“The question is not the law itself in any of these jurisdictions, but the enforcement of the law,” Faass said. “For example, in Colombia you will ultimately get the right legal result if you are willing to spend time and money on it. But you then have to make sure it is applied and that can be difficult. Often the authorities that enforce legal rights tend to be part of the community in which the enforcement occurs and they may have more sympathy for the illegal miners rather than the legal miner.”

Clear and specific legislation can be key remedy for this, Luján said. “Peru offers the example of pro-active legislation. The government has stepped in providing specific legislation opposed to generic legislation that governs illegal mining. In some instances illegal mining is penalised through the criminal code.”

In discussing expropriation and nationalisation, both Faass and Luján stressed that there were well-established mechanisms for redress. Often the fact that expropriation is alleged can lead to a resolution. “The simple fact that expropriation is being alleged is a powerful public relations tool that is relevant to all of the countries in the region, because almost all are keen to attract foreign investment,” Faass said.

“The second avenue for a company is to seek arbitration if their investment was made under commercial agreements that have arbitration clauses within them. This may permit or require international or domestic arbitration, with many of the regions jurisdictions credible for dispute resolution,” he added.

“Finally, their rights could extend to international arbitration claims through an international treaty if the country in question is a signatory. When a company has such a claim, it’s often the case that a result will be achieved and for this to be respected by the national government. Sometimes this is because a national government will have assets outside a country that are liable to be seized in satisfaction of the arbitration award.”

FUTURE-PROOFING

Faass and Luján added that companies should think long and hard about future-proofing their operations against risk at local and national levels.

“Mining companies should make protection planning before they get involved in their investments. There might be jurisdictions where this might not be relevant in the immediate future, but there are some others where you might need to plan in case there are future issues with a government,” Luján said.

While Colombia has no history of expropriation or nationalisation, Norton Rose still advises those operating in or seeking to operate in the country to put precautionary measures in place, Faass said. “Remember a country that might not be an expropriating jurisdiction today could become one during a project’s 20 to 30 year timeline,” he added.

Faass and Luján also underlined the critical importance of engaging with local communities as the best means for mitigating risk and threats against a mining operation. “The important thing for companies operating in Colombia and the wider region is to develop community relations that makes them part of the community and allows people to recognise their economic contribution. Then you will generally find these things become easier,” Faass said.

Edited by: Henry Lazenby