Following The Money - How Our Pounds Support The Mining Industry

Following the Money - How Our Pounds Support the Mining Industry

by Andy Whitmore

[Andy Whitmore is the research and communications worker at Indigenous People Links, and is on the editorial board for the Mines and Communities website.]

Mining is an expensive business in terms of hard cash, as well as in the social and environmental costs. Financial support for the mining industry comes from both public and private sources. The public sources use taxpayers’ money, while the banks use money directly invested or recycled, via trust funds or pensions. Either source should give ordinary people a chance to complain about how their money may, often unknowingly, be used.

The biggest mining supporter, if not necessarily in purely financial terms, is the publicly-funded World Bank, particularly via its private lending arm, the International Finance Corporation (IFC), which buys stakes in projects. In 2004 the IFC revealed that its most profitable investments were in extractive industries. However, more important than the direct support for mining projects is the political clout that the Bank can exert through encouraging others to support a project - for example by providing political risk insurance to companies through its Multilateral Investment Guarantee Agency (MIGA). The vast and much criticised Freeport-McMoRan in Papua New Guinea - whose partner is the UK-based Rio Tinto - never would have got off the ground if MIGA hadn’t provided such insurance. When the Bank was finally about to send a team to examine its environmental practices, Freeport cancelled its insurance with MIGA.

There has long been controversy over the World Bank’s involvement in extractive industries (oil, gas and mining), and, as a result, in 2001 the Bank commissioned a supposedly independent report called the Extractive Industries Review, overseen by an 'eminent person' chosen by the Bank - Emil Salim, a former environment minister of Indonesia. The EIR’s final report was published in December 2003, and in spite of its procedural shortcomings, was highly critical of the World Bank. The report concluded that the Bank should only invest its limited funds where such investment will clearly contribute to poverty reduction and sustainable development. It asserted that indigenous people and other affected parties must have the right to participate in decisions affecting them and to give their consent at each phase of a project cycle.

However, having commissioned the report, the Bank rejected, or at best diluted, the demands it made. In fact, the IFC not only pledged to continue financing extractive industries, but to increase their funding by 50 per cent! Yet, the EIR still stands as a damning indictment of the financing of the extractive industries.

Other multilateral banks invest in mining, including the Asian Development Bank and the European Bank for Reconstruction and Development. However, one of the key public methods of ‘insuring’ larger projects is through state issued export credit guarantees. In the UK this is done via the Export Credit Guarantees Department (ECGD), which doles out credit or political risk insurance on behalf of UK companies. Aside from its well publicised support for arms trading, the ECGD has come under huge criticism for supporting the environmental and human rights abuses perpetrated by the Baku-Tbilisi-Ceyhan pipeline consortium, which came into operation last year.

Profits from rising metal prices enable companies to fund future mines. However the vast amount of new money for mining comes from private investment banks and hedge funds, although exact figures are difficult to come by. An HSBC employee recently confirmed such lack of transparency when he noted that, “we can neither confirm nor deny our involvement [in mining projects] even if our name is in the public domain”! The following five banks feature among the top private mining investors: Merrill Lynch, (in 2003 its London-based World Mining Trust PLC invested over £425 million in mining companies across the world), followed by the afore-mentioned bastions of openness, HSBC, Barclays Bank - primarily through Barclays Capital - JP Morgan and Citibank, the world’s biggest financier.

Interestingly, an increasing number of banks have signed up to a set of principles called the Equator Principles, a set of guidelines for managing social and environmental issues related to the financing of development projects. Although the guidelines are themselves fairly weak - they follow the IFC’s safeguards - and they lack a complaints mechanism, it is the first time that the banks have come together to assert a set of joint-principles, to which investors should be able to hold them to task.

However, the biggest single source for new investments is undoubtedly workers' pension funds. Here, big pressure can be applied, especially through the larger institutional investors.

London is the global centre for selling share capital (equity) in big mining companies. The Toronto Stock Exchange is the world leader in raising funds for junior companies and debt financing for mining projects. It is no coincidence that the three largest mining companies in the world - BHPBilliton, Rio Tinto, and Anglo American have headquarters in London. Xstrata is well on its way to becoming the world's fourth largest privately owned mining outfit. London also hosts the Alternative Investment Market (AIM), which is rapidly getting a reputation as a launching pad for new juniors (in 2004, cash invested in mining stocks rose to $799 million, up from $296 million in 2003).

Asserting the primacy of London in mining investment should surely prompt those in UK seriously concerned about negative impacts to follow the money trail, and voice their concerns at every stage of financing - starting by finding out where their own hard-won investments are likely to end up.