UK-Listed Mining Companies

Debate between Eric Joyce and Joe Benton

Wednesday 28th November 2012 Westminster Hall

[Mr Joe Benton (in the Chair)]

I should like to draw hon. Members’ attention to the new clock displays in the Chamber. The top display is the current time, as before. When a speech is not being timed, the bottom display will show the time it started, also as before. If it becomes necessary to introduce a time limit, the bottom display will change to show the time remaining to the Member who currently has the Floor. As in the House, this display can award an extra minute for each of the first two interventions in a speech.

[Eric Joyce (Falkirk) (Ind)]

It is a privilege to speak under your chairmanship, Mr Benton, and in front of these magnificent new clock displays, as described.

I am interested in UK-listed mining companies—other hon. Members will be interested, because of the UK dimensions of these companies’ operations—primarily because I have spent a fair amount of time in developing countries and seen that the way mining companies operate can have a significant impact on all sorts of things locally.

I started going to the Democratic Republic of the Congo shortly after I was elected to the House a dozen years ago and I have been there a couple of dozen times. Each time I go to a country like that—particularly ones that are resource-rich and often without any meaningful extraction going on, although sometimes with some pretty good stuff going on—I am struck by how good companies, and countries, with proper governance can return substantial benefits, providing all the right environmental and social aspects are properly observed. Conversely, when that is not done, it can be disastrous.

People sometimes refer to the resource curse, meaning that a lot of countries have enormous potential wealth but no actual wealth, because they are not able to extract as their governance makes the country too much of a risk. The environment might be too physically risky, or, more to the point, the risk to reputation and capital—for example, if there were an expropriation of some sort—is too great. Shareholders will often not be prepared to put up with that. Back in the 1990s in Liberia, we saw the damage that was done with the diamonds to some companies that mined across Africa and which now, as a consequence of that shock, take great care to pay close attention not just to rules but to public perception. Some companies will not go near countries such as the DRC because of the risk to their capital, to some degree, but also to their reputation.

When looking at the mining industry as a whole, we begin to realise the importance of UK listing. Companies across the world with no particular links with the UK have mining operations in far-flung places such as Kazakhstan and Azerbaijan or, indeed, Australia, Canada and Brazil, but they choose to list in London for strong commercial reasons, partly to do with their reputation and partly because that is the best hub within which to get access to all the people they need to do business with, both in markets and banks and in all the other ways that benefit companies with a UK listing.

About 18 months or so ago—without mentioning particular companies; it is probably helpful if I do not now, although I did then—it became clear that some companies were coming to the UK and listing in London without wishing to accept the broader constraints and rules, which were often not written but were general understandings among the business community of things that people do and do not do when they have a listing.

A company can be listed, in some cases, with less than 25% of its total stock in the UK, which is normal, but it can be even less than that. That means that shareholders’ control over such a company can be quite limited and it can carry on as before, without changing its practice. I was worried about that. For a while last year, the Government mooted the possibility of relaxing the rules in respect of companies that were not really British, but eventually that was passed over and it did not happen, which was good news. There was a great deal of lobbying to that effect and the Government listened to it.

The principle is that a company listed in the UK is not an asset of that country, and that applies in the same way as it does to companies listed anywhere. Such a company has simply chosen to list in the UK. For example, we generally perceive BAE Systems—the best known of certain companies that tend to be known by acronyms—as a UK company, but that is no more a UK company in some respects than any other foreign-owned company. It is simply in the UK and has a British heritage, and that is about the size of it. It is important to see what is listed in the UK. We have some degree of control over companies that choose to list here through our voluntaristic methods and regulatory measures. It is important that they are all treated equally.

I noticed in the past year or so that some companies that were relatively new to the list had an ownership structure that was not what would normally be found in the UK, where one or two people own most of the shares. They have therefore had to take on shareholders, but they have perhaps felt that things do not need to change because they make such a lot of money that the shareholders will be happy. However, in a couple of cases they have taken an enormous hit—perhaps a 50% discount on shares—so now they are looking again at how they can work properly as a UK-listed company. That has to be good trend. That was essentially what drew me to this debate.

I have had some contact with companies that work and exploit in the UK and know that there are issues to do with planning presumptions for open cast, and so forth. Other hon. Members may wish to mention that. My primary message is about the impact of UK-listed companies on the developing world.

Public discourse in the UK on the subject has been dominated historically by industrial struggle, mainly to do with coal, the changing world, changing fuel and energy options, and changing working patterns and political assumptions. That has been the dominant theme in recent years and decades. If a Member of Parliament mentions mining to a constituent, that is what they are thinking. They are not thinking about this huge beast, which is the UK listed sector, or about the scale of the contribution that mining makes. Some of the largest companies in the FTSE 100 are miners and they are the ones that often move the figures across the board—just that one industry.

