Tag Archives: ESG

New Citigroup CEO Has Strong Ties to Chile’s Luksic Group

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Goodbye to all that? With Andronico Luksic Craig looking on, Jane Fraser makes her exit from the May 2019 press event marking the repayment of the Banco de Chile’s subordinated debt.

Jane Fraser, who was named last week to succeed Michael Corbat as CEO of Citigroup, has longstanding business ties to one of Chile’s most powerful business conglomerates, the Luksic Group.

Antofagasta Plc, the company with plans to mine copper and nickel on the edge of the Boundary Waters, is among the conglomerate’s principal holdings — which is why I thought it would be instructive to start looking at the Fraser-Luksic connection as Citigroup prepares for its leadership transition.

It’s unclear just how much exposure Fraser has had to the mining side of the sprawling Luksic business empire. Citibank’s dealings with the Luksic Group over the years appear to be primarily through Quiñenco SA, the financial holding company through which the group controls its investments. It is clear, however, that Fraser enjoys a fairly close business relationship with Andronico Luksic Craig.

Fraser’s relationship with Andronico Luksic Craig and the Luksic Group developed as she came up through Citigroup’s Latin American leadership ranks. After a four-year stint from 2009-2013 as CEO of Citi Private Bank, which serves the bank’s wealthiest customers, the Luksic family possibly among them, Fraser was CEO of Citigroup Latin America from 2015-2018. During that period, she also served as Vice-Chairman of the Board of Banco de Chile, co-chair with Andronico Luksic Craig.

The role came with the job. In 2007, Citigroup and Luksic-controlled Quiñenco SA established a partnership that gave Citi a 32.9 percent stake in LQ Inversiones Financieras, the Quiñenco subsidiary that has held a controlling stake in Banco de Chile since 2002. (This was, not coincidentally, the year Andronico Luksic Abaroa handed the reins to his sons Andronico and Guillermo.) The Luksic Group grew rapidly after its move into banking, growing in value from $1.9 billion to $15.6 billion over a ten year period, according to a 2017 London Mining Network report, and “profits were increasingly linked to financial capital and speculation.” Citi took part in that spectacular growth, and in 2010 increased its stake in LQIF to 50 percent.

The partnership with Citigroup also helped the bank through the final stages of its recovery from the financial crises of 1982-3, culminating in the repayment of the bank’s subordinated debt in May of 2019. A “dark chapter” of the Pinochet period had come to a close, thirty years after Pinochet fell from power. The event must have had special significance for Luksic, whose family had decamped to London after the 1973 military coup and only returned to Chilean investment circles with the onset of the financial crisis and recession of the 1980s. Settling the debt of the Banco de Chile must have felt like an act of historical redemption.

In the press conference organized for the occasion, Fraser appeared in the Paseo Ahumada side by side with Luksic and Mario Marcel, the president of Chile’s central bank.

Fraser is now set to become one of Wall Street’s most powerful bankers. Asked to comment on her promotion, Luksic was effusive in his praise, calling Fraser a “pioneering woman” and a “tremendous leader” who will make “an enormous contribution not only to Citigroup, but to the entire financial industry.”

It is still too early to say what, if anything, her move north might mean for Luksic’s business fortunes or the Chilean mining company’s North American ambitions.

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.

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

The Boom Starts With A Rush

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Overturned Eagle Mine TruckThe news that an ore truck overturned last week on its way from Eagle Mine to Humboldt Mill brought me back to a conversation some friends and I had in the lobby of the Landmark Inn this past October. Earlier that day we’d been touring the Yellow Dog Plains on the smooth wide roads that the Marquette County Road Commission cut through the wilderness for the mining company, keeping count of the big trucks we saw. All the trucks were outfitted with double loads — two side-dump trailers worth of ore — and the ore was covered with black tarps, neatly tied down.

The ties caught my attention. I wondered how long it would be before human nature set in, and workers started getting lackadaisical about how they tied down the tarps, or stopped bothering to secure and check each tie.

I was not even thinking of anything so scientific as studies by Ludovic Moulin, which find that over sixty percent of industrial accidents can be attributed to “organizational and human factors.” I had in mind something closer to the line about the field of the slothful in Proverbs: “yet a little sleep, a little slumber, a little folding of the hands to sleep,” and disaster can ensue. Eventually, someone in the course of the day was going to shrug and say to himself, “good enough,” slacken his attention, or hurry off to a break, I thought, and things could go downhill from there. A loosely tied load might spill on the highway or on the roadside, even if the driver was taking every precaution on his route. Repeat that small human error enough times, and you have a trail of sulfide ore from the mine to the mill, running through the Yellow Dog Plains and right through the center of Marquette.

