Tag Archives: copper

Mozambique, Michigan, and the SEC Complaint Against Rio Tinto

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Chinde_Rusting_boats

Rusting boats at the port of Chinde, where Rio Tinto proposed to barge Riversdale coal via the Zambezi River.

Yesterday, the Securities and Exchange Commission brought a complaint in New York City against Rio Tinto, charging Tom Albanese, the former CEO of Rio Tinto, and Guy Elliott, his Chief Financial Officer, with fraud. According to the complaint, Albanese and Elliott actively misled the Rio Tinto board, audit committee, auditors, and the investing public about their acquisition of the Riversdale coal business in Mozambique in 2011.

The fraud that Albanese and Elliott are accused of perpetrating looks awfully familiar to those who have followed the development of Eagle Mine and the controversy over County Road 595. Having noticed the parallel between Mozambique and Michigan back in 2013, when Tom Albanese was forced to step down, I now have to wonder whether prosecutors will take the company’s representations around the Eagle Mine into account when building their case.

In Mozambique, they told investors, coal would be transported by barge to the Indian Ocean port of Chinde. Although their technical advisors “highlighted the ‘showstopping’ risks” associated with the barging proposals before the acquisition, Albanese and Elliott blundered recklessly ahead. Then eight months later, the Mozambique government denied Rio Tinto a permit to transport the coal by barge down the Zambezi River. Suddenly, the coal business they had acquired for $3.7 billion appeared to be worth a negative $680 million. According to the SEC’s complaint, Albanese and Elliott “concealed and glossed over” the fact that they had no viable haul route for the 30 million tons per year they projected in their business plans, and misled investors as they raised $5.5 billion in US debt offerings.

In that very same period, Rio Tinto was also promoting Eagle Mine to investors and promising economic renewal in the Upper Peninsula, though they had not yet secured a transportation route — a haul route — for Eagle’s sulfide ore. In Michigan, it appears, the company took the same cavalier attitude toward planning and risk that the SEC complaint says got them into trouble in Mozambique.

Way back in 2005, John Cherry, who was then a Kennecott Minerals project manager and is now President and CEO of the Polymet project in Minnesota, characterized Eagle as a “direct ship” operation, “meaning that the rock would not be processed on site, thereby avoiding the storage of highly toxic debris left over, called tailings.” Presumably this is what Michigan DEQ’s Robert McCann had in mind in 2007, when he told The Blade that Kennecott’s permit “would require them to keep the ores underground, put them in covered rail cars, and ship them to Ontario for processing”; the Marquette Monthly told roughly the same story that year, only now there were trucks in the picture: “ore would be transported by truck and rail to a processing site in Ontario.” This seems to have been nothing more than a cover story.

Everything changed in 2008, when Rio Tinto bought the Humboldt Mill. Those permit requirements the DEQ’s McCann touted back in 2005? They were quickly abandoned. Covered rail cars come into the picture only after the ore is crushed, ground into a slurry, floated and rendered into concentrate at Humboldt Mill. A glossy 2010 company publication promoting Eagle Mine includes not a single word about how Rio Tinto and Kennecott plan to travel the 30 kilometers from mine to mill: “Happily, processing of the nickel and copper can take place in Humboldt, around 30 kilometres [sic] away, at a previously abandoned iron ore plant.” By 2011, the company had “considered more than a half dozen transportation routes” from mine to mill, according to a Marquette Mining Journal article by John Pepin published in February of that year, but they still had no viable haul route.

A good prosecutor with a rigorous and thorough discovery process would probably be able to determine whether the evasions and misrepresentations perpetuated on the public over the Eagle Mine haul route also amounted to fraud, or were part of a larger pattern of deliberately misleading statements. It’s clear Rio Tinto never came clean — and perhaps never really had a firm plan — on mine to mill transport at Eagle before it sold the works to Lundin Mining in June of 2013 and decamped. As long as regulators in Michigan continued to be more accommodating than those in Mozambique, the company seems to have been content to let the people of Marquette County fight out the haul route issue among themselves.

The Key Question About The Crisis of Our Times

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From Kate Soper’s review of Jason W. Moore’s Capitalism in the Web of Life: Ecology and the Accumulation of Capital.

Had it had to pay for the bounty of nature or any of its debts to the labour of animals, slaves, the reproductive and domestic work of women, and so on, [capitalism] could never have existed. ‘The great secret and the great accomplishment of capitalism’, claims Moore, ‘has been to not pay its bills.’ Historical capitalism, moreover, has been able to resolve its recurrent crises until now only because of its continued success in ripping off what it should have been paying for, only because it has always managed to extend its zone of appropriation faster than it zone of exploitation – to overcome exhausted means or ‘natural limits’ to further capitalization, by engineering, with the help of science, technology and conducive cultural-symbolic forces, ever new means of restoring cut-price supplies of food, energy, labour and materials. Cartesian talk of Nature’s wreaking revenge on Humanity at some indefinite point in the future overlooks the often spectacular ways in which capitalism has overcome its socio-economic obstacles to growth. Particularly impressive in this respect has been its capacity to harness new knowledges in the service of economic expansion – as, for example, in the critical use made of cartography in the seventeenth century, or of time measurement, and other quantifying systems. Extensive historical illustration of all these devices and accumulation strategies is provided in the various sections of Moore’s book covering the colonizations of capitalism over the centuries, the territories thereby opened up for fresh labour exploitation, and the frontiers marked out for acquisition of pivotal resources at key historical moments (sugar, corn, silver, iron, oil, etc.).

