International Developments and Trends in the Mining Industry
minesandcommunities.org
Introduction
The mining industry has been in the doldrums since the start of the 1980s. The worldwide price of base metals and gold went down, which substantially reduced the profit margin of mining multinational corporations (MNCs). The mining industry was unable to adjust to the global economic crisis that slowed down economic growth worldwide.
There are many factors that lessened the demand for metals. Manufacturing companies resorted to substitution and recycling in order to cope with escalating high prices of industrial metals. There was relative "peace" when Eastern Europe collapsed and China opened up to the west, easing somewhat the arms race that characterized the tension among the superpowers. It was also a period when more focus was given to the development of the electronics and service sector industries -- industries that do not consume too much metal.
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The new initiative by industrialized countries to bail themselves out from the economic crisis would intensify the exploitation of developing countries under the concept of the "borderless" economy. The mining industry was in the stage of restructuring itself in preparation for the anticipated increase in demand in metals, especially in Asia. Prior to the Mexican and Asian financial crises, Asia was an engine of growth for world metal consumption.
The Chamber of Mines of the US, Canada, UK and Australia and some chief executive officers (CEOs) of top mining MNCs like Rio Tinto Zinc (RTZ) (now Rio Tinto) made sure that they would benefit from liberalization, deregulation and privatization as they became active actors themselves. They initiated the changes in the mining codes of more than 70 countries that would provide ease of access to mineral resources, guarantees and tax breaks against loss, tax holidays, guaranteed rights to move from exploration to mining, freedom from interference and expropriation, reduced payments and share to government, and repatriation of capital and profits. The liberalization of the mining industry in these countries was in different stages of implementation when two successive financial crises struck.
The Mexican crisis and the Asian financial crisis that started in Thailand "temporarily" set back the so-called worldwide economic recovery under the new economic order. One of the immediate impacts of the Asian financial crisis was a 10% decline in the demand for base metals.
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Recovery at last for Base Metals
At the start of the year, Reuters made a poll of some 20 analysts and the result was gloomy: except for zinc, the average cash prices for aluminum, copper, lead, nickel and tin showed a slim gain of only 1.9% over 1998. The price of copper reached a new 11-1/2 year low while aluminum, zinc and tin dropped to levels last seen five years ago. As a result, Rio Tinto Zinc subsidiary Kennecott's Utah copper smelter halted all production of copper. Broken Hill Proprietary (BHP), the world's largest copper producer, shut down its entire mining and smelting division in the US. Canada's Highland Valley mine was also scheduled for closure.
But by May 1999, the IMF held out its forecast that world economic growth for the year would be steady at 2.3%. This led the Fleming Mining Group to announce that there are plus signs for metal markets to stage a strong rally.
In July, Rudolf Wolff and Co. Ltd. and HSBC Securities' Global Mining unit raised their 1999 forecasts due to a rosier global economic outlook. Their report said that the recovery in Asia has occurred sooner than previously expected, US economic growth is stronger than anticipated, while economic growth in Europe is still slack.
Rudolf Wolff and Co. Ltd.'s forecast in September 1999 of 3.25% global economic growth in 2000 and the positive economic growths in East Asian nations have boosted prospects for a resurgence in demand for metals.
South Korean recovery for the first half of 1999 was surprising. It is expected to post the biggest growth among Asian countries in 1999 with GDP up 8%. It posted a negative growth of 5.8% in 1998. In Taiwan, economic growth is expected to be 5.5% in 1999, up from 4.65% in 1998. Malaysia's GDP grew by 4.0% in the second quarter. China's economic growth continues but the ADB warned that this will taper off in 1999 and 2000 as the effects of fiscal spending diminish and pump-priming becomes unsustainable due to budget constraints. Expectations of a recovery in the Japanese economy are strengthening, following better-than-expected GDP data for the April-June quarter.
This rosy picture in the Asian economy increases the demand for base metals. South Korean demand for copper was projected to be 550,000 tons for 1999 but this was revised to 650,000 tons. In 1998, domestic demand was 530,000 tons. Industry sources say nonferrous metal producers in South Korea are currently operating their plants at full capacity to meet strong domestic demand as well as export orders.
But Taiwan traders are still cautious about near-term prospects for a recovery in domestic metal demand, which has been filled in by imports. In 1998, demand for aluminum stood at some 300,000 tons and traders say it will remain about the same in 1999, which is about 10% to 15% below levels before the crisis. Demand for aluminum would increase by 3% at most in 2000. Taiwan imported some 460,000 tons of refined copper in 1998, down from 503,100 tons in 1997. Its imports in 1999 are estimated at about 450,000 tons. The impact of the recent earthquake will be an increase in demand for metals once reconstruction gets underway.
Hopes are growing that cash-strapped Chinese metal companies may benefit from the country's new 60-billion yuan ($ 7.25 billion) bond issue through easier access to credit. In late August, China unveiled a huge stimulus package aimed at reinvigorating economic growth through spending on infrastructure such as roads and bridges. Chinese demand for copper, totaling 805,000 tons in the first seven months of this year, posted a 10.3% increase from a year earlier. Some Japanese sources said
China has become the second biggest copper consuming country following the US, as China exceeded Japan's consumption in 1998.
But it is unlikely that Japanese demand for base metals will recover to the peak levels of 1991 and 1992 as the country's industrial structure is changing. A strong yen in the early 1990s and pressure from trading partners to cut its trade surplus prompted Japanese automobile and appliance makers to shift factories abroad, especially to other Asian countries. As a result, some Japanese smelters will continue to focus on metal exports to neighboring countries to enable them to operate plants at full capacity to cut output costs. Domestic demand for copper peaked at 1.7 million tons in 1990-1991 but is estimated at 1.31 million tons in 1999-2000.