Turns out I’d failed to fully grasp the reality of the situation. I didn’t imagine at the time that the tarps used to tie down the ore on the Eagle Mine trucks would rip in the case of an accident. In this case, the tarp of the second trailer was “torn open,” according to Save the Wild UP; Yellow Dog Watershed Preserve has a photograph of the torn cover here. I was also unaware that the Michigan Department of Environmental Quality allowed these soft-cover tarps only after Eagle Mine had requested a special amendment to its permit. Hard covers would take longer to remove; with soft covers, the trucks could be more easily unloaded. Time is money.

Special amendments and exceptions seem to be the rule when it comes to Eagle. For instance, though Lundin Mining CEO Paul Conibear has repeatedly boasted to investors about the great transportation infrastructure already in place at Eagle when Lundin bought the property from Rio Tinto, the truth is that the current haul route for Eagle Mine was never part of the plan. It was a last minute concoction — an “upgrade” of roads hastily authorized by the Marquette County Road Commission. No surprise, then, that a full environmental assessment of the haul route — as required by Part 632 of the Michigan Nonferrous Metallic Mining Law — has never been made.

Last week’s accident might be yet another sign that Eagle Mine was not actually ready for prime time when Lundin announced, at the end of November, that Eagle had entered commercial production ahead of schedule. But consider things from the company’s point of view. Lundin had acquired the Candelaria copper mine from Freeport only a month earlier for $1.8 billion — taking on huge debt — and by the end of November copper prices were declining precipitously. That made it all the more urgent to start delivering nickel at Eagle. After all, analysts expect “Lundin to introduce a dividend in 2015 once its Eagle mine is ramped up.”  Pressure is mounting. The Lake Superior mining boom appears to have gotten underway in a slightly panicked rush.

Sustainable Development, Derailed

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train-derailment-sept-ilesOn Thursday of last week, an avalanche derailed a Quebec North Shore and Labrador Railway freight train owned by Iron Ore of Canada as it made its way north along the banks of the Moisie River.

Divers recovered the body of Enrick Gagnon, the train’s engineer,  just this morning. The train’s lead locomotive is still completely submerged in the Moisie and another is partly submerged. Each locomotive holds about 17,000 litres of diesel fuel, and a 20 kilometer slick — “a silvery layer” — has spread over surface of the Moisie. The train was not hauling ore; its freight compartments were empty for its northbound run.

The Moisie and its watershed are part of a designated aquatic reserve, so the river is technically protected from mining activity; but so far as I can tell, the 16 mile stretch that the Quebec North Shore and Labrador Railway line runs along the Moisie was built in 1954, when mining first began in the region, and more than fifty years before the Quebec government published its conservation plan.

One stated aim of that plan is to protect native species, including and perhaps especially the Atlantic salmon running in the Moisie. As nearly every report on the Moisie catastrophe notes, the pristine waters of the remote northern river are internationally renowned for salmon fishing.

For the Innu of Uashat mak Mani-utenam, whose traditional territory the Moisie crosses, the river is much more: it is, in the words of one newswire report, a thing of “inestimable cultural value.”  So development in Innu territory continues to risk the inestimable for the merely estimable: in this case iron ore, jobs, growth. The Innu, who call themselves “the true owners of the land,” say they never consented to the tradeoff, and that the mining operation in their territory violates “international law, particularly the principle of ‘free, prior and informed consent.’”

Now, with this trainwreck, the Innu have an environmental crisis on their hands; but over the past couple of decades, the Innu say, they have also witnessed a gradual and “cumulative” effect on the environment and their community due to “the intensification of industrial activities” in the Sept-Îles region.

Iron Ore of Canada has a lock on the region’s economy, and development opportunities in the Labrador Trough are, in the words of IOC’s CEO Zoe Yujnovich, “potentially unconstrained.” Rio Tinto, which owns the majority stake in IOC, recently increased annual production capacity for the region from 18 to 23 million tons of ore concentrate, and plans to open a new mine called Wabush 3 to help meet that goal.