But if apocalyptic formulation of nature’s limits is mistaken, Moore does also accept that capitalism may well now be running into the buffers, or, in others words, running out of the sources of the Four Cheaps [i.e., food, energy, labor power, and raw materials], and into a situation in which overcapitalization is left with too few means of investment and further accumulation. The problem here, he suggests, is a longue durée tendency for the rate of accumulation to decline as the mass of capitalized nature rises. In the process, accumulation becomes more wasteful due to increased energy inefficiency and the toxicity of its by-products; the contradiction between the time of capitalism (always seeking to short-cut that of environmental renewal) and the time of natural reproduction is made more acute; the eco-surplus declines, and capital has nowhere else to go other than recurrent waves of financialization. The key question, then, to which Moore continually returns without any clear answer, is whether the crisis of our times is epochal or developmental; whether, against the odds, new sources of accumulation will be located, or whether the combination of physical depletion, climate change, stymied investment opportunities and new anti-systemic movements now indicate a terminal decline.

Save the Wild UP December Gala Keynote Address

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This is the text I prepared for my remarks at the Save The Wild UP December Gala. My talk deals with the ethics of Lake Superior mining, connecting it with climate change, the loss of the wild and the dawn of the Anthropocene. It’s also a reflection on human ingenuity and human responsibility. The half-hour keynote makes for a long blog post, but I hope readers will find something here worth sharing and discussing.  

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When you invited me to speak tonight, I tried almost immediately to come up with names of people who might be better suited to the task. In this crowd, I ought to be listening and trying to catch up.

I’m an outsider, and a latecomer to boot. Some of you were here when Kennecott and Rio Tinto first staked their claim to the Yellow Dog Plains. I didn’t fully appreciate the extent of the new mining activity in this area and all around Lake Superior until about 2012. That was right after Ken Ross and I had finished making 1913 Massacre, our documentary about the Italian Hall disaster.

I was so caught up in the story our film tells that I was under the impression that copper mining — sulfide mining — was a thing of the past in the Upper Peninsula.

Very near the end of 1913 Massacre, there’s an interview with an Army veteran who’s sitting at the counter of the Evergreen Diner, drinking a coffee and smoking a cigarette. He says that after the copper mines closed in 1968, attempts to re-open them failed because people were “bitching about the environment and all that shit and the water and the runoff.” The camera, meanwhile, is exploring the industrial damage left behind by the mining operation.

This is the one moment in the film where we had to bleep out some bad language before Minnesota Public Television would air 1913 Massacre on Labor Day in 2013. The only time anyone in our film curses is when the subject turns to protecting the water and the environment.

That these two things — a destroyed, toxic landscape and a hostility toward people who care about the environment — exist side by side; that people can watch a mining company leave a place in ruins, poison its waters, damage it to the point that it’s now a Superfund site, with high levels of stomach cancer and fish that can’t be eaten, and direct their anger and curses at people trying to prevent it from happening again: our film presents all that as part of what we’ve come to call “mining’s toxic legacy.”

The Army veteran went on to say — this part didn’t make it into the film — that people who bitch about the environment are “people from out of town.” He wasn’t complaining about environmental regulation or about big government; he was complaining instead about out-of-towners, strangers who make it tough for regular guys to make a living.

Strangers can be people from faraway, or just people from whom you feel estranged: people who don’t share your ways or speak your language; and it would be possible to talk at some length about the way the mining operations in the Keweenaw estranged people from each other and from the place they live.

Everywhere it goes, it seems, mining divides and displaces people. It’s never just about extracting ore from the ground. Mining is development and the power to direct it.

When strangers come to town or when people feel estranged, we need translators, guides and mediators. This is one reason why it’s so important to have a local, grassroots organization dedicated to the shared interests people have in the nature and culture of the Upper Peninsula.

You might look like the underdog right now. But I think you’ll agree that there’s a pressing need for a more responsible, inclusive and respectful conversation about development in this place. Save the Wild UP is in a great position to lead it.

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Back home in Brooklyn, I have a fig tree. I planted it last spring. I just finished wrapping it for the winter. I love the work the fig tree involves — the care it involves — because it connects me to the memory of my grandfather and the fig tree he kept. My tree connects me to my family tree (my roots), to history, and in my imagination the tree belongs as much to history as it does to nature. The life of my tree depends almost entirely on my care. I sometimes wonder if there is anything wild about it.

There is a wild fig. The ancient Greeks even had a special word for it: φήληξ. They seem to have derived its name from another word (φῆλος) meaning “deceitful,” because the wild fig seemed ripe when it was not really so. The ancient world knew that wildness is tricky. It can deceive and elude us, or challenge our powers of discernment.

Nature, we claim, is our dominion, as if it (naturally, somehow) belonged to history, the world of human activity. Our economy organizes nature to produce natural resources. But the wild represents a living world apart from history and another order of value altogether.

We can’t assimilate the wild into an engineered and technical environment: it will cease to be wild the instant we try. The wild begins where engineering and ingenuity stop, at the limits of human authority and command. So “wild” is sometimes used to mean beyond the reach of authority, out of control.

But what’s wild is not alien. Sometimes the wild calls out to us, usually to ward us off. The wild is almost always in flight from us, leaving tracks and traces for us to read. It always responds to us, as wild rice and stoneflies respond to the slightest change in water quality, offering guidance if we are attentive and humble enough to take it.

The wild marks the limits of our powers, our ingenuity and ambition, and before it we ought to go gently.

We have not.

The headlines tell us that our carbon-intensive civilization, which brought us so many material advantages, is now hastening its own demise. We are entering an entirely new era of human life on earth. Some scientists and philosophers talk about the end of the Holocene and the beginning of the Anthropocene — the dawn of a new geological epoch of our making.

