Political risk and the mining sector

1. Political risk and the mining sector Establishing best practice in the new risk landscape Tanya Costello Associate Director, Control Risks Finex 2010 28 October 2010

2. About Control Risks • Control Risks is the leading international business risk consultancy. • Through our international network we enable our clients to succeed in complex and hostile environments around the world. Nairobi Johannesburg

3. Control Risks and the mining industry • Control Risks has advised clients in mining, minerals and assorted services sectors for more than 30 years. • More than 500 consulting engagements for industry clients in the last five years. • Recent projects in Peru, Venezuela, Congo (DRC), Liberia, Tanzania, and Mongolia. • Clients include the majority of the largest mining companies by market capitalisation, including from North America, Europe, Africa, Asia and Australasia. • Engagements across metallurgical groups: gold, silver, diamonds and gemstones, copper and cobalt, uranium, iron ore, PGM, potash, phosphate, tantalum, coal…

4. What’s new? “Little known to the West, superpowers are investing in Central Asia as they rush for raw materials” September 2010 “Mining stocks wobble on uncertainty over minerals tax” September 2010 “Taxes take a toll on global mining companies” October 2010 “Mining ops still suspended at gold mine on strike” October 2010 “Beware the brown envelope as UK's Bribery Act looms” October 2010 “Drug gangs threaten Mexican mining industry”October 2010 CANADA MUST GUARANTEE ETHICAL MINING PRACTICES WITH BILL C-300, SAYS PANEL OF EXPERTS October 2010 “Record [share price] Fall as Criminal Gangs Hit Mine in Tanzania”October 2010

5. Emerging and continuous trends • Uncertainty around tax and contract sanctity will remain • A mixed picture across the globe, but political debates around terms for extractive companies continue. • Companies are moving further afield, raising risk profiles • More hostile and remote environments often present more challenging political, security and social risks. • Security risks are gaining complexity • Risks linked to HIV infection, population movements and resource scarcity require sophisticated risk mitigation. • Corruption is moving up home country government agendas • New home country legislation and political will to enforce

6. The new risk landscape: pressure from two sides Home country regulation and political will to enforce UK Bribery Act FCPA Canadian ethical investment law Host country risks Political uncertainty Red tape and regulation Corruption and fraud Infrastructure deficiencies Physical security risks

7. Host country risks Mongolia: Lack of clarity over mining legislation longer term Venezuela: Chavez seeks greater control over the mining sector Mauritania: Persistent political instability undermines pro-investment stance n Kyrgyzstan: Mining investors face political volatility, social unrest and repeat, targeted strike action. Chile: Ongoing tension over plans to increase mining tax Peru: Opposition expected to challenge government’s pro-investment stance South Africa: Electricity, looming water shortages to present operational, security risks Philippines: mining laws applied unevenly at national and local levels Australia: Resource super profits tax prompts confrontation between government and companies Zimbabwe: Ongoing political and military interference Brazil: New government may seek changes to tax regime

8. Home country regulation: the UK Bribery Act UK Anti-Bribery Act: • The most stringent anti-corruption legislation in the world • Vast reach, encompassing any company with part of its activities in the UK • Prosecution for failure to prevent • Facilitation payments no longer acceptable • Risk of third party contractors Adequate Procedures

9. The Bribery Act: Strategic opportunity or compliance burden? • New regulation promotes a holistic view of risk • A chance to establish best practice in the industry, rather than a compliance burden. • Bribery Act can provide a framework for operations in high risk jurisdictions What are ‘adequate procedures’? • Understand and communicate the risk • Understand your partners • Whistle blowing • Train your people. Establish an anti-corruption, pro-transparency culture.

10. A holistic approach to risk management Step 4 Monitor and adapt Step 1 Do your homework Step 2 Plan, prepare, practice Step 3 Engagement • Anticipate problems • Threat assessment • Vulnerability study • Due diligence into counter-parties • Map stakeholders • Research legal and bureaucratic framework • Political scenarios • Community strategy • Factor possible delays into project timeline assumptions • Security risk management strategy / policies • Integrity programme • Training and awareness • Contingency planning (crisis management) • Zero tolerance on corruption • Community development • ‘Soft security’ • Focused infrastructure development • Whistle-blowing • Building relationships, not fences and walls • ‘Long-term view’

11. Tanya Costello Associate Director, Control Risks Tanya.Costello@control-risks.com +44 207 9401910