London Calling! June 4 2003Published by MAC on 2003-06-04
Source: Nostromo Research
London Calling! June 4 2003
Sitting at tables without comfortable chairs
Over the years, mining-watchers have compiled various lists of the industrys worst players. These are of limited value, but no more than criteria adopted by ethical consultants and increasingly used by their investment clients. A big problem with such exercises is that corporations left off a black list may, by default, become recommended buys. In the mid-eighties, the leftwing Greater London Council (GLC) was determined to divest from Rio Tinto after being confronted with overwhelming evidence of its collusion in apartheid. A GLC financial advisor recommended switching to Newmont, seemingly oblivious to its flagrant trespasses on Native American treaty land. Or that the US company was then Rio Tintos partner in Palabora, the biggest copper producer for the racist South African state.
The Fagan twist
Now Ed Fagan, the lawyer who squeezed well over a billion dollars compensation out of Swiss Banks profiteering from Jewish gold deposited by Nazi plunderers and murderers, is on the warpath again with another rollcall of offenders under his arm. Hes announced a bumper US Alien Tort claim against companies allegedly exploited black citizens under South African white rule. The move hasnt found favour with President Thabo Mbeki who says its completely unacceptable that matters that are central to the future of our country should be [judged] in foreign courts A bit of a thin argument, you might think, considering that an ancillary suit to Fagans is being brought by the apartheid victims group, Khulumani, while Bishop Desmond Tutu has also raised his sjambok in Fagans favour.
Still, if youre going down the foreign litigation route, you ought to be inclusive or else risk accusations of partiality. Thirty four companies are under threat, including Barclays and Deutsche Banks, the Ford motor company, Nestle the baby-milker and Holcim the cementer. But theres only one miner, Anglo American (AAC): no surprise there. But why not Rio Tinto (if not Newmont) as well? The British company came second only to AAC in the extent of its mineral exploitation during those oppressive years, and the two collaborated closely, not least in transfer pricing. Rio Tinto was also actually tardier than AAC in acknowledging the legitimacy of the black-led National Union of Mineworkers (NUM).
Furthermore, the gents from St James operated Namibias most significant mining enterprise, Rossing Uranium, for a decade and a half while the territory suffered under the Afrikaner yoke. There may be no evidence that the mine supplied uranium directly to the regimes nuclear programme (aka: weapons of mass destruction). However Rio Tinto, backed to the hilt by the British government (and it was a Labour one), grossly violated UN Decree Number 1 on Namibias natural resources for over a decade. Its an act of thieving treachery for which neither party has been brought to account.
Cheese-eater trounces burger bruncher
Thirty four also happens to be the number of British companies in this years FT Global 500 corporates, as judged by their market capitalisation. Not surprisingly the US strides ahead of the rest of the world, with Britain coming a poor second. Among the miners, BHP Billiton bats at number 88 (up from 112th last year), with Rio Tinto at 124. Anglo American lags behind at 153rd (though, if its expected merger with Ashanti comes off next year it may nudge closer to its traditional rival). CVRD of Brazil comes 334th (it was 446th last year) followed by Alcan, Newmont (entering for the first time) and Barrick trailing at number 441.
The big surprise is Lafarge, the only cement producer on the list of privilege, which, though 394th in 2002, has shot spectacularly ahead to 173rd, outstripping US alumininium giant, Alcoa (196).(Thatll learn the yanks to continue misspelling the worlds most ubiquitous metal.)
Give or take a few billion, the worlds five hundred most powerful multinationals are collectively worth more than 12,500 billion dollars, of which well over half (US$7,445 billion) is held by US companies. The nine mineral producers just mentioned (if we include Lafarge) can lay their hands on just over a hundred billion dollars between them.
The top three (BHP Billiton, Rio Tinto and Anglo American) are not only predominantly London-based, but valued at more than the other six put together (around US$80 billion against just over US$74 billion).
Publish what you pay - but what if its dirty money?
A much more impressive congregation consists of a hundred or so NGOs, brought together on a single issue, despite their disparate agendas. The Publish What You Pay (PWYP) initiative, launched in June 2002, is the brainchild of Londons Global Witness, the remarkable progenitor of the international, UN-sponsored, boycott of conflict diamonds.
Churlish it might seem to challenge the groups new gambit for transparency, with its much broader scope of exposing what resource extraction companies cough up by way of royalties, other taxes and facilitation fees, to host governments. Wherever these pay-offs go unaccounted for, poorer communities are bound to suffer. In this respect, the PWYP mandate is a welcome addition to (and enhancement of) long standing battles against the iniquities of transfer pricing. If seven major investment institutions, with their pockets deep in oil, gas mining and managing some £466 billion pounds of funds, are prepared to sign up to the new campaign, then we can only approve.
Yet, once again (as when Anglo De Beers was recruited to halt the trade in blood diamonds), foxes are apparently being invited into the farmyard to help care for the chickens. Barely indistinguishable from PWYPs campaign - except by its voluntarism - is the Blair administrations own Extractive Industries Transparency Initiative (EITI), cobbled together for the Johannesburg summit last year and backed by Rio Tinto and Anglo American. This should prompt immediate suspicion.
For isnt this the government which has refused to reveal purported evidence on which it dragooned Britain into a murderous, arguably illegal, war? Doesnt the draft of a new parliamentary anti-corruption bill specifically allow the intelligence services to bribe informants? (Thats what the Guardian told us this week). And, at the very time it was lending support to the EITI, wasnt Rio Tinto colluding with senior partner, Freeport, to grease the bloodied hands of the Indonesian military? More than five million dollars profit from their combined gold and copper operations in West Papua ended up army coffers last year. (Click here to get the detail).
