Big Dig

How to Hold Miners -- And the Governments They Work With -- Accountable

A dump at the Kumtor open pit gold mine in Kyrgyzstan, April 3, 2013.
A dump at the Kumtor open pit gold mine in Kyrgyzstan, April 3, 2013. (Shamil Zhumatov / Courtesy Reuters)

For the world’s mining industry, the past few years have been turbulent. Politicians, citizens, workers, and stakeholders all want a greater share of the profits, and mining companies have seen national governments raise taxes and demand the renegotiation of contracts on more favorable terms. Some governments, including that of South Africa, have even considered nationalizing mines outright.

One reason for the friction is that mines in rich countries have become increasingly depleted, making miners more reliant on deposits in less developed countries. That entails significantly more risk; poorer countries are precisely the places in which the potential for corruption and resource nationalization is greatest. 

Another reason is that commodity prices have soared. Even after a drop this year, prices for many metals, minerals, and gems are still roughly double what they were ten years ago, and profits have risen accordingly. The world’s 40 largest mining firms brought in about $500 billion in 2012, compared to $100 billion in 2002, according to a study by the think tank Chatham House. Yet many host governments never anticipated such a rise in mining revenue when they initially negotiated contracts years or decades ago. They claim that most of the windfall has bypassed them, and that might be true -- there is so little public information available about how much governments really get on average, and therefore it’s often impossible to determine what constitutes a good deal. Further, without good data, all sides are prone to suspicion, frustration, and -- quite often -- disputes that eventually kill investments and thwart development.

But the fog of secrecy might be lifting. Resource-rich countries are increasingly looking to consultants, advocacy groups, and development agencies to help them negotiate with miners from a more informed position. And miners are doing the same in the hope of avoiding the conflicts that have plagued them in the last few years. The upshot is that, over the next few years, the resource-extraction industry, and mining in particular, will become more transparent than ever. Mining firms will probably see less profit, and poor and middle-income resource countries will get more. That can go toward addressing their populations’ basic needs and speeding up development -- or it can be lost to corruption. 

ALL CLEAR

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