Shrinking mining budgets will spark government disputes – Chatham House (Mineweb.com – November 28, 2013)

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“Future disputes have significant ramifications not only for the economic and political stability of the countries concerned but also for companies’ assets and reputations,” says a new Chatham House report.

RENO (MINEWEB) – A series of bitter disputes in recent years—some of which have involved lengthy litigation, project cancellation or even expropriation—has unsettled mining sector investors and global metals markets, says the Chatham House Report, Conflict and Coexistence in the Extractive Industries.

Over the last decade, more disputes involving mining companies or oil and gas have gone to international arbitration. Between 2001 and 2010 arbitration cases for mining increased nearly fourfold, says the report.

Not so long ago, experts suggested expropriations of mining projects would become a thing of the past, but nationalizations involving Rio Tinto in Guinea and First Quantum Minerals in the Democratic Republic and of the Congo have cost investors billions.

“The highest incidence of arbitrations correlates strongly with the commodity price boom,” said Chatham House. “They range from fights over changing legislation and project revisions to wrangling for liability for environmental damages.”

Community-level conflicts are frequent in “countries with weak environmental frameworks, high economic and social inequality, and insecure water rights and land tenure,” Chatham House observed. ‘One assessment identified 126 active local conflicts in Peru related to the extractives sector as of mid-2013.”

Nevertheless, Chatham suggested that the extreme positions taken by Argentina and Zimbabwe “are likely to remain exceptions rather than the rule. Most producer governments remain wary of deterring foreign investment.”

At the heart of the problem is the absence of a practical formula or benchmark to determine an equitable distribution of revenues between the state and mining companies,” Chatham asserted. In mining at least 25 governments including most major mining countries announced or implemented tax or royalty increases in 2010 and 2011 alone.

“In theory, governments should focus on capturing resource rents in excess of normal profits,” said the report. “In practice, distinguishing objectively between rents and profits is extremely difficult.”

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