Its early days yet, and some of the anomalies can still be sorted. Nonetheless we must ask why George Soros (part of whose empire was built on ruthless speculation in gold and who, only last month, advised further buying of gilded stocks), along with NGOS like CARE International UK, the Prince of Wales Industrial Business Leaders Forum, or Save the Children - all three having tied dubious knots with extractive companies - are now being held up as exemplars of accountability.
Once again, a British NGO (its sincerity beyond reproach) seems to be leading demands for legislative change without involving those most profoundly affected by the root malaise. Scores of land-dependent communities around the world care far more about halting extractive projects than squeezing some extra dollars from their governments for developments they dont want. PWYP is making questionable bedfellows, ignoring some obvious history (for instance, that the World Bank/IMFs standards of disclosure, which it lauds, are weak and often ignored by the Bank itself) and giving poor models for good practice (The Botswana governments policy on gaining income from diamonds may be the best in Africa but it evinces a shameful disregard for the rights of its San and Gwi indigenous communities whose territory is now the target of De Beers and BHP Billiton).
Publish what you pay, by all means. But also recognise that many companies shouldnt be making profits in the first place: much of their business is, quite bluntl, illegitimate.
A worst case?
One company which merits inclusion on even the most moderate of bad actor lists is Sterlite. Where others fear to tread, this Indian outfit - whose senior management resides in London - bludgeons its way in. Its record of dishonour includes: operating a highly pollutive smelter in Tamil Nadu (which the state government found unacceptable and closed down for a period in the nineties); appropriating the state aluminium company BALCO in the teeth of vociferous opposition from Indian trade unions and social activists; supping with the renegade Robert Friedland (birds of a feather?); and last month, invading the Gandhamardan bauxite hills in Orissa, from which another company was expelled by massive local direct action some years ago..
Now the Zambian government is about to offer Sterlite occupancy and control of Konkola, the copper enterprise which was supposed to be a flagship of World Bank privatisation in the country but fell flat on its face when Anglo American dropped the venture last year. Thanks to research by Oxfam and FOE-US we know something of the enormous health and environmental despoliation caused by this operation and that a secret deal was done between Anglo and the Zambian government, enabling the South African company to ignore any compensation claims by affected workers or community members. We doubt that Sterlite cares a whit about these obligations and suspect it will continue exploiting the ailing mine until its assets have been finally stripped..
Of course wed like to be proved wrong: Sterlite, the Zambian government, the World Bank and Britains CDC, Standard Chartered Bank (another of Ed Fagans apartheid targets) are all welcome to defend the impending takeover in these columns.
Meanwhile the London Stock Exchange (LSE), on which Sterlite is eager to list, might like to acquaint itself with the outfits awful history. But we doubt its at all interested.
Trust Us! (Were word smiths)
Finally, one list you might have missed: a survey by the British group, Sustainability called Trust US (a hint of irony there?), which has judged sustainability indicators for a hundred British corporates. Rio Tinto emerged as the only mining company among the top seven best. The judgements are based, not on independent assessments, but the companies own reportage.
One wonders if the well-heeled consultants who draw up such assessments ever converse with those who, increasingly, turn up at annual general meetings to dispute directors claims (not to mention their obscene fees). Or indeed the very rationales on which corporate reporting is based. Take a few leafs out of Rio Tintos latest Annual Review. On page three we're informed that the companys safety record continues to improve towards our goal of zero injuries. Three slender pages later, however, CEO Leigh Clifford regretfully notes the deaths of six employees during 2002 - the same toll as in 2001. What's more, on page 22, the company records 120 new (sic) cases of occupational health conditions (sic) per 10,000 employees, as against 106 the previous year.
It was surely reasonable to suggest, as one shareholder did, that fatalities and occupational diseases - which undoubtedly contribute to early demises for hundreds of employees - are the most critical indicators of working conditions. How, asked our shareholder, could Rio Tinto claim an improvement, when the evidence showed the contrary? Indeed, since the companys total work force decreased over the previous year, the attrition rate is even worse than the figures suggest.
But Rio Tinto will have none of it: significant improvements means reductions in injury rates; neither the failure to limit fatalities (which the company found merely disappointing), nor an alarming increase in contracted diseases, mattered as much.
After Alice stepped through the famous Looking Glass, it was the Red Queen who snorted that a word means exactly what I want it to mean. Lewis Carrolls protégé was suitably appalled.
At least Alice learned, at a brave young age, what the philosopher-linguist Paulo Freire was to discover a century later among Peruvian campesinos. Oligarchs maintain their power not just by physical or economic force, but through the calculated distortion of a supposedly shared language, whether it be transparency, sustainability, accountability - or simply trust.
[Sources: FT Global 500, Financial Times, May 28 2003; FT, 3-4/8/02, FT 18/5/03 23/5/03 [apartheid litigation]; FT 14/2/03, FT 23/5/03 [Ashanti merger]; Guardian 2/6/03 [draft British anti corruption bill]; Miningweb 21/5/03 [George Soros], Plunder!, Partizans and Cafca, 1991 [Rio Tinto and apartheid];
www.publishwhatyoupay.org [PWYP]; www.survival-international.org [Botswana];
Mining Journal, London 23/5/2003, personal communications to Nostromo Research, 2000-2003, from Indian NGOs [Sterlite];
www.sustainability.com/publication/engaging/trust-us.asp [Trust Us]; Rio Tinto Annual Review 2002, London 2003 [safety record]; Weed, Letter to Robert Wilson (chair, Rio Tinto), April 25 2003; Peter Cunningham, Head of Investor relations, Rio Tinto, to Weed, May 14 2003]