A 2013 publication touting Rio Tinto’s “Sustainable Development” plan for the region notes that the additional revenue generated by IOC’s “wholly owned rail company” will keep pace with growth: “use of the railway is set to increase significantly in the next few years as a result of our own expansion projects and junior mining startups in the area.” In other words, more trains than ever will be traveling along the Moisie, from Labrador to Sept-Îles Junction.

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 CEO and the Social Compact: Conibear Comes to Michigan

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I’ve been puzzling over the few public comments Lundin Mining CEO Paul Conibear has made regarding the announcement that his company plans to acquire the Kennecott Eagle Mine from Rio Tinto. Industry analysts studying these same tea leaves at the end of last week seem to have judged the Eagle sale to be auspicious. But I am looking for other signs — evidence of Lundin’s disposition toward the communities around the Eagle Mine and some indication of how Lundin plans to approach and address the social and environmental challenges of the Eagle Mine project.

There are suggestions in Conibear’s resume of some interest in local and global development issues and an appreciation for the environmental and social facets of large scale mining projects. An engineer by training, Conibear made his way as an operations man, parlaying his experience in Latin America, Europe and, above all, at the Tenke Fungurume mine in the African Congo into a leadership position — first at Tenke Mining, where he served as CEO before its merger with Lundin, and then, when Phil Wright resigned in 2011, as CEO of Lundin Mining. During his time in Africa, according to his official corporate biography, Conibear was “active in advancing the group’s corporate social responsibility initiatives”; and he “is one of founding directors of the Lundin for Africa Foundation, a charitable entity established to support sustainable development across Africa”. Here, then, is a CEO with CSR credentials.

It’s too early to tell whether this will matter when it comes to Lundin’s work in the UP. Reports that the company will uphold Rio Tinto’s commitments to the communities around Eagle Mine — and keep the current Kennecott team in place — are still short on specifics. That will probably be the case at least until the transfer of the mining permit is complete and Lundin has had a chance to figure out firsthand what’s working at Eagle and what isn’t. Conibear’s affiliation with Lundin for Africa, and that organization’s focus on social enterprise, may not translate to efforts on the ground in Michigan, for all sorts of reasons; he himself has said nothing so far about how the company will continue, depart from, or improve upon what Rio Tinto has already done. In a press release Lundin issued last week, the CEO is quoted as saying only that the acquisition of the mine in Michigan’s Upper Peninsula

fits ideally within Lundin Mining’s asset base and is the result of the disciplined approach we have been focused on for some time to acquire high quality, advanced stage assets in low risk, mining oriented jurisdictions. The Eagle Mine represents a very unique opportunity to acquire a high-grade project which is under construction and expected to begin generating significant levels of metal production and cash flow prior to the end of next year. Northern Michigan has an outstanding iron ore, gold and base metals mining history and consequently excellent regional power, road and rail infrastructure, with extensive mining expertise within local communities to support and staff Eagle Mine.

I was struck by a couple of things here, but most of all by the invocation of northern Michigan “history” in the last sentence. What makes the history of the Upper Peninsula so “outstanding,” in Conibear’s view? Nothing like what drew Richard White to his classic study of the French and the Algonquins in the pays d’en haut. Not the brutal strikes and hard times Arthur Thurner wrote about in Rebels on the Range; not the complex system of social patronage that obtained between immigrant hard-rock miners and the tight-fisted, iron-willed mining captains, described by historians like Larry Lankton. Not even the attitudes toward history that impressed me most in the interviews I did in connection with 1913 Massacre — the deep and heartfelt emotion many people in the area invest in the past, and the pride they feel in what their ancestors accomplished and endured; the way that shared stories have both concealed past trauma and allowed the region to heal; a resilience that has allowed communities on the Keweenaw to weather boom and bust.

It may not seem reasonable to expect much feeling for the history of the UP in Conibear’s remarks. He’s got a mining company to run and investors and analysts to impress. But it’s worth noting that a more considered view of UP history (and a look at the environmental damage caused by the last round of mining) would not necessarily lead one to characterize a mining venture in the Upper Peninsula as “low risk.” For Conibear, UP history seems to matter to the extent it can be exploited for business advantage. The past has value in the present as a source of “infrastructure” — a reliable power grid, rail and roads — and “expertise.” Widen the lens a bit, however, and that same history becomes a source of uncertainty and obligation as well as strength.