The story beneath the headlines is a record of loss. A map of the terrestrial biosphere shows that today only a quarter remains “wild” — that is, “without human settlements or substantial land use” — and even less is in a semi-natural state. Data from the Mauna Loa Observatory tell us that this year was the last time “anyone now alive on planet Earth will ever see” CO2 concentrations lower than 400 parts per million. Those levels started rising in the 1700s with the industrial revolution, spiked dramatically in the postwar period and have climbed steadily higher. Since 1970, the populations of vertebrate animals have dropped by 52 percent. The same report by the World Wildlife Fund tells us that freshwater animal species have declined by 76 percent since 1970.

That precipitous drop in freshwater species should set off alarm bells, especially here, on the shores of one of the largest freshwater lakes in the world. Since the 1970s, Lake Superior surface-water temperatures have risen and ice cover has dramatically reduced. Walleye can now live in more areas of the lake than ever before. There’s an earlier onset of summer stratification. By mid-century, according to the National Wildlife Federation, Lake Superior may be mostly ice-free in a typical winter.

Now I know it’s the holiday season and these aren’t exactly tidings of comfort and joy, but they are tidings all the same. And what they announce is this: we are responsible. We’re responsible for all this destruction of the wild — of the whole web of life — and for the changes sweeping over us. Denial will not let us off the hook.

Responsibility is not just about being held accountable for the damage you’ve done; it’s also about taking steps to limit damage, repair the broken world, reclaim it and make things better. We have that responsibility to ourselves and to future generations.

“Loss belongs to history,” writes the political philosopher Sheldon Wolin, “while politics and life are about what is still to be done.” But, he’s careful to remind us, loss still has a strong claim on the way we live now and on our future plans. The loss of the wild gives us a new responsibility that should inform our politics and our lives at every turn, direct the investments we make and the activities we sanction, and give rise to new conversations about what to do.

Saving the wild is now bound up, inextricably, with saving the human world — for ourselves and for future generations. We can appreciate in a new way Thoreau’s famous statement: “in wildness is the preservation of the world.”

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Knowing all this, why don’t we act? Why haven’t we acted?

One answer to this question has to do with the word “we,” and our underdeveloped capacity for coordinated, collective action.

Mark Carney, Governor of the Bank of England, suggested another good answer in a speech he gave back in September to a group of insurance industry executives. Not exactly a bunch of tree huggers, but actuaries, people interested in accounting for risks and costs.

Carney talked about the future in terms of horizons, near versus long term. When we focus only on the near term, we don’t account for the true cost of our activities. That’s why for Carney, climate change is a “tragedy of the horizon,” or the tragic consequence of our inability to see and plan and take steps beyond the near term. Since “the catastrophic effects of climate change will be felt beyond our immediate horizons” — beyond the business cycle and the quarterly earnings reports, beyond the political cycle and the current election — we have deferred the cost of fixing the problem to future generations.

We’ve organized things — markets, politics, institutions — so that near-term interests win out over longer-term well-being and more sustainable arrangements.

Nowadays, if you look out at the Lake Superior horizon, you might see all the way to China. An unsustainable scheme of Chinese urbanization and economic growth fueled much of the new mining activity around the lake, and especially the exploration and exploitation of copper-rich deposits. Over the last decade or so, copper was used not just to build and wire new Chinese cities, many of which today stand empty; it was used mainly for collateral on loans. As much as 80 percent of the copper China imported was used to back loans. Today, as China unravels and the price of copper plunges, commodities investors are expressing remorse. Nickel’s down, too. The rush for Lake Superior minerals now seems to have been reckless — part of a larger market failure, with unforeseen risks and costs current and future generations are likely to incur.

Or look at the Polymet project in Minnesota. It’s an exaggerated case of not accounting for the long-term costs of mining. Currently, the Polymet Environmental Impact Statement says that water treatment will go on “indefinitely” at a cost of 3-6 million dollars a year. There is no way, so far as I know, to multiply 3 or 6 million dollars by a factor of indefinitely; and even the company’s most concrete prediction is 500 years of water treatment. Just to put that in perspective, the state of Minnesota has only been around since 1858: 157 years.

How is it possible that a proposal like this can be taken seriously? They promise jobs, a fix to a near-term problem; but there’s something else at work here as well: technology or, rather, misplaced faith in technology and human ingenuity. We make technology a proxy for human responsibility.

But technological advances that create efficiencies or solve problems for mining companies can carry hidden social and environmental costs: for example, a study done after the Mount Polley spill last year concludes that “new technologies, deployed in the absence of robust regulation” have fostered a “disturbing trend of more severe tailings failures.” Recent events in Brazil underline the point.

Great machinery, even full automation, will never amount to responsible stewardship. New technologies can have unintended consequences, distancing us from each other and from our responsibilities. Things corrode, repairs are made or not, entities dissolve, contracts are broken, obligations are forgotten, empires decline and fall, even within definite time horizons.

The industrial development that mining brings distorts horizons in another way. One theme of Tom Power’s research on the economics of the Lake Superior region and on what he calls wilderness economics is that “protecting the quality of the living environment…lays the base for future, diversified economic development.” Over-reliance on mining — and mining that damages or threatens the living environment — hinders economic diversification and makes the economy less resilient. It also requires us to discount the value of water and land it puts at risk, a value that is only going to increase over the long term, as freshwater becomes ever more scarce and as carbon capture afforded by peatlands and forests becomes more critical.

