Managing Environmental and Social Risks in Metal Mining for Sustainable Financing

1. MineAfrica – CSR Vancouver 2011 Environmental and Social Risk management. Financing Metal Mining Projects – The Equator Principles Jake Lang Lead Metallurgist - Vancouver

2. Metal Mining & Sustainability • The mining and metals industry faces a broad range of challenges in producing the essential materials for today's society • Among others issues, Environmental and social risk management are key factors for granting access to financing from Development or private international Financial institutions • The Equator Principle guidelines have an impact on mining & metals project finance from the perpective of sponsors and borrowers in terms of their environmental and social contractual obligations.

3. Metal Mining & Sustainability • The dialogue on the inter-relationship of financing, mining and sustainability had four objectives: • to support a better understanding amongst the finance community of issues raised by the mining industry’s uneven performance with respect to sustainable development as they relate to financial and reputational risk and shareholder value; • to examine what role, if any, the financial community could play to enhance the mining industry’s performance (e.g. guidelines, standards, or similar criteria); • to examine mechanisms (reporting, rating, certification, monitoring) suitable to improve overall industry performance, thereby reducing risk exposure for the financial community at large; and • to move toward a broader consensus on the evaluation of sustainability specific risk factors in mining finance, and their application.

4. Metal Mining & Sustainability • Type of Risks • Hard-to-manage risks: • Legal Risks • Market & Political Risks • Force Majeur • Manageable Risks • Technical & Operational Risk • Environmental & Social Risk • Economical Risk

5. SOURCES OF RISK MARKET/POLITICAL LEGAL/FINANCIAL • Price, currency, interest rates fluctuation • Inconvertibility of currency • Disable currency transfer • Change in law and legal system • Political instability violence • Riot, strike, civil commotion • Terrorism, war • Contractor insolvency • Breach of contract OTHER • Natural peril, disaster • Earthquake, fire explosion • Force majeur SOCIAL/ENVIRONMENTAL TECHNICAL/OPERATIONAL • Labor and working conditions • Pollution • Health, safety and security (community, employee) • Land acquisition and involuntary resettlement • Biodiversity conservation & sustainable natural resource management • Handling/operation • Construction • Faulty design, materials, workmanship • Reliability of feasibility study • Project performance • Supplier performance • Contractor performance • Defects • Alterations/betterments

6. THE VALUE OF STANDARDS AND AGREEMENTS, AUDITSAND INDEPENDENT VERIFICATION • The mining industry had embraced principles for sustainable development and environmental best practices to properly address those risks by developing several voluntary codes of conduct such as; • International Cyanide Management Code • International council for mining & metals’s sustainable development framework • Mineral Policy Center’s Guidelines on Responsible Mining • World Bank’s 2003 Extractive Industries Review • IFC’s Environmental H&S sector guideline for Mining

7. EP 2 – Ten Principles • Principle 1: Review and Categorization • Principle 2: Social and Environmental Assessment (Process) • Principle 3: Applicable Social and Environmental Standards • High-income OECD countries vs. Emerging Markets • Principle 4: Action Plan and Management System • Principle 5: Consultation and Disclosure • Principle 7: Grievance Mechanism • Principle 8: Independent Review • Principle 9: Covenants • Principle 10: EPFI Implementation Reporting

8. Equator Principles – The Project Finance E&S Benchmark The Equator Principles is seen to closely mirror the International Finance Corporation (IFC) Performance Standards on Social and Environmental Sustainability: • Performance Standard 1: Social and Environmental Assessment and Management System • Performance Standard 2: Labor and Working Conditions • Performance Standard 3: Pollution Prevention and Abatement • Performance Standard 4: Community Health, Safety and Security • Performance Standard 5: Land Acquisition and Involuntary Resettlement • Performance Standard 6: Bio-diversity Conservation and Sustainable Natural Resource Management • Performance Standard 7: Indigenous Peoples • Performance Standard 8: Cultural Heritage

9. EquatorPrinciplesBenefits; • Standardize E&S lender requirements; • Equator Principles bring a level of social and environmental evaluation, transparency and discipline to projects which might otherwise be absent. • Promote responsible investments development: • The banks are secure in the knowledge that their investments are being used to support ethical and sustainable work and that the project conforms to the required standards. Open new market. • Provide effective project finance risk management; • Protect Project Return on Investment • Reduce cost overruns and delays • Protect Financial Institutions from the environmental and social liabilities of the project. • Preserves Financial Institutions reputation • Provides access to capital • From international EPFI or Multilaterals

10. Equator Principles Work-Flow Lender Borrower EP2) E&S assessment EP1) Project categorization EP3) Applicable E&S Standards EP4)Action Plan and mangement system EP 5) Consultation disclosure EP7) Independent Review EP6) Grievance Mechanism EP8) Coventants EP9) Independent monitoring EP10) Reporting

11. Independent Third Party can Help? • Many EPFI have set procedures to involve independent third parties for these activities • It clearly improve the way they partner with: • Clients • Governments • Civil society and NGOs • On-site assessments and monitoring also improve transparency and accountability of EPFI efforts on implementing EP and IFC performance standards

12. Case Study – Pt Agincourt Resources • Business Challenge: • Undertake an environmental impact assessment to Equator Principles to ensure PT Agincourt Resources attained local AMDAL approval and could commence construction on a Gold and Silver Mine in Indonesia. • Approach • The Third Party Firm collected information required to meet the government and company’s requirements; from air quality to socio-economic data. Simultaneously the Third Party also had to follow strict processes set out by AMDAL relating to public engagement. • The Third Party submitted Terms of Reference for the project which were reviewed and approved by the relevant authorities. This was followed by submission of the AMDAL itself and accompanying environmental monitoring and management plans. • Benefits & Value • AMDAL approval was granted in early 2008 and the project is on schedule according to plans.

13. On Site Assessment On site assessment is used predominantly on the basis of confirming:- • that the Project Operator and/or EPC contractor(s) are aware of the need for certain socio-economic and/or EH&S related issues to be addressed within the project, • that these requirements are factored into the project development and execution process, • that the project design, planning, approval processes, project management and implementation parameters are in line with EP / IFC criteria, and, • that the desired outcome is likely to be achieved in respect of the project’s environmental and socio-economic integrity, if implemented effectively.

14. Equator PrinciplesAssessment Objectives; • To assess and report on - in the context of statutory obligations, and any other applicable discretionary corporate social and environmental obligations - whether the Project is in accord with the Equator Principles requirements and associated IFC Performance Standards identified. • To identify any areas where inconsistencies exist between the Equator Principles, action plan or loan terms and conditions requirements and current performance or where some re-examination or strengthening of current management performance might be warranted.

15. Thank You, Jake Lang SGS Tel: 604 – 324 -1166 jake.lang@sgs.com