Take roads, for instance. It’s odd that Conibear would single out roads as one of the things that attracted Lundin to northern Michigan and the Eagle Mine. A proposed $80 million project to build a haul road from the Eagle Mine to the Humboldt Mill ended in failure earlier this year, after the Michigan Department of Environmental Quality denied the permit for County Road 595. It was a big setback for Rio Tinto, which had fought for the road for five years. Defeated, the company announced that it would spend $44 million to upgrade existing roads instead, but that plan remains controversial — and now that project and the cost as well as the controversy it entails are Lundin’s to manage.

There’s another, more general observation to be made here as well. History doesn’t just throw all those things — power, roads, expertise — into the Rio Tinto deal. If history, or the experience of the past 150 years of mining, works in favor of companies operating in the UP today, it also marks a good place to start enumerating the responsibilities mining companies have to society. This is a point about the relationship of business to society that Elizabeth Warren made in the run up to last year’s presidential election, and which snowballed into a ridiculous controversy over Obama’s “You Didn’t Build That” remark. It’s worth recalling Warren’s argument in this context. A skilled and educated workforce, reliable infrastructure, the protection of the law, even the free association to do business with whom and where you like, Warren said, are part of an “underlying social contract.” Companies have to honor that contract and “pay it forward” if they hope to continue to benefit from public goods; and society has a responsibility to push hard on companies until they do.

In Michigan, of course, Governor Rick Snyder and his cronies did all they could during last year’s lame duck session to weaken the compact between business and society and to relieve mining companies of the obligation to pay forward anything at all. A bill sponsored by the UP’s outgoing Republican representative Matt Hukki set out to “ease upfront costs for mines” and make the taxes on mineral extraction in Michigan “more simple, fair and efficient,” replacing property tax, corporate income tax, sales tax and use tax with a single “severance tax” of 2.75 percent on the gross value of minerals extracted — once the mine went into production. That works out very nicely for Rio Tinto, which never took Eagle into production; and it would be worth finding out whether the company is now entitled to a tax credit on property taxes paid before the passage of HBs 6007-12. That retroactive credit — the opposite of paying it forward — is one provision of Hukki’s bill.

Tax relief and regulatory easing are no doubt some of the things Conibear had in mind when he described the Upper Peninsula as a “mining-oriented jurisdiction.” It’s a piece of industry jargon that is used to talk about whether conditions are favorable or unfavorable — a way of assessing risk. Among US states, Michigan has never ranked very high in the annual survey of mining jurisdictions by the Fraser Institute [pdf]; but generally, writes Aaron Mintzes, “jurisdictions within the United States rank very well in large measure because we have stable and transparent democratic institutions, courts that enforce contracts and resolve disputes, and generous mining policies (like the 1872 Mining Law)”. This is another unappreciated provision of the social contract: strong public institutions and the rule of law reduce the risks companies take as much as if not more than mine-friendly policies.

You would think that companies, in turn, would be obliged to do everything they can to reduce the risks they pass on to society. That has rarely been the case, and it has not been the case when it comes to the Eagle Mine. Rio Tinto and now Conibear and Lundin are requiring communities around the mine and all around Lake Superior to assume an enormous risk. It goes beyond legitimate fears of environmental damage due to subsidence or acid mine drainage. When Eagle goes into production in 2014, it will signal the start of a new mining boom in the Lake Superior region. Over the next several years, one of the world’s largest mining operations will be staged around one of the world’s largest freshwater lakes. Just look at the map of mines, mineral exploration and mineral leases published by the Great Lakes Indian Fish and Wildlife Commission. It is difficult even to imagine the environmental hazards and the social costs that the mining boom and the inevitable industrialization of Lake Superior will entail. I am still wondering whether Mr. Conibear appreciates that.

Newmont, Nonsense and Good Faith

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I’m concerned that my earlier post about John Ruggie’s Just Business may have given the misleading impression that Newmont Mining’s troubles in Cajamarca had been resolved, or that the company’s publication of a study called Listening to the City of Cajamarca had softened local opposition to Newmont and its Minas Conga project — a $5 billion project to build one of Peru’s largest gold mines. Events of this past week were a reminder just how far apart the company and the campesinos remain, and just how much work it will take to bridge the distance between them.

