Possibilities of fair deal between state and the mining company Pentti Noras, Director for Int'l Relations of Geological Survey of Finland Mining On Top: Helsinki 16-17 September 2013 | Helsinki

1. Possibilities of fair deal
between state and the
mining company”
16-17 September 2013 at Finlandia Hall, Helsinki
Pentti Noras, Director International Relations,
Geological Survey of Finland GTK

2. Agenda
• Global developments
• Characteristics of the deal
• Roles of state and the enterprises
• Government control worldwide
• Positive linkages of mining industry
• Pros and cons of the deal in Finland
• What can be done?

3. 1980s: Dispersion of company operations and community relations
INTEGRATED FUNCTIONS OF
”LOJO KALK LTD”
TILL 1980s SINCE 1990s
Unit operations of mine and plants all by company employees by contractors
Processing up to end products from limestone to prefab
construction elements
subcontractors/
customers
Logistics:
• Road transports
• Rail terminal & transports
• Seaport
• Shipping
company vehicles
company terminal and cars
company port service company
company reighters
contracted
State Rail
Port Authority
contracted
Power generation & distribution company´s power branch privatized
Operation & Maintenance (O&M) company function contracted
Health & Social care
”Employee Club”
company health post
company offering
purchased
N
Education & Training
Banking
Pension Fund
company vocational school
cooperative savings & credits
company fund w/privileges
Public
privatized
public fund
Non-mining related production seed crystal for NOKIA decreasingly
3

4. Changes the world finds, develops and
uses natural resources
• Globalization of commerce
• Democratization of governments
• Shortsighted business behaviour
• Increasing flow of information
• Population growth
• Increasing demand for resources
• New demand mix
• Critical sentiments & nationalism

5. Characteristics of the deal between state
and company
• Btw citizens and shareholders (theory),
btw regulatory regime and company (practice)
• Rights and benefits of several stakeholders be recognized
• Extremely political: all national levels, foreign-political
• Sensitive to citizen/group activity -- activism
• Rules cannot be fully carved in stone
• ENVIRONMENT

6. New order of industrial production
70%
30%
Source: Accenture 2013
Atlantic
Pasific
Arctic
China

7. Last updated: November 29, pm2012 12:45
Mines protest exposes
Myanmar dilemma
By Gwen Robinson in Bangkok

8. Enterprise role and the State intervention
• The role of mine enterprise:
– bring capital and technology,
– comply with business regulations,
– generate ”return on investment”,
– demonstrate CSR.
• The role of State:
– Set-up and execute ownership functions,
– safeguard the socio-economic potential of
mining to the society, ”return on resource use”,,
– supplement the negative spill-over effects
from production.

9. Government take via taxes and royalties currently
increasing
Ernst & Young 2011-2012

10. Increased government control in 2010s
• Outright nationalization: Bolivia, Venezuela, Argentina
• Stealth nationalization: Chile, Sweden, Botswana, Ghana, Mongolia,
South Africa, India, Zimbabwe
• Preference to local companies: China, Russia, South Africa,
• Corporate income tax: Canada, Chile, Indonesia, Ghana
• ”Above average profits”: U.K., Ghana, Namibia, Zambia, Tanzania
• Royalties: U.S., India, Zambia, Zimbabwe
• Resource Rent Tax (RRT): Australia, India
• Export/import duties: China, India
• Requirements on using local inputs: South Africa
• Requirements on value-addition: South Africa, Indonesia
• Support to local science and technology: Malawi

11. What justifies a marked take from licencee to the state?
• return on using of the public capital: revenues and linkages
• market value of minerals
• resources depletion
• competitive land use
• potential of multiple, unforeseen risks
• decreased quality of environment
• project temporarity
• required supervision and inspection
• extra post-closure legacies

12. Policy Potential Index (Fraser 2012/2013)
Chile

13. Could successfulness of the deal be basis for
ranking of countries?
NEW RANKING SYSTEM FROM
?

14. MINING Value-adding
KnowledgeInfrastructure
Supplies
Fiscal
Mining linkages

15. MINING
Fiscal
Mining linkages

16. Copper price to cost 2000-2012
production cost
90% percentile
LME price
(world production value USD 110 bill. in 2012)

17. Mining tax base: sample of 20 TNCs
Source: PwC 2010

18. Tax planning -- Yes
Tax evasion -- No
• Transfer pricing: combat through additions to the
corporate tax regulations
• Double Tax Agreements: to be amended to protect
the Mongolian tax base

19. Mining linkages
MINING Value-addingSupplies

20. Value-addition of minerals in the U.S.
USD 106 bill.
Mine production + scrap (without net exports)
USD 633 bill.
Processed materials
USD 2,230 bill.
Value-added to GDP
(15,100)
USGS 2012
in 2011

21. 16Pentti Noras 3.11.2009
Research &
education
Exploration
Drilling
Blasting
Loading
Hauling
Mine structures
Cluster Finlandesa-Sueco de Industria Minera:
Distribuidoras para Operaciones Mineras
SWEDISH PRODUCERS
RMG
SGU
universities Hagby
Craelius
Flexit
ABB
Alimak
Indau
Jama
Wassara
Atlas Copco
Toro
Volvo
FINNISH PRODUCERS
Dyno Nobel
Kimit
FORCIT
I Products for underground and open cast mining
operations
Source: Ericsson & Noras, 2005, 2012

22. II Productos para ingenios minero-metalurgicos
Analyzers and automation
Filtration
Flotation
Grinding
Physical separation
Thickening and clarifying
Water treatment
Concentrates production
Ferrous metals and ferroalloys processing
Non-ferrous metals processing
Light metals processing
Metals processing
Tailings management
Gaseous and aqueous
effluents control
Sulphuric acid
production
Source: Ericsson & Noras, 2005, 2013

23. Mining linkages
MINING
KnowledgeInfrastructure

24. Mongolia: contribution by sector to GDP growth
2008-2012
Source: WB 2013
2011 2012

25. Finland:
mining
advantages
• New test ground for innovations and technology
improvement
• Throughout strengthening of the minerals cluster
• Replacement of imported raw materials
• Employment and revenues for remote areas
• Stimulation of transports and other infrastructure in
the North to Barents
• Restarting of the sector education and training
• Improved public service: geologiacal information,
minerals processing, …

26. Finland: mining shortcomings
• Poor definition of minerals ownership
• Mining law reminds ”everyman´s right”
• Knowledge and skills
• Shortage of domestic capital
• Limited chances for value-addition -> raw materials
exporter
• Narrow taxation base – mainly CIT only
• Prone to tax avoidance
• Inefficient enforcement of laws and regulations
• Risks of environmental, non-foreseen legacies
• Eroded reputation

27. Improvement of national benefits from
mining
#1 Revision of mining taxation
• RRT, cash flow tax?
• Allowance of directed tax deductions
#2 Revision of environmental requiremements and their
enforcement,
#3 Check opportunities for more linkage benefits,
#4 Without intention to nationalize the sector,
State majority enterprise for Exploration/Mining to be studied.

28. Kiitos! Tack så mycket!

29. MINING Value-adding
KnowledgeInfrastructure
Supplies
Fiscal
Mining linkages

30. Industrial Policy
Sector Ministries
Institutes
Awarding
Licenses
Regulation &
Monitoring
Tax Collection
Benefits
Distribution
Sustainable
Development
Plan & Practices
1
2
3
4
Compensations
Gvt Agenda