The World Bank's Mining
Issue 98, September 2014
unionised mineworkers in 2012, South Africa’s bloodiest use of police force since its apartheid era.
Other low profile investments in high profile assets include a $400m loan to Rio Tinto’s Oyu Tolgoi copper mine in Mongolia, political risk insurance over a further $1bn of debt lent to the mine by investment bank Standard Chartered, a $50m loan to London Mining’s Marampa iron ore mine in Sierra Leone, two loans to Petra Diamonds totalling $65m and an equity-debt deal with a catering company in Papua New Guinea contracted to gold giant Newcrest.
Does IFC backing represent an endorsement investors should follow? It does not break out its mining investments from those in oil and gas, but combined, over $1.1bn has been ploughed into the portfolio in the last 3 years. Its value has meanwhile risen by $190m to $2.4bn, indicating a capital loss of between 40 and 50 per cent.
It is an especially grim performance given the stability of oil prices over the period and given that two thirds of the portfolio is in bonds, according to one IFC analyst. The performance has in part been weighed on by its investment in a basket of juniors, including Unigold, Guyana Goldfields and African Eagle. It also invested this year in Lydian Int., domiciled in Jersey.
The IFC “adds ballast to your share register”, says the former chief executive of one junior invested in by the group. “It’s a big name that everyone’s heard of.” The flip side he says is that they are “cumbersome” and “paranoid” about being accused of front-running their own book by steering government policy. “If you’re expecting them to walk into the Ministry with you and help negotiations, forget it."
In the case of larger assets however, the World Bank has its weight. Melbourne-based OceanaGold is currently suing El Salvador for $300m in a closed tribunal at the World Bank for declining a mining application, using US free trade agreements to potentially override El Salvador’s own permitting process. “This is our country,” a Franciscan monk from El Salvador told The Washington Post.
The World Bank has also drafted the Congo’s mining code and written off billions of dollars of its debt in the last 10 years, whilst admitting in internal memos that it has shown “tacit approval” for mining deals in the country that have a “complete lack of transparency.” Oil group Shell has meanwhile publicly said that it successfully lobbied the Bank last year to drop its investments in coal.
At Simandou, the IFC says it is “uniquely placed” to “play the role of a neutral broker”, stressing that the mine will create jobs, add infrastructure and become a “country changing” asset.
It will be telling to see what its backing of Rio Tinto is worth in the company’s ongoing fight against Vale, which bought the northern half of the mountain range after Rio was stripped of half of its rights. Rio is seeking unspecified damages, expected to be in the billions, whilst Vale’s mining license remains under question in Guinea.
“This is a matter that is under heavy discussion between ourselves and our joint venture partners, the World Bank,” Rio’s chief executive Sam Walsh has said, then as its iron ore head. “We will fight for our rights.”
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