Transparency in the Mining Sector – Taxes and Value Distribution A presentation by Edward Bickham | 17 April 2014 Senior Adviser , Gold for Development, World Gold Council UKSIF and Sustainalytics Seminar Edinburgh
Transparency in the Mining Sector • EITI and Publish What You Pay • Dodd-Frank and Home Country Mandatory Disclosure • Voluntary disclosure initiatives Pressure for disclosure has been driven by • ‘Resource curse’ theory • Combating corruption and embezzlement • Resource nationalism • Suggestions of ‘poor deals’ and tax avoidance/evasion • Industry desire to explain its economic contribution 2 World Gold Council | Member Relations Strategy & Implementation | Jan 2013
Extractive Industries Transparency Initiative • Concept launched by British Prime Minister in 2002 • Government-led; multi-stakeholder governance • Initial focus on national-level comparisons between company payment and government receipts • Meeting procedural requirements leads to validation/compliance • Significant enhancement of information availability and trust • Questions about impact on governance and development outcomes • Endorsed by UN, World Bank, G8, G20 etc • 44 implementing countries – 26 compliant • 40+ supporting mining companies • Over $1trillion in revenues covered by reports 3 World Gold Council | Member Relations Strategy & Implementation | Jan 2013
Mandatory Home Country Reporting • Focus on ‘corporate accountability’ and international tax comparisons • Dodd-Frank s.1504 project-by-project reporting – awaiting implementing regulations • EU Transparency Directive • Canadian legislation in consultation phase • But EITI offers more Country-owned processes and local accountability o In-country comprehensive coverage o Focus on what is done with revenues o Ability to follow-up on discrepancies o Empowerment of parliamentarians and national institutions o 4 World Gold Council | Member Relations Strategy & Implementation | Jan 2013
Challenges for EITI New Standard has broader coverage of issues: SOE-Government transactions o Gives more scope to adapt to address national priorities o Stronger focus on sub-national transfers o Disclosure of license ownership and open cadastres o Infrastructure for minerals barter deals o Encouragement of contract transparency and disclosure of o beneficial ownership Encouragement of greater scrutiny of budgeting and expenditures o • Flexibility v Inclusion • More focus on impact and outcomes • Influx of OECD implementing countries • Impact on relationships from falling metal prices 5 World Gold Council | Member Relations Strategy & Implementation | Jan 2013
What is the responsible gold mining value distribution report? An innovative report that quantifies the economic contribution made by responsible gold mining companies. It provides an analysis of how aggregated value is distributed as between stakeholder groups – including employees, suppliers, governments and investors Why was it developed? • Mining can make a significant impact to economic growth and development. In many countries it is a key driver of GDP, tax revenues, foreign exchange and employment. • There is an intense debate about whether the benefits of mining are fairly distributed. • For countries to benefit from their mineral reserves, a number of stakeholders need to be involved, including government, communities, companies and the investors who fund the companies. • There is often the perception that one set of stakeholders benefit to the disadvantage of others. • The report aims to inform discussion of how responsible gold mining can support socio-economic development. World Gold Council | Responsible gold mining and value distribution | 3 February 2014 6
Methodology • Each participating World Gold Council member What do we mean by “Responsible Gold Mining” ? company was asked to provide information on payments by country. • Responsible gold mining is mining which takes • Companies provided data from both producing place in compliance with applicable laws which operations and non-gold producing operations observes high standards of safety and health protection and of environmental stewardship. • The World Gold Council consolidated the data on • Responsible gold mining is respectful of local a country-by-country basis. communities and their cultures and of their • Data was also consolidated to provide global human rights; manages its impacts responsibly information on the amount of money that stays in and which provides acceptable and realistic the country where the operation is located and benefits for all its stakeholders. the amount of money that is paid to businesses or providers of capital outside the country. World Gold Council | Responsible gold mining and value distribution | 3 February 2014 7
Key facts and figures • 15 participating companies • 220,000 number of employees and contractors • 96 Number of operating gold mines • 804 Gold tonnage produced in 2012 • 469 Gold tonnage produced in 2012 in non-OECD countries (58% of total) • $55bn Total disbursements in 2012 • $35bn Total payments to businesses • $8.4bn Total payments to governments • $3.4bn Payments to providers of capital • 80% % of expenditure incurred in-country • 7% Increase in gold tonnage from 2009 to 2012 • 85% Increase in total expenditure from 2009 to 2012 World Gold Council | Responsible gold mining and value distribution | 3 February 2014 8
Global value creation and distribution World Gold Council | Responsible gold mining and value distribution | 3 February 2014 9
Global Highlights 10 World Gold Council | Responsible gold mining and value distribution | 3 February 2014
Considerations • Responsible gold mining can contribute to • Mining is a long-term business, where mining sustainable social and economic development companies take on significant risk, through the but expectations need to be reasonable. cycle, on behalf of their investors. Typically from initial exploration to the start of production will • The approaches taken must reflect national involve 10-15 years of upfront investment. contexts. Collaborative efforts with governments, communities and development • Of the $44.7bn paid out in country, $39.2bn agencies are needed to produce sustained (88%) was associated with producing operations improvements in standards of living, reduce and $5.4bn (12%) was associated with non- poverty and improve access to services and producing operations, which are incurring costs opportunities. but no income. • Collaborative efforts should be guided by • We hope that by providing further insight of the fundamental principles, including treating all economic impact of gold mining and clarifying individuals with respect, communicating the realities of the mining life-cycle, we can transparently and working to create sustained advance the dialogue around gold mining’s role value for all stakeholders. in development. • Gold mining contributes to growth and development through jobs, skills training and capacity building, supply chain opportunities, social investment and infrastructure World Gold Council | Responsible gold mining and value distribution | 3 February 2014 11
Conclusions • Simultaneous alienation of home country governments and investors • Need to improve understanding of distribution of benefits – based on transparency • Corrosive impact of broad-brush allegation of massive illicit flows from Africa • Importance of building understanding of all facets of mining’s potential economic contribution • Crucial importance of appreciation of impact of commodity cycle and mine lifecycle • Extractive sector is leading the way in coming to terms with transparency 12 World Gold Council | Member Relations Strategy & Implementation | Jan 2013
To view a copy of the report, please visit: www.gold.org/about_gold/sustainability/socio- economic/responsible_mining_value_distribution/ World Gold Council 10 Old Bailey, London EC4M 7NG United Kingdom T +44 20 7826 4700 F +44 20 7826 4799 W www.gold.org
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