|Why NZ Super dumped Barrick Gold|
by Tim Hunter, Timaru Herald via stuff.co.nz
Concerns at the treatment of workers and the environment at the Barrick Gold’s mines has lentsDanted to the NZ Super Fund removing them from its portfolio.
From the Porgera goldmine in the highlands of Papua New Guinea around 14,500 tonnes of waste is discharged into the Porgera River every day.
The tailings are the byproduct of production that last year totalled 436,000 ounces of gold worth about US$650 million at today's prices and equivalent to about 1kg for every 4 tonnes of tailings.
These days tailings from goldmines are normally stored behind dams, but in the wet, mountainous terrain at Porgera there was no way a dam would last. According to the mine's 95 per cent owner Barrick Gold, "any structure to store fine-grained and saturated materials that was close enough to the mine to be feasible would fail, the only question being when".
So the river was the only solution. It means Porgera is today one of just four mines in the world to unload its tailings straight into a river - all of them on the island of New Guinea, three on the Papua side, one on the Indonesian side.
The reason so few mines use riverine tailings disposal is simple - the method is associated with huge damage to the environment as minerals, chemicals and silt contaminate river systems.
Barrick, which bills itself as "the world's leading gold company", has tried to mitigate the effects, for example by commissioning a processing plant in 2009 to cut the amount of cyanide in the tailings.
Nevertheless, Porgera still dumps cyanide, arsenic, mercury, lead and other minerals into the river. Barrick says levels of toxicity at a testing site 165km downstream are within international guidelines, but this month New Zealand's Super Fund cited riverine disposal in its decision to stop investing in Barrick Gold.
There was "no practical remedy for the environmental impact of riverine tailings", it said, while Barrick's progress on resolving security concerns had been slow.
Those security concerns were not specified, but you don't have to look hard to see what the issues might be.
As is common with goldmines in remote places, Porgera employs a private army of security personnel to protect its property. These guards have been accused of brutal behaviour towards local people, including killings, gang rapes and beatings. Barrick has been criticised for its response, which offered health services, financial assistance and trauma counselling to the rape victims in return for an agreement not to sue for damages.
There have also been reports of police evicting locals and destroying at least 50 homes within the mine lease area in 2009, with the support of Porgera mine. The action was part of an official crackdown on law and order. According to Barrick "the area had also been used by some individuals as a staging ground for incursions onto mine property, to engage in illegal mining or for other illicit activities".
Whether it is the fault of greedy locals trespassing dangerously on mine property or the paranoia of a security obsessed Canadian corporate, the ambiguity surrounding violence at Porgera is not unusual for mining operations in remote places.
A more extreme example occurred in March at the North Mara mine in Tanzania, owned by Barrick's 74 per cent-owned subsidiary African Barrick Gold, where thousands of people reportedly invaded the open pit, apparently to steal ore, and two were killed in the security operation. It was the latest of numerous clashes over several years in which at least 19 locals have died. As well as the killings, there have been allegations of sexual assaults by police and security guards and complaints of health problems caused by mine pollution.
What is unusual, however, is the response of the Super Fund in publicly denouncing Barrick as socially irresponsible. Within the last year the Super Fund has terminated its investments in eight companies in addition to Barrick. The targets of its complaints were involved in various activities including illegal construction in the Palestinian Occupied Territories, corruption, and lax safety standards in Japan's nuclear power plants.
Anne-Maree O'Connor, who manages the fund's responsible investment activities, notes an explicit part of its mandate is "avoiding prejudice to New Zealand's reputation as a responsible member of the world community".
So far, she says, excluding some companies on grounds of social responsibility has not had any material impact on returns, but "we believe if these risks are not managed well these issues will have a negative impact [on companies] compared to their peers".
Her preferred way to exert influence is to engage with companies as a shareholder, if possible in concert with other shareholders, but even if a company is willing to engage - as Barrick was - the process may have no useful outcome.
Excluding a company from the fund's portfolios "sends a message that we believe it's part of board and management responsibility to manage those risks".
Or in other words, the money is not worth the hassle.
Barrick's response has been to express regret at its former shareholder's attitude.
"We would have welcomed an opportunity to share the progress we have made in addressing these issues with the Fund, but our offer to do so was declined," said a spokesman. "We have engaged extensively with other funds, we've invited them to visit Porgera so they can see first-hand the steps we are taking to address these issues. In nearly every case, they have been satisfied by the company's commitment and the actions we are taking."
Perhaps the Super Fund takes a stricter view than its peers. It was a founding signatory of the United Nations Principles of Responsible Investment in 2006, a group that now comprises 1188 investors and fund managers. However, not every signatory draws the line at Barrick Gold.
Also card-carrying UNPRI supporters are giant US fund manager BlackRock, and Canadian fund managers Fiera Capital and Hexavest.
According to regulatory filings, Fiera and Hexavest each owned about US$60m worth of Barrick stock last month, dwarfing the Super Fund's $1.9m holding.
Neither Fiera nor Hexavest appear to have made any public comment on Barrick in the context of the UNPRI.
A February filing from BlackRock, Barrick's largest institutional shareholder, indicated its funds had increased their holdings in Barrick from 6.8 per cent to 8.8 per cent in the previous 12 months. Asked why its policy appeared different from fellow PRI signatory the NZ Super Fund, a spokesman said: "Unfortunately, BlackRock does not provide stock specific commentary and as such won't be able to help with this request."
However, three weeks ago BlackRock's commodities manager Evy Hambro told an audience in London that gold miners risked becoming "a barbarous relic" unless they changed their approach. Speaking as Barrick shares bounced around a 20-year low, Hambro said "gold mining managements have done a poor job of delivering value" and high gold prices were obscuring rising costs in the industry.
High costs were certainly apparent at Porgera and North Mara. Last year Barrick reported cash costs per ounce of production at US$955 and US$965 respectively. Those levels put them among the highest cost mines in Barrick's portfolio.
The link between ethical risk and high cost seems supported by Barrick's experience, but it is clear that even institutions overtly supporting the UN's big social responsibility ideas may be more interested in the costs than the ethical risks.