All told, these positive growths in the GDP and higher consumption demands translated into new highs in the prices of base metals. Compared to the low prices in 1999, there was a gain from 8% to as high as 87% in the price of base metals by September 7, 1999 (see following table).
A Japanese metal industry analyst says, however, that it will take at least another year to see a recovery in demand from the financial crisis that swept Asia in mid-1997. Demand for copper, zinc and lead will recover by 5% this year in the whole of Asia, and it will also post another 5% recovery next year if economies grow as expected. This means Asian demand for base metals will recover to pre-crisis levels by the end of 2000, after a 10% decline in 1998.
Prices of Base Metals ($ per ton)
September 7 High 1999 Low % Gain
Copper 1,801 1,365 32 %
Aluminum 1,527 1,158 32 %
Zinc 1,229 914 34 %
Lead 537 461 16 %
Nickel 7,390 3,945 87 %
Tin 5,380 4,960 8 %
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Implications of International Developments and Trends
With the perceived steady growth in the world economy and the observation that Asian countries are on the way to recovery from the financial crisis, analysts conclude that there are indicators for an increasing demand for base metals and industrial minerals.
A situation has somehow been created from a win-win formula which everyone involved in the gold mining industry would welcome. In maintaining the gold price above the $300/oz level, even marginal mining companies have been made happy. In the Philippines, the mining industry would welcome such developments. The reaction may not be comparable to the situation in 1978 when gold prices steadily climbed until 1980, making mining companies sprout overnight all over the country.
The possible scenarios we face in the Philippines are:
1. Drum-beating that the country has the capacity to overtake other Asian countries
The hype that Asian countries are recovering from the financial crisis would be used by a macho-posturing President to urge the country not to be left behind and instead to catch up, recover from the crisis and be on track to become a New Industrialized Country under the government's new Medium Term Development Program.
The full implementation of the liberalization, privatization and deregulation program in the mining industry would be a major component of this endeavor.
2. Fast tracking of infrastructure program
The government has gone slowly in the processing of mining applications because the infrastructures needed are not yet in place. If the framework of contracts are the Financial and Technical Assistance Agreements (FTAAs), the government can still bide its time as mining companies first have to conduct from 4 - 6 years of exploration work. Once mining companies reach production phase, the government should already be ready to support their operations with the necessary infrastructures.
Thus, the government will accelerate its infrastructure program, especially the construction of roads and upgrading of sea ports for the transport of ores and concentrates and the construction of hydroelectric dams and coal-fired energy plants to provide the needed cheap power to mining companies.
3. Fast-tracking of mineral application processing
Mining is a matter of timing. Mining companies subscribe to the saying, "Strike the iron while it is hot."
The Chamber of Mines will exert pressure on the government to fast-track the processing of mineral applications in order to take advantage of the relatively higher prices of base and precious metals in the international market.
4. Implementation of the full force of the law
We are already witnessing the full force of the law. In areas where there is strong opposition against mining, the government is deploying military troops. Recently, the government threatened to bring in the military in Siocon, Zamboanga del Norte and in the Diwalwal gold rush area.
The combined use of the Philippine Mining Act of 1995 and the Indigenous Peoples Rights Act (IPRA) will be used to the hilt to ease people out to pave the way for the smooth entry of mining companies.
5. More propaganda offensives by mining companies
We expect more lies, sweet talk and promises from mining companies.
In the past years, the mining companies' propaganda offensive touched on sustainable development in the industry, corporate responsibility, adherence to best technology, and respect for indigenous peoples' rights.
On the other hand, oppositionists to destructive mining operations are labelled as anti-development, destructive nationalists and communists. Oppositionists are being challenged to present their alternatives.
It would not be surprising if in the future, their propaganda offensives make references to collaboration with the UNDP or WHO, or company officials are accompanied by representatives from these agencies.
Another scenario is the implementation of more socio-economic programs in mining-affected areas in a trilateral partnership among the UNDP and WHO, the mining company and the community.
Also possible would be a concerted propaganda favoring the use of the Submarine Tailings Disposal system. Being an archipelagic country with mountainous and rugged terrain, this technology would be seen by mine companies as a feasible and cheap way to dispose of mine tailings.
6. More policies favoring the mining industry
The objective of Charter Change is obvious: to remove all nationalist provisions and to fine-tune it further to suit the framework of globalization.
Another thing that the Filipinos have to watch out for is a VFA-type agreement (Visiting Forces Agreement) that may be forged with the UK and Australia.
The Filipino people have to strengthen their opposition to the implementation of the VFA agreement with the US, as the UK and Australian governments have also suggested entering into similar arrangements with the government to safeguard their investments in the country.
With the above scenarios, a challenged is posed to us how we could sustain, broaden and intensify the opposition by the Filipino people against the government's pro-imperialist mining policy.
All laws, policies and guidelines are already in place for mining companies starting from the easy access to mineral lands, unhampered mining operations to squeezing as much profit as possible.
We are faced with the reality that 3 FTAAs, 118 Mineral Production Sharing Agreement (MPSA) applications and 46 Exploration Permit Agreement (EPA) applications have already been approved which cover a total land area of 677,770 hectares. In addition, 72 FTAAs, 1,938 MPSAs and 498 EPAs, with an aggregate area of 13,548,006 hectares, are under processing. Combined together, the total area for mining encompasses a land area of 14,225,776 hectares or roughly 50% of the country's land area.
Granting that there is one mining company for each application, the people are confronted with 2,675 mining companies and the atrocities, abuses and human rights violations they will be subjected to will be multiplied almost 3,000-fold.
And the World Bank, UNDP and WHO cannot escape responsibility as they have helped this to happen with watered-down policies and guidelines. |