To allow that calculation for the nonce is not to concede that the market value of these wild places is their true value. The living world, creation and generation, is more than a bundle of ecosystem services, a tap and a sink for human activity. That way of thinking won’t save the wild; it is bound to open the door to the very forces that have already destroyed so much of it.

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Let’s not lose sight of the larger point: if you take the long view, looking forward into the future and out across the horizon, protecting the land and water in this region actually looks like a more attractive investment than extracting all the ore from the ground.

That makes the capture of government by mining and extractive industry — from Marquette County to the state and federal levels — all the more troubling and deplorable. It directs investment and development down these risky and unsustainable paths, where short-term interests of multinational corporate actors are paramount and enjoy the full protection of law. The coercive power of the state, which ought to place constraints on corporate actors, is used mainly to benefit them. When things go south, society ends up bearing the cost.

This grassroots effort challenges that whole topsy-turvy arrangement. We have to continue to challenge it, at every opportunity, in every forum, recognizing that the results we’re looking for probably aren’t going to come on a quarterly basis or anytime soon. We have to lengthen our horizons.

At the same time, we have to re-open the conversation about how we are going to organize ourselves in this place, so that what remains of the wild UP can flourish and the people living here can thrive.

It’s imperative, too, that Save the Wild UP stay connected with other groups around the lake facing similar challenges. To take just one example: Kathleen’s recent Op Ed in the Star Tribune about Governor Dayton’s visit to the Eagle Mine. That made a difference to people in Minnesota: it was widely shared and talked about. People connected with it.

I have to believe that there’s power even in these little connections — and in conversation, cooperation and community. There is power where we come together, when we are no longer strangers and no longer estranged from each other. There would be power in an international congress where people from all around Lake Superior gathered to talk about responsible development. This isn’t the power the mining companies and the state can wield; it’s another kind of power, coordinated, collective, non-coercive, one we as a society have not done enough to realize.

We’re going to need that power to meet this current set of challenges.

Now you may have noticed that I keep using the word “we,” and I’m conscious that by including myself here I might be overstepping and intruding. But maybe that’s why I keep coming back to the UP: deep down, I know this is not a faraway or a strange place but a familiar place, where I have a stake in things — where we all have a stake.

The “wild UP” that we are organized to save is not just wilderness, waterfalls, wolves and warblers. It is the stage of humanity’s tragic predicament. It marks a boundary that we cross at our great peril. It can be a vital source of economic and social renewal.

Ultimately, saving the wild UP is about realizing the power and political authority we all have, everyone in this room, people across the UP and around the lake, to govern ourselves and make decisions about the future we want. What do we see on the horizon? What do we want for our children, grandchildren, our great-grandchildren and so on down the line? What do future generations require of us? What do we owe them?

That’s a conversation we need to keep having. And that’s why this organization deserves all the support we can give it, because Save the Wild UP connects us and shows us that we can be both powerful and responsible at the same time.

Thanks for listening so patiently, and thanks again for inviting me to the Gala.

delivered 5 December 2015

A Postscript on Weird Timing and Pending Collapse

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Since I wrote my last post on Eagle Mine, I’ve been thinking about the thing I most wanted to say and never managed to say. I’d hoped in that post to call attention to the weird timing of Conibear’s announcement, but I couldn’t quite figure out how to do that. The company announced the start of mining operations in the Yellow Dog Plains right in the wake of the People’s Climate March, and during a week when world leaders were gathered at the UN to discuss the global climate crisis and acknowledge the fragile condition of the biosphere.

The Eagle announcement never takes any of that into account. It makes some predictable noises about environmental responsibility. You don’t have to listen very hard to hear the dissonance.

Hands up during the 12:58 moment of silence at the People's Climate March. Just before this, a group led a chant that went something like: "Keep the tar sands in the ground / Close the mines and shut them down." Other than that I didn't hear too much talk about mining at the march.

Hands up during the 12:58 moment of silence at the People’s Climate March. Just before this, a group led a chant that went something like: “Keep the tar sands in the ground / Close the mines and shut them down.” Other than that I didn’t hear too much talk about mining at the march.

That this mining operation poses an immediate threat to the Yellow Dog watershed hardly needs saying. As I mentioned in my last post, Lundin Mining cannot point to a nickel and copper mining operation in the U.S. or Canada that has not polluted groundwater or surrounding waters, and there is no reason to believe that Eagle will be the magical exception — despite the company’s claims that the water they are discharging is drinkable. No one who makes that statement should be taken seriously, let alone believed, unless he follows it with a nice big glass of minewater, and fetches one for the kids while he’s at it.

Eagle is just the start. The bigger mining, leasing and exploration boom all around Lake Superior only magnifies the threat. One of the busiest mining operations in the world is about to be staged around one of the largest freshwater lakes in the world. The timing couldn’t be worse. Freshwater ecosystems are under greater pressure than ever before. Just this week, the Living Planet Index reported a 76 percent decline in freshwater species since 1970. That alarming statistic is one very clear indication of pending environmental collapse, and reason enough to protect Lake Superior from any further encroachments by risky mining operations.

It’s disconcerting, too, that the new mining around Lake Superior was spurred, in no small part, by Chinese growth and urbanization, which put a new premium on copper and nickel; and of course urbanization in China — which starts with pouring cement and raising stainless steel — will only aggravate emissions, further compromise China’s freshwater resources, and hasten environmental collapse. It is hard to see how this can end well, and it’s difficult for me to understand why anyone would pretend it is sustainable.

