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Middle East & Africa:
Mining � Tarnishing Canada�s name

Ethical Corporation
February 10th, 2009

With many African mining firms about to face bankruptcy, foreign investors� ability to creating sustainable mining communities will be tested

Shielded from public view by their giant rivals BHP Billiton and AngloAmerican, a cluster of small Canadian firms has quietly revolutionised African mining.

Known as �juniors�, in reference to their small and specialised nature, large numbers of Canadian firms helped to spearhead an African mining boom in 2003-2008 that accompanied record high commodity prices.

Whereas the largest mining houses span each stage of the process from prospecting to processing, many juniors specialise in just one mineral type or function, such as exploring remote areas of terrain.

Their rapid growth has been matched by growing scrutiny from campaigners at home in Canada. Some condemn the industry outright, while others are collaborating with mining firms to create new standards for handling social issues. Yet with the extractive sector falling into an acute crisis, these companies� efforts to create mutual benefits for local communities are about to be put to the test.

Juniors abroad

Smaller mining firms, involved in initial exploration, for example, rather than actually developing a mine, have traditionally escaped close scrutiny from non-governmental organisations, says Daniel Litvin, director of Critical Resource, a consultancy. �Having geologists come in and chip away at rocks can have less impact than digging huge holes in the ground, but exploration brings its own difficulties,� he says. �These firms find themselves ranging over huge areas, and relations with communities can easily be tense.�

Despite lacking the scale of their giant counterparts based in London or Melbourne, the impact of these firms on the African scene has been substantial. Their total African assets increased from US$2.8bn in 2001 to US$14.7bn in 2007, according to figures from Natural Resources Canada. They had a presence in some 35 countries that year, playing a particularly key role in the Madagascar, the Democratic Republic of Congo and Tanzania.

Litvin stresses that this expansion did not go unnoticed back home. �There is a vibrant and active civil society in Canada that gave increased scrutiny to the overseas impacts of its firms,� he says, citing the growing number of non-governmental organisation campaigns within Canada during the boom years. He adds: �This gave rise to several initiatives, including a major set of roundtable discussions between industry, civil society groups and government representatives in 2006.�

The controversy has been deeply uncomfortable for a number of firms, attacked by the activist community determined to besmirch their names in public. The biggest actions have been reserved for Barrick Gold, which employs 20,000 workers. However, activist groups such as the Quebec-based collective Ressources d�Afrique have worked hard to shine the spotlight on even the more obscure firms.

Yet the terms of debate have been dramatically altered in just six months by a crash in metal prices. This has seen the cost of a tonne of copper slashed from $8,000 to less than $3,000, rendered many mines unviable and now threatens a wave of bankruptcies.

According to Tricia Wilhelm, political risk analyst at Export Development Canada, the consequences will be devastating for countries like DRC, where Canadian firms helped find new resources to tap after the 1998-2003 civil war.

�In DRC, with the elections of 2006 and the huge surge in commodity prices, these junior companies are suddenly able to get the financing to move these projects into development,� Wilhelm says. �There is now a great feeling of disappointment, partly because of how much the country could have benefited from these revenues if well governed.�

In recent years, the government in Kinshasa had a strong bargaining position relative to international companies, with prices pushing record highs and Chinese state companies beating a path to its door.

It announced plans to overhaul the legal framework in order to extract better terms, hoping that the revenues would fund a substantial overhaul of the war-ruined transport, health and education infrastructure.

But the price drop has transformed the power dynamics almost overnight, Wilhelm says. Mining firms that found themselves criticised at home for their African dealings now find host governments pleading with them to stay.

Concrete legacies?

The job of a community relations manager may also shift in 2009, as African countries brace themselves for closures and redundancies.

How far companies get the blame will depend partly on communities� past experience with mining. Firms are more likely to be faulted in Tanzania, where the industry is a relative newcomer, than in Zambia, which has seen major boom-and-bust cycles in the past, Wilhelm suggests.

In either case, managing the expectations of local communities will be no easy task. This year will test whether programmes to invest in the communities surrounding a mine have created benefits that can help local people through a downturn.

�Some firms have found creative ways to produce alternative employment, particularly where a mine causes displacement of local people,� Wilhelm says, citing a scheme by one Canadian firm that offered training in brickmaking and bricklaying. �The bricks were to be bought by the mining company in development of the mine, but could also be sold locally. This only uses basic skills and materials, but can produce sustainable livelihoods into the future.�

With jobs set to vanish by the thousand, that may be exactly what mining dependent areas need to survive the tough times ahead.

Canadian mining assets in Africa, 2007 (US$)

South Africa: $3,764m
DRC: $2,621m
Madagascar: $2,931m
Zambia: $1,460m
Tanzania: $1,392m
Ghana: $962m

Source: Natural Resources Canada


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