A Brave New World: Navigating Political Risks

1. A Brave New World: Navigating Political Risks Corene Crossin Senior Consultant

2. Outline Introduction to Control Risks A world of increasing above-ground risks? New and emerging threats Risk management: common pitfalls and how to avoid them

3. About Control Risks • Control Risks is a leading international business risk consultancy. Through over 25 offices worldwide we enable our clients to succeed in complex and hostile environments around the globe. • Control Risks has advised clients in the mining, minerals and assorted services sectors for more than 30 years. In the last five years we have undertaken more than 400 consulting engagements for clients in the industry. • We provide the full range of services required by organisations wanting to minimise risks to their operations. Our services include: • Political and security risk analysis • Due diligence • Information security • Crisis and security management • Incident response

4. Outline Introduction to Control Risks A world of increasing above-ground risks? New and emerging threats Risk management: common pitfalls and how to avoid them

5. “The ugly face of China's presence in Africa” “Labour Strife Could Impact Copper Supplies” “Peru police, indigenous group clash” “Chile’s miners thirst for water to expand output” “Kazakhstan’s metals barons tussle” “Transparency fears lead to review of Congo mining contracts” “Zambian Finance Minister Wants Higher Royalties” A world of risk?

6. An example: copper producing nations

7. Political Risk Source: Control Risks’ Country Risk Forecast

8. Security Risk Source: Control Risks’ Country Risk Forecast

9. Ease of doing business Source: World Bank Doing Business 2007

10. Outline Introduction to Control Risks A world of increasing above-ground risks? New and emerging threats Risk management: common pitfalls and how to avoid them

11. The changing risk landscape affecting mining NEW Local communities Resource Nationalism Competitors TRADITIONAL Crime Nationalisation Currency Inconvertibility Corruption Political Violence HIV Civil commotion Strikes Expropriation NGOs Scarcity of natural inputs Artisanal Mining

12. Some notable contemporary themes • Resource Nationalism • Availability of energy and water • The presence of new competitors • Community issues

13. High commodity prices Focus on sovereignty over mineral resources Resource nationalism Expropriation Contract renegotiation Fiscal / regulatory changes 1. Resource Nationalism GLOBAL TRENDS RESULT IMPACTS

14. Case Study 1: Congo (DRC) mining review • The client: a professional services firm acting on behalf of a mining company with a contract in Congo (DRC). • The concern: the company was concerned about what the ongoing review of mining contracts in Congo (DRC) could signify for the security of tenure for its project in the country. • The requirement: the company wished to learn more about the trajectory of the review and its likely outcome, in order to anticipate the outcome and – if necessary – seek to alter it and/or reduce its potential impact. • Our solution: Control Risks undertook detailed research in Congo (DRC). Using this research and our expert network of information providers, we were able to help the client understand the motivations behind the review and to advise on the likely decision of the review on the contract in question. This in turn provided the client with the insights it needed to formulate its formal response well in advance of the publication of decisions by the review body.

15. 2. Natural resource constraints Supply-side dynamics Demand-side dynamics Growing number of mining projects Lack of rainfall GLOBAL TRENDS Projects increasing in size Deteriorating supply infrastructure Local demographic pressures Incompetent / corrupt regulator Shortages RESULT Stoppages during construction / operation of mine Inability to expand operations as desired IMPACTS Tensions with local community

16. 3. The new competitive landscape

17. 4. “Soft” community issues International NGOS Local pressure groups Affected communities GROUPS INVOLVED Artisanal miners Respect for human rights… political freedom… protection of the environment… local job opportunities… protection of indigenous lifestyles and customs… forced relocations… development of local social and physical infrastructure… HIV/AIDS and other infectious disease issues… labour conditions… conduct of public and private security protecting mine… direct or indirect contribution of mining revenues to conflict… corruption… CONCERNS Negative media coverage Protests, strikes & blockades Lawsuits & class-actions TACTICS Consumer boycotts Criminality Lobbying of funding sources

18. Outline Introduction to Control Risks A world of increasing above-ground risks? New and emerging threats Risk management: common pitfalls and how to avoid them

19. Misunderstanding the “character” of risks A belief in “total solutions” Fragmentation of management functions Focus only on the spectacular risks Misalignment with project cycle Common Pitfalls of Political Risk Management

20. In other words… • “Political and security risks are the same as other kinds of risk” • “We don’t need to worry because we’ve got insurance” • “We don’t really have anyone who worries about those kind of risks” • “To us, risk management means worrying about wars, elections and terrorism” • “Perhaps we should have thought about that but it’s too late now”

21. New Paradigms Surrounding Risk Environment Project Risk management strategy should be aligned with project profile

22. A blueprint for successful risk mitigation • Build regular review of risk profile into the project cycle to enable consideration of risks when preventative action still possible Align risk management with the project timetable • Create multi-functional project risks task force with visibility, authority and executive buy-in Clarify the organisation of risk management • Consult specialist expertise on political, security, social risks • Use an array of primary and secondary sources in research Understand political, security & social risks • Use “devil’s advocates” to challenge management thinking • Examine full range of possible risks, not just the most obvious or most dramatic Avoid fixation on most vivid risks • “Forewarned and forearmed” – select and apply various, correct risk mitigation tools identified in risk assessment process Avoid over-reliance on specific mitigation tools

23. Outline Introduction to Control Risks A world of increasing above-ground risks? New and emerging threats Risk management: common pitfalls and how to avoid them Questions

24. Thank you Corene Crossin corene.crossin@control-risks.com +44 20 7940 1910