The weirdest twist in all this may be that this new mining operation goes into production just as China appears to be slowing down, after two decades of heady growth. As a result, “money managers are bearish on copper,” reports Bloomberg’s Luzi Ann Javier in a review of commodity ETFs; and “global inventories of nickel tracked by the London Metal Exchange are at an all-time high.” There is a glut. The warehouses are full. Right now, at least, it looks as if the rush is over.

A World of Chinese Boxes

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“Total use for greater wealth.” That was the triumphant banner under which the newly formed Bureau of Reclamation would parcel out and industrialize the water resources of the western United States at the beginning of the twentieth century. Now, as we are forced to appreciate just how scarce and precious freshwater and other resources really are, and as industrial civilization itself verges on collapse, it reads more like a fool’s epitaph.

We are, of course, still in the grip of the old industrial-era logic. I see it clearly in the arguments advanced in support of Lake Superior mining. When not pushing the jobs argument — or when an economist like Thomas Power calls their bluff — mining industry proponents and apologists regularly appeal to the utility (and the necessity) of mining around Lake Superior.

“These minerals,” one Michigan labor leader explained to me, “are gonna be extracted at some time. They have to be,” he continued, because they are “important for a lot of uses.” An imperative, mining carries certain duties with it: “The world needs the minerals” of the UP, he went on to explain, “and I think we have a responsibility to develop it right, extract it right, and share it.”

At least he acknowledges that the ore extracted from Lake Superior mining operations is destined for international markets. On the Public Television show Almanac a couple of months ago, at the start of the comment period on the Polymet EIS, Executive Director of Mining Minnesota Frank Ongaro asked us to pretend that mining Minnesota “copper, nickel, platinum” would somehow make us less “import-dependent” on those metals “for everything we use, every day in our life.” That was pure jingoism, and these arguments are misleading.

Just consider the news lately around the falling price of copper, which hit an eight-month low last week. The biggest story by far has to do less with slowing Chinese demand for manufacturing and building, and more with the “use” to which copper imports are now put by Chinese players in the commodities market. According to a Reuters story focusing on these “secretive” Chinese funds, “traders estimate more than half of copper imports into China were to raise funds using the metal as collateral over the past two years.” In a tweet that Aaron Klemz shared with me, CNBC’s Deirdre Wang Morris said it was more like sixty to eighty percent of all Chinese copper imports that were being “used as loan collateral.”

A March 13 Reuters article on the last week’s sell-off of copper by Polly Yam, Fayen Wong and Melanie Burton quotes “traders who structure financing deals” saying that “the selling of copper was due to speculators not breaches of financing deals. ‘Speculators are the main driver.'” I suppose that’s meant to be reassuring.

In a typical copper financing deal, an importer puts down nearly the full value of the copper in yuan as a deposit to a bank for a letter of credit.
The importer resells the copper into the domestic market to raise cash that can be used for other investments such as real estate.
The importer can also strike a hedged deal where the metal is stored in a bonded [or LME] warehouse in China or overseas in return for a loan from a foreign bank. In both cases, the importers no longer are exposed to the copper price.

And in all cases, copper — mined everywhere at great risk to water, watersheds, wetlands and the surrounding environment — is not being put to anything like the productive uses that most people imagine, or mining companies promote. From this angle, Polymet looks like Glencore’s bid to bring Minnesota into a Chinese collateral game. Things get even weirder when you consider the case of Eagle Mine in Michigan, where Lundin Mining has secured a $600 million credit facility to mine Lake Superior copper that will ship to LME warehouses owned by big commodity players and banks, and then serve as an object of financial speculation or as collateral in return for loans. It’s a world of Chinese nested boxes: credit swaps and derivatives will be spun around loans to mine copper to back loans in a huge urbanization scheme designed to move the Chinese toward a consumer society — and so on. It’s an unsustainable scheme, and after last week some analysts believe it’s already unraveling.

Orwell wrote in the industrial era about the critical role of mining in the “metabolism” of civilization. Now, in our post-industrial world, it appears that new mining will only hasten the cancer of financialization.

Update, 19 March 2014: For more on this theme, see Tyler Durden’s discussion of copper and “hot money” flows into China, here and here. 

Eagle, Earnings and Eminent Domain

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Lundin Mining CEO Paul Conibear seems to have expected questions about the Eagle Mine on this morning’s Q4 2013 earnings call. At the outset, he announced that Senior Vice President Paul McRae was on hand to answer any questions about Eagle analysts might have. But to my surprise there was not a single question about Eagle. Analysts seemed content to rely on the company’s guidance.

Conibear sounded an optimistic note. Despite a “brutal winter,” he said, Eagle is fully on track for production of nickel and copper concentrates by the end of 2014. Underground drilling at the mine proceeds apace, and the mill is “a beehive of activity.”

Neither he nor McRae were called upon to address transportation at the mine, which is still unresolved and may soon run into new legal challenges.

At the start of this week, the Marquette County Road Commission announced that they “can” – or at least they “plan” — to use eminent domain to seize property for County Road AAA. This came as a surprise to some people at the hearing and to the owners of a piece of land along the AAA route known as the Hingst property. The Hingst are not interested in selling. So whether the Road Commission can do what it plans to do may be left for the courts to decide.

The analysts on this morning’s call seemed either unaware or unconcerned that Eagle’s haul road might be delayed by litigation – or that the route between the mine and the beehive of activity at the mill is approaching a legal crossroads. Of course, Lundin Mining has deep pockets and can continue to fight legal challenges as they arise; but eminent domain controversies are not always easily or speedily resolved and the county may not have the stomach for protracted litigation over property rights and the divisiveness it can create.

