World Bank irons out local wrinkles

Mining is an intrinsically dirty business. Miners are killed by the score, and have been, world over probably since the iron age began. Mines dig up hillsides, forests, habitats, sacred places and homes. The effluvia from mines can be fatal to flora, fauna and humans. But without the ore that we get from the mines we'd still be in the stone age.

So it is that mining companies have got their hands full when it comes to doing what it is that they do, mainly digging up ore for the profit of their investors. If they had to internalise all the costs associated with their footprint on the environment, we could never afford the luxurious standards of living we enjoy. And that would have a flow on effect to many other companies that depend on our consumption based economy.

So it is that those other companies arrange to spread around some of the costs of keeping those mines flowing, and lubricating the government wheels that allow it to exist. Amongst the many players in this game is the World Bank. It has a subsidiary called the International Finance Corporation, which heralds itself as "Reducing poverty, Improving lives".

According to a recent IFC press release,

The mission of IFC is to promote sustainable private sector investment in developing and transition countries, [thereby, it is hoped or at least posited] helping to reduce poverty and improve people’s lives. IFC finances private sector investments in the developing world, mobilizes capital in the international financial markets, helps clients improve social and environmental sustainability, and provides technical assistance and advice to governments and businesses.

Equatorial Guinea is a poor African country. The CIA Factbook describes the country in these terms:

Equatorial Guinea gained independence in 1968 after 190 years of Spanish rule. This tiny country, composed of a mainland portion plus five inhabited islands, is one of the smallest on the African continent. President Teodoro OBIANG NGUEMA MBASOGO has ruled the country for over two decades since seizing power from his uncle, then President Francisco MACIAS, in a 1979 coup. Although nominally a constitutional democracy since 1991, the 1996 and 2002 presidential elections - as well as the 1999 and 2004 legislative elections - were widely seen as flawed. The president exerts almost total control over the political system and has discouraged political opposition. Equatorial Guinea also has experienced rapid economic growth due to the discovery of large offshore oil reserves, and in the last decade has become Sub-Saharan Africa's third largest oil exporter. Despite the country's economic windfall from oil production resulting in a massive increase in government revenue in recent years, there have been few improvements in the population's living standards.

Being a poor African developing country with exploitable resources makes Guinea an ideal candidate for World Bank assistance. Guambat recently had a post about a guy who claims he worked alongside the World Bank in this sort of development project. His claims appear to be entirely outrageous, but you have to wonder if there is any fire behind his smoke. As noted in that post, he said,

We are an elite group of men and women who utilize international financial organizations to foment conditions that make other nations subservient to the corporatocracy running our biggest corporations, our government and our banks. Like our counterparts in the Mafia, EHMs provide favors. These take the form of loans to develop infrastructure, electric generating plants, highways, ports, airports, or industrial parks. A condition of such loans is that engineering and construction companies from our own country must build all these projects. In essence, most of the money never leaves the United States; it is simply transferred from banking offices in Washington to engineering offices in New York, Houston or San Francisco.

Even though he worked for a private corporation, he was sent abroad under government contracts to convince leaders of developing countries, places of strategic importance to the US, such as Indonesia, Iran, Saudi Arabia, Panama, Ecuador, etc., to accept enormous "loans" from the United States. The money would then be used to pay American companies to build local infrastructure and other projects. So while American corporations were profiting from these "loans," the countries were sinking into overwhelming debt.

Rio Tinto has found iron ore in Guinea. Evidently very good ore. And iron ore is paying very well on world markets at the moment, thank you very much, making Rio Tinto one of the pin-up girls for the dot.commodity boom we are in the midst of.
The Daily Telegraph reported,

April 11, 2006

RIO Tinto, the world's No.2 iron ore miner, said today it had been granted a concession by the government of Guinea to develop a new mine.

The dual listed Australian-Anglo mining group, which mines iron ore in Australia and Canada, had been exploring for new deposits in the Simandou region of the West African country under licences granted in 1997, spending more than $US30 million ($41.4 million) so far, the company said.

It is now working on a preliminary economic study for the Pic de Fon deposit within the Simandou concession, Rio said, with an investment decision expected by mid-2008.

Guinea's mines ministry said the concession contained high-quality ore, judging by preliminary tests on a small part of the concession.

"Rio Tinto's initial estimates ... revealed reserves of more than 1.2 billion tonnes," Cece Noramou, inspector-general of the mines ministry, said in Guinea's capital, Conakry.

"The iron content is 62 per cent, which is exceptional."

