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Extractive Industries: Increasing Transparency Pressure

G8 shines world spotlight on mining transparency, or lack thereof, from Mineweb, June 17, 2013 - reading time 4 minutes.

For at least the past 3 years I have been commenting on what I have referred to as 'Country Risk' in the context of companies operating in the extractive industry sectors. Loosely defined, I think of Country Risk as the broad risk that individual country governments and local populaces will increasing look to 'share the wealth' with companies in the extractive industries as:

  • technology enables greater understanding through enhanced communications of benefits realized by those companies in their countries and local communities;

  • country governments have an ever greater need for revenues as populations grow and their fiscal deficits continue to grow; and,

  • world-wide, there is a continuing and ever greater emphasis on the environment and environmental impacts of resource production.

World leaders met in Ireland this week. In keeping with my prior commentaries, one topic of discussion that 'hit the media' from that G8 meeting is an ongoing and likely increasing focus on transparency in the resource extraction sectors. While discussions seem principally directed to the mining sector, I can't see how the oil & gas sector can be far behind.

News to date on increasing 'resources transparency' emanating from the G8 Summit include:

  • UK Prime Minister David Cameron having announced Sunday that the G8 and 15 developing countries have agreed to 'work together to make sure the world's poorest people benefit from the natural resources of their countries by improving the transparency of their extractive industries and land rights'. If I am reading the referenced article correctly, those 15 countries include (alphabetically) Burkina Faso, Burma/Myanmar, Colombia, Ghana, Guineas, Mongolia, Peru and Tanzania; and,

  • stronger legal frameworks to regulate the extractive industries will be stressed pursuant to new laws that will make the Extractive Industry Transparency Initiative (EITI) standards a legal requirement. The EITI requires public disclosure of amounts paid by mining companies to governments.

Increased transparency, while on one hand difficult to contest in a 'fairness context', will become ever more costly to resource companies both in satisfying increased permitting time, regulatory reporting, but more importantly in the contexts of capital costs, operating costs, environmental reclamation, and royalty, income and other taxes.

Resources companies are different than most other commercial enterprises in that their revenue streams are dictated by commodity prices that are almost entire outside the control of any specific company.

Increased transparency will almost certainly impact the production of specific commodities over time, and decreased supply - where demand is assumed to be at current or increasing (with world population) levels.

In the same vein (no pun intended) you might want to read Peru protesters push to stop $5bn Newmont mine project, from Mining Weekly (sourced from Reuters), June 18, 2013 - reading time 2 minutes.

 

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