You wouldn’t imagine that anything can stand in the mining company’s way from local news coverage of the AAA road. Interviewed by Molly Smerika of ABC10 News, Marquette County Road Commission Engineer Manager Jim Iwanicki tried to tout the public benefits of the AAA, advancing the disingenuous argument that the haul road will be a “public road, for everybody”; and Smerika didn’t bother to ask what he meant by that, or just how the Eagle Mine trucking route will serve the public good.

Smerika even gave Iwanicki a pass on the specious claim that the local “tourism industry” will benefit from the 55 MPH haul road. What could be more relaxing than a high-speed drive in heavy truck traffic? Spectacular roadkill the whole family can enjoy.

In that same interview, Iwanicki mistakenly calls the mining industry a “benefactor” of the AAA road. He clearly meant “beneficiary,” but it’s a telling slip. Lundin has taken over where Rio Tinto left off, as the chief if not the sole driver of infrastructure development and, it appears, public policy in Marquette County. After the CR 595 fiasco, the Road Commission seems determined to deliver for the mining company; but until the county takes the Hingst property, there is still room for doubt whether the confident guidance on the Eagle project we heard this morning is fully warranted.

Seduced and Abandoned in a Commodity Corner

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abandonedwarehouse

A quick follow up on my post about the Senate Banking Committee hearings on Financial Holding Companies:

Today JPMorgan announced it will exit the physical commodities business. After considering “many different factors, including the impact of potential new rules and regulations,” the bank has decided to pursue “strategic alternatives” to its commodities business. Presumably this decision extends to JPMorgan’s Copper ETF (JPM XF Physical Copper Trust), which requires the bank to hold or warehouse copper, though the news reports are so far silent on this point.

FT has the story here; Reuters here. FT saw it coming in a July 14th story about JPM looking to sell the Henry Bath Warehouses.

A proposed rule change to reduce bottlenecks at LME warehouses like Henry Bath along with what the FT calls “intensifying scrutiny” (Reuters: “unprecedented scrutiny”) may help account for the bank’s about-face, but this was clearly not a decision taken in haste.

After its acquisition of Bear Stearns (or what was left of it) in 2008 and its $1.7 billion investment to acquire RBS Sempra in 2010, JPM seemed to have a strong hand in commodities. The bank had fought hard for SEC approval of its copper ETF against copper producers and consumers; now that looks like a Pyrrhic victory.

It’s hard to say exactly how the theatrics at this week’s Senate Banking Committee hearing figure into this move. Sherrod Brown isn’t that scary.

Hazards of the Copper Antimarket

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A couple of weeks ago, I wrote a post connecting Chinese urbanization with the new mining around Lake Superior. Chinese demand for copper — which is used in everything from large scale infrastructure projects to new housing construction — is likely what brought Rio Tinto to the Upper Peninsula in the first place. But the copper extracted by Rio’s successor Lundin Mining, which took ownership of the controversial Kennecott/Eagle Mine in Michigan’s Upper Peninsula just last week, or Polymet, which is developing a mine in Minnesota near the Boundary Waters Canoe Area Wilderness, won’t be shipped directly from the US to China. Instead, it will travel a long and circuitous route from Lake Superior through a tightly-controlled system of warehouses, and now the copper those warehouses hold will be the property of big financial firms.

This new arrangement — copper’s new holding pattern — entails new risks for the global financial system, the American economy and the places where copper is mined.

A story in the Times this past weekend reported that Goldman Sachs, Morgan Stanley and other big Wall Street players are already manipulating the market for aluminum, and developing Bank Holding Companies that will mix finance with global commerce in new ways. By hoarding aluminum and exploiting the rules of the London Metals Exchange — which the banks owned until just last year, when the LME was sold to a group of Hong Kong investors — Goldman and other banks are set to make billions of dollars without actually moving aluminum into the market. Copper, as the story noted, is “next up.”

Last winter, the SEC approved two new copper-backed Exchange Traded Funds, one from JPMorgan, which was the first of its kind, and a second from BlackRock. These new Copper ETFs not only permit but require JPMorgan and BlackRock to take possession of and physically store tons of copper in warehouses. It’s an audacious plan that will “ultimately allow JP Morgan, Goldman Sachs and BlackRock to buy 80 percent of the copper available on the market on behalf of investors and hold it in their warehouses.” A few firms will essentially control the world copper market — or to establish what rightly deserves to be called an antimarket. (The term is historian Fernand Braudel’s, and has been popularized by Manuel DeLanda).

Big copper consumers like Southwire and Encore registered their dissent, but SEC officials capitulated after heavy lobbying by too-big-to-fail finance. The SEC even said it shared the view put forward by the banks, that the new funds would “track the price of copper, not propel it, and concurred with the firms’ contention — disputed by some economists — that reducing the amount of copper on the market would not drive up prices.” Robert B. Bernstein, an attorney representing the copper consumers, suggested in a letter to the SEC last year that this took too narrow a view, and that copper prices were not the only thing to worry about. Bernstein argued that the investment houses’ hoarding of copper will disrupt the copper market, impede economic recovery, and work “contrary to the public interest.”

The public interest had some defenders at yesterday’s Senate Banking Committee hearing on Financial Holding Companies, where ETFs and the banking practices behind them came under scrutiny. Chaired by Senator Sherrod Brown and featuring expert testimony from Saule Omarova, Joshua Rosner, Timothy Weiner and Randall Guynn, the hearing touched several times on how the control of metals markets by financial players like Goldman and JPMorgan will affect the American consumer and greatly heighten the risk of another financial crisis like the one in 2008 — and necessitate another bailout by American taxpayers of firms that are too big to fail (but seem, oddly, hellbent on failure).