The companies from around the world that list in the UK are not British in the conventional sense. That is true of most commercial organisations across the world. These organisations transcend international borders, coming together to trade where it best suits them. London, of course, is pre-eminent in the world in respect of mining.

The UK is important in this regard and, on the whole, that is a good thing. We do not have a perfect system, but we subscribe to some important conventions. I will mention some important conventions in respect of other parts of the world—big parts, without naming names. Legislation will come into place shortly that enhances those conventions and takes them further, making them, to a large degree, legal requirements. London listing is therefore fundamentally a good thing.

London has justly developed a broadly good reputation, alongside the United States, for going some way to ensuring that corporate governance in the mining industry is respected. That is not to say that everything in the garden is rosy—often, it looks to be far from that—but the fact remains that if large international entities wish to trade in and from the UK, certain rules of decency apply. In the UK, the rules include the Bribery Act 2010 and a series of important regulator measures put in place by successive Governments. In the United States, the rules include the Cardin-Lugar amendment to the Dodd-Frank Act, which demands a considerable level of transparency from those doing business in the developing world.

In Europe, about which I will say more, legislation will be passed shortly. I will leave that to the Minister, because it is probably for her to speak about that, given her role. There will be some important legislation soon reflecting what has been going on in the US. The legislation in the US has been powerful, but not perfect. Interestingly, as I discovered from a position of some naivety a year or so ago, some of the entities that are most critical of the Dodd-Frank Act and the Cardin-Lugar amendment, which require that high degree of transparency, are highly commercial lenders or hedge funds. They are, however, critical in the opposite way to what we might expect: they are critical of the legislation for not driving enough transparency. We might think, “Well, that’s a surprise, I thought these guys would want less transparency”, but they want to know where the money is and where it is going—they want to chase the money up. The large hedge funds that are owed lots of money by countries and commercial entities want to drive greater transparency. That is an unusual but good alliance between, on the one hand, some good non-governmental organisations with their meagre resources, digging away and trying to root out graft in parts of the developing world, and, on the other hand, these guys with quite a lot of money who know their stuff and have good, strong commercial reasons for driving transparency and good governance. To some degree, that is what is happening in the US and with the European legislation to which the Minister will probably refer.

When it comes to the extractive industries and the developing world, it is essential for two things to happen. First, the activity must help to ensure that income generated by some of the world’s poorest states benefits their citizens, by reducing graft and helping difficult countries—if we can call them that—to reduce internal corruption. There is some corruption in many of those countries, although not in all of them and not even routinely in a lot of them, but there is a considerable amount and it is difficult to fix. Transparency can help the people running such countries to fix the considerable levels of graft that still exist.

Secondly, transparency helps UK-listed mining companies and companies in all sectors to do business in areas where they would otherwise be loth to risk their reputation and capital. Mining is affected more than most industries. Throughout the world, mining companies in geographically big, developed states such as Canada and Australia have been able to exploit their local geological assets. In recent years, people have become more aware of the environmental implications, but in those countries people have benefited from mining in a big way. The same is true in other parts of the world with huge natural resources and the industrial capacity to exploit it, such as Kazakhstan, South Africa and Brazil. As those companies have expanded and used up much of the stuff under their homelands, as it were, they have moved throughout the globe looking for new sources with which to satisfy the huge and growing demand for energy, for example.

We all know the debate about energy and our consumption of it, but as countries develop economically —China is the best example—they, too, demand more energy resources. That is simply an empirical fact. As the companies respond to that demand, they need to find another place to mine, and in many cases that other place—that other continent—is Africa. Those companies have also come together to trade in, and to the great benefit of, the City of London and its markets. The pattern, therefore, is one of productive exploitation of Africa’s geological riches and of greater transparency of the organisations doing the digging, through London and New York—London is significant, but not the only centre. Potentially, there is a neat symmetry about the whole process.

I have just noticed that I still have a lot of notes to get through, so although the structure of the debate has been perfect so far, I might extemporise a little to enable some other Members to speak.

In the meantime, in my experience—for a politician, I have had a fair amount recently—the great majority of operators are behind the symbiosis I outlined, which has historically been reflected in large listed companies that have been in the UK for years, or that have their origins here. It is also increasingly true of companies that want to trade out of the UK in spite of the fact that their ownership structures have traditionally led them into different practices before listing in the UK. They are learning as well, and to give them some credit—I have not always done so in the past—they are now beginning to learn that if they want to do business out of London, they have to change and, essentially, to modernise their practices and assumptions.

