The oligarchy in mining is bad for all of us – 2

In the second of two articles, retired mining engineer Laurence Morris looks at how the ‘Big Five’ oligarchy in mining operates. You can read the first article here.

Cover image: El-Limon mine Nicaragua. Photo: Calibre Mining

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Social stratification and inequality

The concentration of power exercised by oligarchic mining firms (detailed in the previous article) can have detrimental effects on society, such as a high level of social stratification: most mining companies pay technical staff relatively well when compared to other industries ¹⁾Compare the World Bank´s absolute poverty level of an income of less than USD $2.47 per day (2022) compared to wages on mine sites of upwards of USD $2,000 per month for skilled workers in large, regulated companies – figures drawn from my own experience., and even the much lower pay of labourers is often more than average earnings in local communities.

However, I have observed numerous examples of well-paid and well-housed mining staff living in western-style accommodation adjacent to shanty towns where most mine workers live, resulting in resentment, social unrest and sometimes even conflict.

These inequalities can create tensions and drive-up rents and prices, disadvantaging other, much poorer workers in local agriculture and trades.

Within mining companies, the pay gap between production workers and top management can be vast, promoting demotivation and cynicism among mine staff ²⁾In my experience, top management sees the huge pay gap differently – they view it as an incentive to encourage performance.. For example, in 2013, Glencore shareholders dissented over the salary of new CEO, Gary Nagle, who earned USD 10.4 million per year, excluding expenses and his generous stockholdings ³⁾Neil Hume, A. M. (2021, April 14), Glencore faces shareholder dissent on new chief Gary Nagle’s pay. Financial Times– far above the level required to recruit talent even for the CEO of a multinational firm.

As competition declines, inefficiency and complacency can take its place. In larger firms, a Weberian tiered structure with multiple layers of management develops. Each manager oversees a certain department, or a specific function or specialism, and then he or she has to work within established and often restrictive procedures. It can lead to groupthink, the formation of silos, and a loss of initiative and innovation.

Bureaucracy that stifles innovation and beneficial development can have a damaging impact, and at worst can cause loss of life by negligence through groupthink and blind procedural obedience. In Brazil in 2015, mining company Vale´s Fundão tailings dam collapsed, releasing 60 million cubic metres of toxic sludge. It buried the community of Bento Rodrigues, killing 19 people and causing extensive environmental damage ⁴⁾There are many accounts of the Mariana and Brumadinho Dam Disasters, Brazil. See LAB, The Guardian and the BBC for some accounts .

Four years later, in 2019, the Brumadinho tailings dam, owned jointly by Vale and BHP, collapsed for the same reasons. This time, the tidal wave of tailings waste covered the mine’s administrative area, as well as a nearby community and its surroundings. At least 270 people were killed, including mine workers and residents.

Both dams were built by stacking existing tailings ‘through successive uphill deposition’ ⁵⁾Luiz Rotta, E. A. (2020). The 2019 Brumadinho tailings dam collapse: Possible cause and impacts of the worst human and environmental disaster in Brazil,. International Journal of Applied Earth Observation and Geoinformation, Vol 20, and inadequate dam management caused the wall to degrade due to saturation as wet tailings were deposited upstream of the dam wall.

Evidently few if any  lessons had been learned from the first disaster. Did bureaucratic inertia play a major role? Most mining authorities now restrict this type of tailings dam construction.

Barriers to market entry

To add to their internal problems, powerful oligarchies in banking and telecoms use various methods to place hurdles to the entry of new enterprises to their industry, conspiring with regulators to impose expensive compliance costs; with banks to limit credit to newcomers;  and with politicians and media owners to sway public opinion.

Mining oligarchies may have less strength and influence, or perhaps have chosen a different strategy, allowing and sometimes encouraging ‘junior’ businesses to establish themselves and function provided they do not challenge the big players’ dominance. In exchange, the majors gain a crucial benefit: they make huge cost savings on exploration.

‘Blue-sky’ (i.e. in new areas) exploration (and prospecting) is in decline: the biggest and richest deposits have been largely exhausted making exploration more costly; governments are imposing stricter environmental regulations; there is increased competition for land which entails greater risk of provoking disputes with local communities; and recycling of certain metals such as copper has become more widespread.

The Big Five mining companies all have extensive exploration departments, but their efforts typically focus on upgrading and expanding existing resources, or converting resources into reserves, using well-tried bureaucratic and formulaic approaches.

Junior mining companies, particularly Canadian gold miners, tend to be speculative, undercapitalised, underperforming, and poorly managed. ⁶⁾One investor I met referred to their CEOs as akin to “used car salesmen”. Coast Capital Management investor James Rasteh ⁷⁾James Rasteh, R. V. (Director). (2024). Why Gold Mining Companies Habitually Destroy Capital, [Motion Picture] explains the two-step boom-bust cycle, which can build up and then destroy juniors:

1. As metals prices rise, corporations’ share prices, cash flow, and bankers’ investments may increase.

2. For a few years their boards and top managers are generously compensated. But as metal prices fall, their cash flows dry up, their share values plummet, and they sell off the assets typically for cents on the dollar.

