Investing in African Mining MineAfrica Seminar Vancouver Sponsor: Fasken Martineau

1. Investing in African Mining MineAfricaSeminarVancouverSponsor: Fasken Martineau The Fraser Institute Annual Survey of Mining Companies Fred McMahon Survey Coordinator

2. The Fraser Institute Mining Survey Providing valuable information to the mining industry and policy makers since 1997 on political risk by examining 13 policy areas such as taxation, regulation, land claims, etc.

3. The Fraser Institute’s Annual Survey of Mining Companies  [The Fraser Institute is] the most eminent authority in the world to survey mining company activity. South Australian Premier Mike Rann, speaking in Parliament The Fraser Institute’s Annual Survey of Mining Companies tells the truth nobody wants to hear.  Graham Baldwin, publisher, Mining.com It isn't as prestigious as the Miss America or Miss Universe pageants, but in the mining world, it's about the next best thing. Editorial, Engineering & Mining Journal

4. The Survey • Sent to 3,000 executives at exploration, development, and mining consulting companies • Responses from 372 executives • Representing $1.48 billion in exploration spending in 2007 or 14.8% of global spending according to Metals Economics Group • Holds policy-makers accountable for decisions and mistakes

5. Using the survey to assess risk • It is like consulting with nearly 400 mining experts from around the world • They are asked to respond only about jurisdictions with which they are familiar • This creates important information on the 13 policy areas examined in the survey

6. Beware of the minority experience • Miners can have very different experiences in the same jurisdiction • If there are some strong negatives in an otherwise favorable jurisdiction, there may be unexpected risks. • If there are some strong positives in a negatively rated jurisdiction, there may be ways to avoid risk. • The survey doesn’t tell you how but it can say that it may be worth looking.

7. Some comments • Australia has a long history and well developed policies where the [mining] industry is understood. • Manager, Exploration Company • What a disaster! With Native title problems sorted out and the mine construction commenced, the greenies were allowed unchecked to upset it all, manipulate public perception, and change the view of native title holders. • Vice President, Exploration Company

8. Why Survey Mining Companies? • It’s the only way to get reliable information • Perception of potential investors is the reality • Attitude of regulators often more important than regulations • Survey generates information on a key problem facing the mining industry: Uncertainty • Key because of lag between investment and production • Provides potential investors valuable insights not available elsewhere. • Creates communication and accountability for governments

9. African Focus • Survey asks question on both policy and mineral potential • Due to time constraints, we’ll concentrate on policy issues

10. Uncertainty concerning existing regulations Environmental regulations Regulatory duplication and inconsistencies Socioeconomic agreements Uncertainty concerning native land claims Uncertainty concerning protected areas Infrastructure Taxation regime Political stability Labour regulation Geological database Security Labour availability 13 Policy Endowment Indicators:We ask mining companies, “are you deterred from investing because of ….”

11. Policy Potential Index • A composite index of the 13 policy areas we examine • 0 is worst policy; 100 is best

12. Policy Potential Index

13. Individual Policy Areas

14. UNCERTAINTY REGARDING THE ADMINISTRATION, INTERPRETATION, OR ENFORCEMENT OF EXISTING REGULATIONS

15. ENVIRONMENTAL REGULATIONS

16. REGULATORY DUPLICATION AND INCONSISTENCIES (includes federal/provincial, federal/state, inter-departmental overlap, etc.)

17. TAXATION REGIME (includes personal, corporate, payroll, capital, and other taxes, and complexity of tax compliance)

18. UNCERTAINTY CONCERNING NATIVE / ABORIGINAL LAND CLAIMS.

19. UNCERTAINTY CONCERNING WHAT AREAS WILL BE PROTECTED AS WILDERNESS OR PARKS

20. INFRASTRUCTURE (includes access to roads, power availability, etc.).

21. SOCIOECONOMIC AGREEMENTS / COMMUNITY DEVELOPMENT CONDITIONS (includes local purchasing, processing requirements or supplying social infrastructure such as schools or hospitals, etc.)

22. POLITICAL STABILITY

23. LABOUR REGULATIONS / EMPLOYMENT AGREEMENTS

24. QUALITY OF THE GEOLOGICAL DATABASE (includes quality and scale of maps, ease of access to information, etc.)

25. SECURITY (includes physical security due to the threat of attack by terrorists, criminals, guerrilla groups, etc.)

26. AVAILABILITY OF LABOUR / SKILLS

27. A New Long-term Threat to Mining:High Mineral Prices • Makes governments reckless • Less attention to creating a sensible policy environment because investment is plentiful while prices are high. • Increases in taxes and royalties that may continue even when prices decline • May lead to wage demands that become unsustainable when prices decline.

28. An Argument for Mining

29. Poverty and Mining Policy • Mining policy is often shaped by a call to help the poor and nationalize resources in their name. • Nations that adopt such policies tend to do so for both the mining sector and for the overall economy.

30. Time for Facts • So a very important question for the mining industry is: What policies reduce poverty and create prosperity? • Free market policies that favor private investment including in the mining industry • Government directed economies and expropriation of resources “for the people” • It’ll help miners to know the answers when dealing with government.

31. A Latin America Example:Reducing Poverty • Despite a decline this year, Chile remains a world leader in the mining survey and has a market friendly economy • Peru and Brazil have mediocre scores from the mining community and a weaker commitment to markets than Chile. • Which approach has best served the people, particularly the poor.

32. Per capita GDPConstant international dollars

33. Per capita fixed investment1986 = 100

34. What about the Poor? • Sure Chile’s market/miner-friendly policies have produced increased wealth and investment. • But surely that’s because the rich have gotten richer and the poor have gotten poorer • We all know that markets and foreign investment victimizes the poor

35. Share of national income of the poorest 10 per cent Data available only for 2000.

36. Per capital income of the poorest 10 per cent Data available only for 2000.

37. That’s a bit of a shocker • The poor in the region’s most market-friendly / miner-friendly nation earn a higher percentage of the national income and are much better off. • The Lesson • Free market economic policy, including for the mining industry, is the best way to combat poverty • This be easily seen just by looking around the world, using the Economic Freedom Index as a measure of market friendly policies

38. Human Poverty Index and Economic Freedom Quintile Least Free Markets……………..….Freest Markets Sources: The Fraser Institute; United Nations Development Programmme, Human Development Indicators 2004 (2002 data) (Online), http://hdr.undp.org/reports/global/2003/indicator/index.html

39. Per Capita Income of Poorest 10% and Economic Freedom Least Free Markets……………..…. Freest Markets Sources: The Fraser Institute; The World Bank, World Development Indicators 2004 (Online).

40. Focusing on the Mining Industry • It is important for miners to be able to communicate a key fact: • The best way to ease poverty is through policies that promote mining (and other free market activities) • Bad inconsistent regulation and lack of respect for private property rights only perpetuates and often worsens poverty • Mining brings capital, technology transfer, and the world’s best job training program – a good-paying job

41. Fraser InstituteGlobal Center for Mining Studies • Research the actual socio/economic impact of mining development • Should not be left to anecdotal tales of the NGOs • Develop procedures for “best practices” • Smooth the path to development and production • Educate policy-makers and the public • Lots of bad information out there

42. Available for free download at www.fraserinstitute.ca Thank you for the OpportunityThe Fraser Institute Annual Survey of Mining Companies 2006/2007