In the developing countries, the World Bank, the IMF and other bodies—organisations such as the Revenue Watch Institute or the Association for Geographic Information from the UK, or the worldwide George Soros Foundation and Open Society Foundations—have done a lot to get countries such as the DRC to move towards becoming a place where serious companies can operate. I mention the DRC because I am confident that governance is lacking there, but other places have no democratic elected Government at all, and in the west of Africa four or five countries currently have dictatorships and there is no governance. It is perhaps too easy to criticise only countries with flawed democracies when many in Africa are without any kind of democracy, so we need to keep such things in context.

About 18 months ago, as I mentioned, I got involved in a case in which an asset had been expropriated. The two companies eventually settled, but that took several years of no one being employed on the site. Some 5,000 people had been paying tax and the company had been the largest corporate taxpayer in the Congo, yet for that period, there was nothing at all. That was due to a wrangle that was not caused by corruption in the commercial sector, although perhaps it was because of a bit of nescience, in some respects; Government graft led to that terrible situation.

The companies have actually worked things out between themselves, and a large amount of money changed hands so, in a couple of years, that asset in the Congo might again start to produce some fruit with exports and—from my perspective—through earnings for the people on the ground, who were earning money there before. If that happens, it will be because one of the companies was listed in London; otherwise, it might simply have been cutting about the world and not necessarily paying heed to public opinion. The company was listed in London and wanted to be a proper, large, serious mining company based there, so it paid heed to the concerns of the international community, the NGOs and, of course, the other company, which was savvy about how to pursue its objectives. I am avoiding saying the names so as not to indentify the companies, which would not be fair at this point because they have behaved relatively well. My point is that the London listing made a profound difference to one important project. If that project gets off the ground again, which I think it will, it will show that even in a place such as the DRC, it is possible to get the standards right. I have some constructive scepticism about how long that might take to happen, but let us see.

Before I conclude, I will refer to a couple of important organisations. The International Council on Minerals and Metals, which has its origins in Canada, is now based in London. It has members from the industry, which funds it, and has a series of standards based on core principles and auditing—public reporting and assessment—to ensure that companies maintain certain standards for environmental imperatives and the local social imperatives of any particular operation, which is a new but important thing. There are 22 members and 34 national or regional mining associations and global commodity associations are affiliated.

I could mention other organisations, but I have been to visit the ICMM, and I am still learning about its regulation, which is voluntaristic and appears to have a correlation with strong, voluntaristic companies such as Rio Tinto, which has been based in the UK for a long time. That is not to say that there is not controversy about the mining industry and foreign operations, but some companies have been subjected to the rigours of the UK market for a long time, and that can have a considerable impact on the new ones.

I have noticed that NGOs, which are rightly looking for the best for the developing world, have deployed language that sometimes looks hostile to the principle of investment. That is not how they mean it, because they see the stuff that happens on the ground, but it is important to make it possible for companies to invest, providing that they come up to the standards expected of a London-listed company.

Despite that voluntaristic stuff, it remains true that international legislation is essential. I have mentioned the Dodd-Frank legislation and our Bribery Act, and I want to mention the efforts of organisations such as Publish What You Pay, the One campaign, the Open Society Foundation, which is funded by George Soros, Tearfund, and Global Witness. All are stressing the importance of legislation that is pending in Europe—the Minister may be able to say something about it—which the Prime Minister stressed last week in Brussels. There might be quibbles around the margins about exceptions, the definition of a project and so on. I am not an expert and I know that some people have raised what I consider to be finely tuned issues. However, the general principle of the legislation is certainly accepted by NGOs, and seems to be accepted by all the responsible operators.

The new accountancy and transparency directives will greatly enhance efforts to improve governance in developing nations. They will also make it easier for UK-listed companies to do business in such places. Big commercial companies are not altruistic organisations; they are there amorally, in the purest sense, to do business and to make money for their shareholders. We must appeal to that imperative in companies, rather than pretending that they simply want to be good guys. We must appeal to their ability to make money decently, subject to proper regulation, and in ways that return benefits to local communities in places such as the Congo and Guinea.

The extractive industries transparency initiative is led by Clare Short. The UK led the way with this worldwide initiative, and it has taken us several steps along the path to proper accountability. The initiative measures payments made to Governments by mining companies, for example, and the income declared by those Governments. It is not perfect, and it will not prevent graft elsewhere, so if there is expropriation, which is then passed on by a third party, and the money goes who knows where, it will not appear in the books. However, those are important steps down a path that is enhanced and augmented by legal measures such as those that will be forthcoming in the EU.