globalization and technology

TIM PASQUARELLI June 2016

www.ipmserv.com Recycling Metals from Industrial Waste A Short Course and Workshop With Emphasis on Plant Practice June 21 - 23, 2016 Sponsored by the Colorado School of Mines Office of Continuing Education 1

Today’s Topics for Operating in High Risk Areas: Due diligence… Risk assessment… Eliminate the risk… Mitigate the risk… Case studies... Questions & Answers 2

Due Diligence Conducting due diligence What are we looking to do? How do we identify risks? What are we looking to avoid? 3

Types of Risk  This is not a comprehensive list  Financial  Operating  Legal  Political  Cultural 4

Defining Political Risk  Possibility of an unexpected politically motivated

event affecting the outcome of an investment… Sauder

School of Business, Univ. British Columbia, Lecture 08, Nov 2008, www.ubc.ca

 The risk of operating or investing in a country where

political changes may have an adverse impact on earnings or returns… Financial Times Lexicon, www.markets.ft.com

 The risk associated with possible negative events such

as expropriations of assets, changes in tax policy, restrictions on exchange of foreign currency, or other changes in business climate of a country… NASDAQ,

www.nasdaq.com

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Metal Recycling and Political Risk  “… insecurity of supply through geopolitical

risks.” UN Report, Metal Recycling, p. 80.

 “Stability in government policy affects the

economics of recycling…” Ibid, p. 166.

 “Creating supply security for investors also

implies stimulating collection and preventing illegal outflows such as theft.” Ibid, p. 166.

Metal Recycling: Opportunities, Limits and Infrastructure, United Nations, 2013. 6

Mexico… Limited infrastructure… Little or no support from government agencies and police… Limited security support...

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Eritrea and Chalice Autocratic dictatorial government… UN sanctions… Decision time…

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Barrick in Chile-Argentina $9 billion + project  Company has spent $5 billion on the project which could have final bill in excess of $8.5 billion after cost overruns. http://www.mining.com/barrick-mothballs-pascua-lama-72606/, Barrick mothballs Pascua-Lama, Frik Els, July 31, 2014

 Barrick/Gold Corp says Chilean Supreme Court of Chile refused to consider appeal of a lower-court decision. http://www.theglobeandmail.com/ 31 Dec 2014

 Announcement that the Chile’s environmental court rules Barrick Pascua-Lama project did not damage glaciers http://www.mobile.reuters.com, 23 Mar 2015

 US judge rules Barrick Gold must face group lawsuit over Pascua-Lama mine, class action claims Barrick misled shareholders. Cecilia Jamasmie, Mar. 24, 2016, http://www.mining.com/tag/pascua-lama/ 12

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Dominican Republic  National politics…  Regional politics…  Community issues…

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Dealing with government officials…  All levels…  Political dynamics… who are the players and what are their issues, relationships and rivalries?  Avoiding compromising situations… remember the FCPA!

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Politics and Culture

“All politics is local” Tip O’Neill, U.S. Congress (origin Byron Price AP 1932)

 Are these political or cultural?  Sheik demands work for 80 villagers whose services are not     

needed? (Iraq 2004) Tribal chief demands contract for services with no understanding of business applications? (Ghana 2001) Tribal chief demands exclusion of other tribal groups? (Ghana 2002) Tribal chiefs demand employment for nonexistent jobs (Indonesia 1998) Village elders demand water well in exchange for noninterference? (Ghana 2001) Local political leader demands jobs for nonexistent needs? (Dom. Rep. 2010) 21

Cultural dynamics and political dynamics  Tribalism…  Nationalism…  Religion…

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Ghana Community issues… Illegal mining encroachment… Corruption… 23

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Newmont and Minas Conga – project risk in Peru  Review of US$4.8bn Minas Conga project is

"fallacious," Newmont says – Peru.

Published: Monday, March 12, 2012, Rafael Ponce De Leon / Business News Americas

 Peru Poll Shows 40% Believe Minas Conga Won't

Start.

Published March 15, 2012. Dow Jones Newswires. http://www.foxbusiness.com/

 Community opposition forces Newmont to

abandon Conga project in Peru Cecilia Jamasmie, Apr. 18,

2016, The company has removed its massive gold and copper project Peru from its annual filing with the U.S. Securities and Exchange Commission (SEC). http://www.mining.com/tag/conga-mine/

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Eliminating and Mitigating Risks  Identify the risks…  Eliminate…  Alternative investments…  Other locations...

 Mitigate…  Government agencies...  Private contractors...  Local alliances... 28

Summary  Due diligence before investing…  Risk assessment to identify what to

avoid…

 Political and cultural assessment to clearly

understand national, regional and local issues…

 Eliminate and mitigate risks… 29

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