Water remains the central issue in Cajamarca. Protests this week focused on the mining company’s so-called Water First plan. Water First involves draining Lake Perol, one of several alpine lakes in the region around Cajamarca, to build four reservoirs. Newmont and the Peruvian government promote Water First as a socially responsible effort to increase water capacity year round throughout the region, where water supply is now subject to seasonal variation. But Wilfredo Saavedra, President of the Environmental Defense Front of Cajamarca or Frente De Defensa Ambiental de Cajamarca, says Water First puts the needs of the mining company above the rights of local communities: “The mine needs water for its project and it’s going to give us polluted water,” he told Reuters. “We want them to leave us alone with our lakes, which are enough for us.”

By Tuesday, protesters were throwing stones at police and police responded by firing rubber bullets — or, if you follow the police account, one rubber bullet. Local groups plan to occupy Lake Perol starting June 17th. It seems things in Cajamarca are about to escalate again.

A popular assembly at Lake Perol in November, 2011. Photo credit: EFE/Paolo Aguilar

A popular assembly at Lake Perol in November, 2011. Photo credit: EFE/Paolo Aguilar

In the midst of these fresh troubles, and partly due to them, Zacks, an investment research firm, issued a note downgrading Newmont to the status of underperformer. “Newmont may continue to face headwinds due to increasing mining and non-mining costs. Moreover, its production may be affected further due to geopolitical risks.” The company’s troubles in Peru and elsewhere are starting to chip away at market reputation and shareholder value.

Newmont has tried to smooth things over. In response to the violence in Cajamarca, the company issued a statement calling for the protesters “to embrace good-faith dialogue”. That is not likely to happen anytime soon. Yesterday, Marco Arana Zegarra (who has come to know the mining company over the years) said Newmont was just “playing the victim.” Overcoming skepticism and establishing good-faith dialogue in Cajamarca is going to require much more than a short exercise in public relations.

For starters, Newmont will need to repair the damage done by Roque Benavides, CEO of Buenaventura, Newmont’s partner in the Minas Conga project. On Thursday, Benavides dismissed objections to the Water First plan, pointing out that the company has not yet begun draining Lake Perol and saying the current protests make “no sense.” This is worse than insulting: it’s saying that the protests are devoid of meaning, that they are nonsense. People’s concerns and worries, their anger and their fears, the lives and the established ways of life they are trying to protect, the myths, memories and meanings they associate with Lake Perol — all of that is meaningless and without value. Now there is gold to mine.

If “Water First” puts an Orwellian twist on the mining company’s plan to appropriate the water resources of the Cajamarca region, Benavides’ statement takes us to the other side of the looking glass, where it makes more “sense” to drain a mountain lake in order to mine gold than to live, as people have lived for centuries, around the lake, making use of its waters according to the seasons.

Benavides has been a bit of a loose cannon. He infamously said that he “hates” the idea of business having to gain social license and that “he does not understand” what social license means. The remark was widely criticized, not just because it seemed callous, but also because it is tantamount to saying that in Cajamarca, Newmont, Buenaventura and their cronies in government can do as they please. Where is the good faith in that?

It’s surprising, then, that in the current situation no one at Newmont has advised Benavides — or implored him — to remove himself from the conversation and refrain from making public remarks about the situation in Cajamarca. Good-faith dialogue is only possible if both parties have an equal chance to discover and create new, shared meaning, together. There can be no dialogue, and no good faith, if one party claims all rights to do as it wishes simply because it is mighty, and rejects the position of the other as pure nonsense, simply because it is meek.

Liability? Responsibility? No, Sustainability.

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I’ve been looking for a transcript of the remarks Johan Lubbe made yesterday, on behalf of the National Retail Federation — a trade association representing about 9000 American retailers and the chief and most vocal proponent of an “alternative” to the legally-binding global pact to ensure the safety of clothing factories in Bangladesh. The global pact has won pretty widespread support in Europe, but so far there are only two American signatories. The Americans won’t sign up because, they say, the global pact would expose them to litigation, or what one spokesperson for The Gap called “unlimited litigation,” should something go wrong at one of the factories they use.

Yesterday they brought out Lubbe. Here is how today’s AP report summarizes his remarks:

On Friday, the retail trade group made available for the media an international labor lawyer who rebuked the global pact and said that it is too vague for retailers to sign. At the heart of the criticism: the contract would expose retailers to legal liability for the failure of factories to comply with the set standards even though merchants don’t own the facilities.

In rejecting the global pact, Lubbe and the NRF are trying to limit the scope of legal liability to ownership — in this case, brick and mortar property ownership. I can’t tell if the claim here is that with outsourcing comes immunity, or that liability does not extend in any way down through the global manufacturing supply chain. For the moment, however, I’m less interested in all that than in knowing whether Lubbe or the NRF have made any kind of statement acknowledging their responsibility for conditions in the Bangladesh garment factories.