At the hearing’s end, Sherrod Brown said we need “to ask ourselves what it does to the rest of our society when wealth and resources are diverted into finance.” It was a good summary comment, because the hearing raised a whole host of questions about the social hazards this diversion entails.

For instance, what effect will these ETFs and financial manipulation of the global copper market have on the communities where copper is mined? Yesterday’s hearing didn’t directly address the point. Randall Guynn tried to suggest that a bank-controlled mine in a bank-controlled market where the bank warehoused and manipulated the price of the metal being mined would create a reliable and steady labor market. But others warned that the speculative bubble will inevitably burst, and that will leave both investors and communities in the lurch. Even while the boom lasts, workers and communities are likely to be powerless against giant commodity-extracting, -holding and -trading financial conglomerates with lobbying power, friends in high places and apologists like Randall Guynn.

Will the cornering and squeezing of the copper market by big finance exert new pressures to relax environmental controls? Why not, especially since multinational miners already complain about the delays caused by prudent environmental assessments? Both Omarova and Rosner asked us to imagine a scenario in which the Deepwater Horizon catastrophe happened on an oil rig owned by JPMorgan; now, with banks moving aggressively into copper, a mining catastrophe like the Bingham Canyon collapse (which I wrote about here) could send shockwaves throughout the entire financial system. “If we saw a catastrophic event at non-financial facility,” Joshua Rosner told the Committee, “the impact to the [financial] institution and the Fed would be catastrophic.”

Omarova stressed the complexities of these commodity markets, and expressed serious doubts that regulators “can oversee risks caused by Bank Holding Companies and this mixture of commerce and banking.” Rosner echoed these concerns: “to suggest regulators have ability to manage holding companies is to ignore all the areas regulators failed to oversee in 2008,” he said. Worse, the banks themselves would be incapable of predicting, controlling or even appreciating the risks to which they are exposed.

I made a similar point about JPMorgan’s inability to manage its exposure to human rights risks in the wake of the London Whale episode.

The new mix of banking, speculation and holding of commodities, said Saule Omarova, may make another London Whale more likely, and worse. So history may be about to repeat itself. Omarova went on to suggest that in making their moves into the commodities markets, Goldman, JPMorgan and the other firms playing this dangerous new game seem to have adopted a business model pioneered just a little over a decade ago, by Enron. That observation prompted Senator Elizabeth Warren’s dark comment: “This movie does not end well.”

Haul Road to China

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Ore Truck
The mid-day flight from Marquette to Detroit last week was delayed for a few hours, and while we waited I had a pleasant conversation with a man who was on his way back to San Jose, California. He’d been in the Upper Peninsula visiting his father and staying in a cabin that’s been in his family for several generations. “It’s a little red cabin,” he said, “the one you see in all the postcards and stuff.” I’m not sure I’ve ever seen the place, but I’ve been to the UP enough to know from his description roughly where the cabin is. It wasn’t until we were on our way to Detroit a few hours later that it dawned on me: his family cabin is situated right on the new Eagle Mine haul road.

Once the mine is in operation, ore trucks will pass by 100 times every day, making 50 trips down County Road 550 to US 41 via Sugarloaf Avenue and Wright Street. At the Humboldt Mill, the big trucks will dump their loads, turn around and make their way by the same route back to the mine. So much for those quiet family retreats to the picture-postcard cabin. He might as well turn the place into a diner or gas station, or open a 7-11.

Haul roads and trucking routes have been a point of contention ever since the Eagle Mine was planned, and they are now a bigger issue than ever, with the City of Marquette announcing last week that it wanted a new environmental review of any plan to haul ore down the Big Bay Road, through woods and over blue-ribbon trout streams, past the NMU campus, and into the town’s commercial district. It seems people in Marquette are finally realizing with horror what’s going to happen to their beautiful city and the nearby wilderness areas once those trucks start hauling ore out of Eagle.

Rio Tinto huffed and bluffed about their haul route for years, and when plans for County Road 595 fell through, they huffed and bluffed some more about the multi-million dollar investment they would make to upgrade existing roads. Who knows what Rio Tinto told Lundin Mining about infrastructure when they sold the Eagle Mine; but (as I noted in a previous post) Paul Conibear, Lundin’s CEO, did not seem fully in possession of the facts, or was not very forthcoming about what facts he possessed, when he said that good roads were one of the things that made the Eagle Mine so attractive.

An old timer in the Upper Peninsula once told me with pride that you can drive US 41 south all the way from the Keweenaw to Miami, Florida. He could not have imagined where that same road now leads. The ore trucked down US 41 will likely end up in China, where urbanization on a scale and at a pace we can hardly imagine is driving demand for materials like the copper and nickel that northern Michigan has in abundance. Rio Tinto’s business strategy depends on rapid Chinese and, more broadly, Asian urbanization (and with the imminent opening of Oyu Tolgoi — which will ship copper from Mongolia directly to Chinese smelters — the road from Eagle must have seemed an awfully long and unnecessarily expensive haul). The Chinese government’s ambitious plans to move hundreds of millions of people into megacities and move the country to a consumer economy shape the business decisions of mining companies and will also help determine the price Michigan copper and nickel fetch. That’s why analysts who foresee a further Chinese slowdown or predict the bursting of the Chinese credit bubble advise shorting Rio and other big mining stocks.