Failed juniors have ruined the lives of stakeholders, from local communities to small shareholders, as well as causing extensive environmental damage and evading all responsibility, leaving it to governments, local authorities and communities to repair the damage or live with its legacy.

This cycle of boom and bust provides golden opportunities for cruising sharks to gobble up minnows. Large cash-rich majors may buy out – for loose change – defunct juniors with good exploratory prospects or who have made some progress in obtaining permits but lack cash flow to develop further. This allows the Big Five to replenish their resource base while allowing their own exploration divisions to undertake the less burdensome backup or in-fill drilling.

The Big Five majors can buy the juniors at a discount as they are well-versed in due diligence and appraisals due to their large legal and technical teams. Once they have ingested the junior mining company, the major can leverage its close relationships with regulators and the authorities, allowing it to complete normally complex environmental and social permitting that is beyond the reach of many juniors.

To give just two examples from Latin America:

1. In 2023 Rio Tinto acquired First Quantum’s share in Peru’s La Granja copper project ⁸⁾First Quantum. (2023). First Quantum Minerals and Rio Tinto Announce Completion of the La Granja Agreement, First Quantum press release. Junior Mining Network.
2. Pan American Silver’s goal of becoming the world’s largest silver producer has led to its aggressive acquisition of junior miners in Latin America ⁹⁾Pan_American_SIlver. (2023). Annual Report.

Conclusions

The mining oligarchy gains itself benefits in several ways:

1. Their significant financial, social, and economic influence enables them to influence legislation and circumvent governance frameworks, particularly in developing nations with weaker institutions.
2. Their primary aim is to maximise profits by decreasing operating costs, which in some instances has resulted in inadequate safety provision, insufficient environmental protections, and lower community support standards.
3. Their huge financial resources can attract the favourable attention of major financial institutions and the large banks.
4. They can afford to engage in legal fights and public relations operations to combat unfavourable media and regulatory issues. 

Minimising reputational damage

International and national bodies, authorities, non-governmental organisations (NGOs), and, in rare circumstances, shareholders, have denounced many of the major´s inadequate adherence to safety and environmental procedures and regulations, and in some instances, their indifference and contempt for local communities.

Some companies take preventive measures only after harm has been done and they have incurred worldwide censure. For instance, BHP has recently proposed a USD 25.7 billion payment for the Samarco (Mariana) dam disaster – five full years after the dam collapsed ¹⁰⁾Davis, R. (2024, April 24). Mining firm BHP offers $25.7bn settlement for Brazil dam disaster, Rob Davies, 24 April 2024. The Guardian.

The fittest will survive

There are many other strategies the oligarchy uses to increase its profits and which are beyond the scope of these articles. These include:

1. Investment in mining and processing technology to increase productivity and minimise costs, especially labour.  Advanced technologies also allow them to access resources that smaller companies cannot reach. For example, the use of solvent extraction electrowinning (SXEW) to process copper, the introduction of ’ultra’ 400-tonne haul trucks, and the electrification of mining processes.

2. Mergers and acquisitions between the Big Five and other corporations result in resource consolidation, reduce competition and allow the combined business to have a stronger influence over pricing. We have seen how most of Chile’s biggest copper mines are joint ventures between two or more major firms, and how the majors actively acquire minor miners to supplement their resource inventories.

3. Oligarchies use long-term contracts with suppliers and metal buyers to stabilise prices. Metal futures contracts are rarely available to juniors who lack the financial resources to negotiate future contracts, and hence are susceptible to unpredictable spot pricing.

The composition and ranking of the oligarchic hierarchy will change in the future. Multinational corporations founded in emerging countries will displace some western companies; for instance, the China Shenhua Energy Company is essentially one of the Big Five in terms of market value, while Grupo Mexico has a capitalisation of USD 43 billion (2023), placing it ahead of Anglo American. The new members of the oligarchy seem to behave like their Western counterparts: for example, 65 workers died in Grupo Mexico’s Pasta de Conchos mine in 2006, and the miners’ unions alleged irregularities in the ensuing state inquiry which has dragged on for several years ¹¹⁾IndustriALL. (2021, February 23). IndustriALL demands justice for the victims of the Pasta de Conchos disaster. IndustriALL. Chinese-owned mines in the DRC have been accused of exploiting child labour to mine cobalt ¹²⁾Adebayo, T. (2023, July 03). US measure would ban products containing mineral mined with child labor in Congo. Associated Pr.

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Laurence Morris is a chartered engineer and has spent nearly 50 years in the mining industry, working throughout the world in exploration, production and in senior roles, although he is currently retired and living in Latin America. His interests lie in researching and writing about the environmental, social, economic and political impacts of mining and energy extraction, especially in Latin America, and in the role of mining in global development.