Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
The industry faced another year of challenges, with miners losing millions, some daily, in disputes with local communities, governments and unions over operations and ESG shortfalls.
Newmont, the world’s largest gold producer, pegged the financial impact of the dispute at its Penasquito mine in Mexico at $3.7 million a day, China-backed miner MMG Ltd temporarily closed its vast Las Bambas copper mine in Peru due to ongoing community unrest, and Panama’s decision to close the massive Cobre Panama copper mine in the wake of countrywide protests sent shockwaves through the mining industry and helped wipe out more than half of First Quantum’s market value after it lost $8 million a day on the halt.
Timothy Foden, partner in the international arbitration group at law firm Boies Schiller Flexner, represents mining companies in disputes with sovereign nations. For 2023 he was named as a “global elite thought leader” in the Future Leaders of Arbitration. Foden joins MINING.com again for a yearly retrospective, and a look forward at future challenges facing the mining industry.
MDC: What would you consider important new years’ resolutions for miners?
Foden: Reflecting on the statements I made a year ago, it strikes me that things are worse than they were. Myself, my colleagues and competitors are busier than ever – a stark bellwether of the challenges miners face. I told some that resource nationalism was waning after hitting a high point in 2018-2019 and I was wrong. You see it spreading across east Africa – particularly with what we are calling the ‘coup belt states’ of Burkina Faso, Mali, Gabon, Niger.
These countries are looking to extract far better economic deals than before the coups took place. Wielding their sovereign resources, they upset contractual arrangements or alter their mining investment frameworks to radically disrupt them. Indeed, it is spreading well beyond Africa too – take the nationalization of lithium in Mexico or what we’re seeing in Panama.
Expropriating assets through the nullification of licenses or shifting to new mining codes, however, opens up huge liability. Mining companies have rights that they can pursue, usually under international law, but enforcing them against a sovereign is no easy feat.
The first thing I would say is don’t bring a knife to a gunfight. A lot of law firms don’t handle disputes with sovereigns. Few have experience with the technical aspects – understanding how a mine goes through an exploration process and development and into construction and production process. It’s an understanding of those processes and a valuation of a mine that are central to formulating a strong case in these sovereign disputes.
It’s crucial that lawyers are involved from the outset to protect an asset in the future. Our goal is the preservation of an asset – to stop an expropriation before it happens. Most of the time, states’ measures towards mining companies don’t just materialize overnight. They are sign-posted to a mining or exploration company well in advance. Very often, it’s something you can see coming, whether it’s a change of political fortunes or a coup – as there have been in six states across Africa.
Resolve that you can stand on your rights with sovereigns. It’s a business relationship – though of course, it’s not a normal one. You have rights and can act on them in ways that will not destroy a relationship.
If invoking your rights under a treaty or a contract as a mining company is enough to upset a sovereign so much that they’re willing to expropriate your mine – then chances are they were going to expropriate it anyway.
Sometimes mining companies think that bringing, or even suggesting, a dispute is pulling the pin out of a grenade that you can never put back in. That’s not true. The past 15 years have shown a number of companies successfully navigating claims while finding new partners and negotiating their way out of the problem.
International tribunals are being confronted with what is called the ‘social license defense.’ Take social license seriously but know that unwritten rules have their limits.
Where this defense fits in is when a company brings a claim against the government saying ‘you stopped us from pursuing our project’ and the state, in turn, defends itself by saying the community was not going to be brought on side and would have prohibited the mine anyway because of a lack of social license. In this scenario, there are no damages because it cannot be proven the government actually stopped the project from going forward, so there is no causation.
Tribunal members are now very attuned to this, and are asking ‘is social license a test of means or a test of ends?’. In other words, do you need a social license from a community that is making extortionist demands? Or is it a concerted effort to obtain a social license?
It’s one thing to be aware of social license and to read about it in accounting firms’ publications. It’s another to actually define what it is and the limits of it. Where local community groups may have their own reasons for why they don’t want a mine to go forward, this can create circumstances where self-interest goes against the best interests of the wider community or the nation as a whole.
Mining companies should resolve to factor in disputes as a possibility. Every mining company I’ve worked for views a dispute as a failure and are almost willfully blind to the possibility of disputes. But disputes – with contractors, local communities or with sovereigns – will happen, so be prepared. Have you organized your documents? Have you sent emails that you might come to regret later?
Companies in the corporate world have training for their executives about what to say on email – this can get lost on mining companies. Emails all come out during a dispute. Have email discipline [in anticipation of] a worst-case scenario.