Back at the World Bank's IFC, they announced they were underwriting the project, taking a 5% stake:

Washington, April 12, 2006 — The board of directors of the International Finance Corporation, the private sector arm of the World Bank Group, has approved the acquisition of a 5 percent stake in Simfer S.A., a locally incorporated subsidiary for Rio Tinto’s Simandou iron ore project in Guinea.

Simfer is currently working on a pre-feasibility study for the Pic de Fon deposit within the concession area.

IFC’s involvement in the project will support Rio Tinto and the Guinean government in conducting the feasibility studies, environmental and social studies, and ore transportation studies for the development of the project. IFC is assisting Rio Tinto on issues relating to biodiversity, conservation and community development. IFC and Rio Tinto are also preparing a study of eastern Guinea’s economic potential and how to involve local small and medium size companies in the project’s supply chain.

“Rio Tinto’s Guinean iron ore project has the potential to contribute significantly to the country's economic development by creating jobs, improving infrastructure, increasing foreign exchange earnings and diversifying the mining sector,” said Rashad Kaldany, director of IFC’s Oil, Gas, Mining and Chemicals department. “We are partnering with Rio Tinto, an industry leader in environmental and social sustainable mining development, to enhance environmental conservation and social development in the project area.”

Mike Harris, managing director of Rio Tinto Iron Ore Atlantic, said IFC participation in the project would bring significant value. "The IFC has considerable expertise and experience in projects such as Simandou, particularly with regard to maximizing the development benefit to both the state and local communities. The contribution of expertise to the project would be an important element of IFC’s investment, and its involvement would be held in high regard by the Guinean government and other stakeholders inside and outside of Guinea."

Meanwhile, there is another Rio Tinto/"Guinea"/World Bank sort of connection on the other side of the world in Papua "New Guinea". Papua New Guinea is a desparately poor Pacific Island country. Guambat has also posted a bit about the relationship that the Papuans (both east and west) has had with miners, logging interests and others wanting a piece of the resource rich, people poor region. (See generally, this index of material, but more particularly this post on Freeport McMoran for a bit of the flavour.)

Rio Tinto's biggest Papua New Guinea interest is on an island of PNG called Bougainville where it has an interest in the Panguna mine, which Rio Tinto operates via its subsidiary Bougainville Copper Ltd. The Bougainville events illustrate why Freeport and the Indonesian government are so keen to keep things locked down in West Papua. Dow Jones Newswires had this report a couple of weeks ago:

MELBOURNE (MarketWatch) -- Papua New Guinea's independent reviewer of mining and exploration on the war-scarred Bougainville Island said Wednesday he will begin a study into the mining industry in April.

Papua New Guinea's National Executive Council has appointed Graeme Hancock, whose contract as World Bank Papua New Guinea mining sector project director is about to expire, to talk with interested parties.

"The dynamics of the politics on island are changing and that gives some hope that at some time in the future the people of Bougainville will once again welcome exploration and development," Hancock told Dow Jones Newswires in an interview, adding it won't happen quickly.

The parties involved will be the autonomous Bougainville government, landowners, the national government and Bougainville Copper Ltd. (BOC.AU), which owns the closed Panguna gold and copper mine.

Hancock wouldn't give a timeframe for the review, saying there are many outstanding issues, including Bougainville's desire for compensation for environmental damage by the Panguna mine a decade-long civil war, which erupted after the mine closed in 1989.

Panguna, once the world's third-largest copper mine, was shut down by Rio Tinto PLC (RTP) subsidiary Bougainville Copper after attacks by locals that developed into a fight for independence.

The mine remains closed despite a cease-fire in 1998 and the formation of the autonomous island government.

Bougainville Copper has kept ownership of the mine and is the only company with exploration permits on the island.

The review, which has been supported by both the Papua New Guinea and Bougainville governments, will look at the Bougainville Copper agreement, which covers mining and exploration on the island and hasn't been changed since mining stopped.

The Bougainville government said Wednesday that while it needs a solid economic base and welcomes the review, mining remains a sensitive issue on the island and will only go ahead after a referendum.

"The perception of many Bougainvilleans, who are not landowners, is that Rio Tinto and indeed the Panguna landowners themselves have a debt of restitution to all other Bougainvilleans for the 20,000 lives lost during the crisis and destruction of properties," Mike Forster, a member of the autonomous government's mining policy drafting unit.

"Until the autonomous Bougainville government has adopted an appropriate minerals policy that protects our rights and ensures equitable distribution, it is unlikely that any result from discussions with Bougainville Copper can be reached," said Forster, who is also an attache for Bougainville President Joseph Kabui.

SEE Update to "World bank irons out local wrinkles"

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