An article about Chinese urbanization in the Times last month characterized it as a risky, large-scale, “top-down” social experiment which has already exacted huge costs: across China, rural villages are being razed, temples torn down, farmers forced from their land and moved into high-rise towers, fields and farmland paved over — often by government fiat. A little imagination and you can see the Marquette haul road as a remote extension of that effort, and it doesn’t take much imagination at all to appreciate that the road will exact its own social and environmental costs. The truck route from mine to mill will carve a noisy, busy, dirty industrial corridor along Big Bay Road and right through the city of Marquette — threatening wildlife all along the route and permanently changing the way people live around the Lake. Everything is at risk of becoming roadkill.

The Big Slide at Bingham Canyon

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Bingham Canyon slide

“This is something that we had anticipated,” said Rio Tinto-Kennecott spokesman Kyle Bennett, when asked about the huge landslide that shut down the Bingham Canyon Mine last week.

If we are to believe the Rio Tinto press release, it was nobody’s doing. The Canyon Mine simply “experienced a slide along a geotechnical fault line.” The mining company saw this trouble coming since February, we’re told, and once the movement “accelerated…pre-emptive measures were taken.”

Still, the enormity of the slide took Ted Himebaugh, Kennecott’s general manager of operation readiness, by surprise: he told the Deseret News that “he had seen nothing like it in his 36 years with the company.” A black swan event, then — a wonder. Who could have foreseen this?

It’s telling and a little disturbing that the statements the Rio Tinto issued after this disaster (and disaster is the right word here) make no mention of what was going on prior to the slide at Bingham Canyon, which is — it’s hard to believe this needs saying — a whole lot of mining and a whole lot of earth disturbing in close proximity to a geotechnical fault line. In fact, the Bingham Canyon operation is the world’s largest man-made excavation.

Rio Tinto has been very careful to sidestep any acknowledgement of its role, any connection of the mining operation with the slide, any accountability or responsibility for the slide: the Canyon experienced something; Rio Tinto watched. It’s as if some greater powers were at work in the Canyon — as if the earth in Bingham Canyon moved entirely on its own. The company of course moved everyone to safety, and now plans to get the mine up and running again, to “provide not only the jobs for the people but money to the state of Utah and economy.” The only thing that might hold things up is if they can’t resume operations safely: “we will not take a risk.”

I suppose that’s meant to be reassuring. It makes me shudder. What’s missing here is any deeper appreciation of just how risky these industrial mining operations always already are, even when things are running perfectly and according to plan. People concerned about the dangers of subsidence posed by the Eagle Mine operation on the Yellow Dog Watershed (another Rio Tinto /Kennecott project, which I’ve blogged about before — here and here, for instance) might want to have a good look at this Bingham Canyon slide and think about the risks they’re about to run. But it goes beyond — way beyond — the very serious risks of spawning streams collapsing, acid mine drainage, or other kinds of environmental degradation. Industrial mining operations put everything at risk: peace, agriculture, and social stability in many parts of the world, environmental sustainability everywhere mining is done.

That doesn’t mean mining shouldn’t be done at all. It means that when it is done, and done at this scale, people, communities, companies and investors need to understand fully how mining will affect them, what it will require of them, what it will involve, what it will bring and what it will leave behind. Company- and industry-sponsored community outreach and corporate responsibility efforts are insufficient; they are created to conceal the real risks and the true costs of mining.

“Mining is the material basis for life, making it difficult to exaggerate its significance. George Orwell called it part of the ‘metabolism’ of civilization,” Shefa Siegel writes; and yet “the ethics of mining are nowhere to be found.” His essay is a must-read, especially this week, in the wake of Bingham Canyon and the run up to the Rio Tinto Annual General Meeting.

One outcome of mining’s omission from environmental and development ethics is that as other disciplines and sectors gradually integrated concerns about sustainability into their knowledge communities, mining engineering, mineral economics and processing, geochemistry, and other sub-disciplines associated with mining have remained static. As a result, there is less experience with the study and practice of sustainable mining than, say, forestry, agronomy, or soil ecology. There is no mining equivalent, for example, of the Yale School of Forestry & Environmental Studies. And while there is much anxiety about the failure to enact the ethics of climate change or environmental health, mining does not even have an ethical roadmap that we do not follow. With climate change there is broad agreement that exceeding a 2 degree Celsius rise in temperature breaks the planet. Pollution experts know to a microgram the tolerable level of exposure to mercury, lead, and arsenic. But what is expected of a mine?

Only in the last decade has vocal public discourse about global resource policy emerged. The effort to build an ethics of sustainable extraction is structured around two principal concepts: transparency and corporate social responsibility. While transparency initiatives concentrate on exposing revenue transactions between the private and public sectors in extractive industry projects, corporate responsibility efforts focus on the improvement of relations between companies and communities. The transparency movement has sparked advocacy and legislative activity in the United States, United Kingdom, and Canada—the host markets for much of the world’s trading of mining shares. Meanwhile, companies are dedicating more staff and resources to ensure the benefits of mine development reach communities in the form of improved services, infrastructure, and education. These twin concepts are intended to transform resource extraction from a winner-takes-all model to one in which all parties benefit.

The problem is that neither corporate responsibility nor transparency speaks to the reconciliation of extraction with ecological limits, or to the fact that we have entered a period of resource scarcity that necessitates nothing short of monopolization to make the business of industrial mining profitable. This order of magnitude leaves no room for multiple uses of land and resources, especially the smallholder farming and mining economies upon which people depend in mineralized places. Endemic poverty, conflict, and ecological collapse in these regions are rooted in the inequitable allocation of resources. In such cases, win-win solutions are an illusion.

I’ll be live-tweeting the Rio Tinto meeting on Thursday.