Responsibility is a word that applies, or should apply here, no matter how the debate about liability gets resolved. It is not a “vague” word of the sort that the NRF would reject. It’s a word that entails specific human rights commitments, which have been carefully enumerated and articulated in connection with the UN’s Guiding Principles for Business and Human Rights. It comes with ownership, but it also extends beyond ownership to business partnerships and relationships — all the way to Bangladesh.

I imagine there is anxiety that acknowledging responsibility might be misconstrued as admitting liability. The word and the idea of responsibility are certainly nowhere to be found in the statement the National Retail Federation issued on Wednesday. Instead, the NRF focused on how applying “a legal standard” would limit the ability of retailers and brands “to respond” to an “ever-changing environment.”

Given the global nature of the apparel and retail industry, applying a legal standard is a very complex proposition. The Safer Factories Initiative understands that flexibility is required to address a broad array of worker safety issues and enables brands and retailers to respond swiftly and effectively to an ever-changing environment.

Let’s forgive the sloppy confusion (“flexibility is required to…enables”?) of the second sentence, and hope that in future the NRF hires a PR firm with grammarians in its employ. Just have a look at the language they’re floating here. These are such well-worn business tropes that we barely notice them: complexity, flexibility, responding swiftly to an ever-changing environment. Here, the big, giant brand, the multinational with suppliers and partners all around the world, is both powerful agent and vulnerable patient: capable of responding, at least if not bound or restricted by law, but subject to forces far beyond its control.

Sidestepping obligations and commitments, the NRF statement opts for “flexibility” and (as the statement continues) “sustainability,” an already-overused and much-abused word that appears in nearly every statement the Federation makes. Talk about vague. The NRF want “sustainable solutions” to make the Bangladesh garment industry “a sustainable manufacturer.” They offer a “sustainable action plan” now and “will continue to pursue a sustainable industry-wide solution,” and so on. The word and its variants appear 9 times in the course of a single statement.

You get the idea. As companies respond to rapidly changing conditions — or flee from one disaster to the next — they need flexibility to fashion a sustainable way forward. Otherwise they might be engulfed by their own blunders, or held responsible or liable for their part in the whole mess before they can run to the next country.

The Social Costs of the Hardware Revolution – A Postscript

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For now, this can be only a short postscript to what I had to say earlier today about the CNN Money article by John Hagel and John Seely-Brown on “the hardware revolution.” It has to do with a question that occurred to me as I read, and to which I don’t yet have anything like an adequate answer. That will take some research. But I at least want to articulate the question.

Startups and smaller companies can now play in the hardware space in part because the barriers to entry have been lowered, Hagel and Seely-Brown observe. There are a number of factors at work here. New and cheaper technologies from 3D printers to more user-friendly software put the design and manufacture of hardware within reach of smaller companies. And “a new class of factories” will produce the smaller orders that new entrants and entrepreneurs typically require:

New infrastructural elements have also helped new hardware products move from the hobbyist’s basement to the startup garage. Before, to get a contract manufacturer’s attention, you had to commit to producing high volumes (say 50,000 or more units). But a new class of factories — mostly in China and Mexico — will manufacture batches as small as 5,000 units. By filling low-volume orders, these factories have filled an important structural hole in the market: They allow entrepreneurs to launch new products for small consumer groups with little investment.

My question is whether conditions and, for that matter, sourcing practices in this new class of factories, and the more fluid hardware market they serve, are not going to be terribly difficult to monitor. We’ve seen how challenging it is even to ensure fair labor practices in large-scale manufacturing facilities in China used by major global technology brands; now, as smaller-scale manufacturing facilities proliferate and Mexico becomes a technology “quicksourcing” destination for American companies, the problem will no doubt be aggravated.

The reasons for this are probably obvious. I would frame the issue in a few ways. First, how much visibility do these smaller players actually have into their supply chains? Second, how much leverage do they actually have with their manufacturers, since they are only placing small orders, and, depending on their success, may or may not be repeat customers? Third, there’s a question about whether these small businesses — the small hardware startups placing orders and, for that matter, the manufacturing facilities taking them — have the capacity to take on the human rights challenges that seem inevitably to accompany outsourcing.

In other words, the social costs of the hardware revolution deserve some careful consideration.