Corporate Counsel Q&A: Mining 2013

Anglo American is one of the world’s leading diversified mining companies. Established in 1917 by Ernest Oppenheimer to develop gold mining in East Rand in South Africa, the company now has operations in Europe, Africa, Asia, Australia, South and North America. Anglo American’s activities are vast including exploration, mining, processing and smelting and the development of mining technology.

Exploration is at the heart of the company’s future success: in order to continue to extract minerals there must be a constant supply of deposits that are capable of being economically extracted. In 2011, Anglo American spent $121 million on exploration in 16 countries while De Beers (in which Anglo American own an 85 per cent stake) spent $40 million.

Largely untapped for its mining potential, Peru is attracting interest from a number of major international players – among them Anglo American. The company currently has two projects underway – Quellaveco and Michiquillay.

Gaining social approval is vital for the success of a mine. As recent conflicts have shown, many mining companies face fierce opposition from local communities if they believe they are entitled to greater benefits and protection. Although not legally regulated, in light of the social conflict surrounding mining activity, corporate social responsibility is becoming increasingly important.

In order for mining activities to commence at the Quellaveco project, Anglo American has been working tirelessly with the local communities and governments to reach a socially and environmentally acceptable plan. The negotiations have taken over 14 months, with opposition over concerns about the project’s impact on the environment and on the water supply. An agreement was reached in July between Anglo American and Moquegua’s regional government which will include the company spending approximately $350 million in social development during the life of the mine as well as providing jobs for the local community. Construction is expected to begin as soon as internal corporate approvals are obtained and with completion expected in approximately four years.

Tell us about your role.

I am in charge of the legal department which includes providing advice to both of our copper projects in Peru: the Quellaveco project and the Michiquillay project. I also monitor governance issues such as supervising compliance with antitrust policies and provide support to our explorations department.

Describe a typical day.

A typical day consists of attending management meetings related to different issues that arise in connection with the projects, reviewing contracts that need to be prepared or filed, dealing with suppliers or the government and keeping in contact with our headquarters in London.

What size is the legal department?

We currently have five lawyers. All of them specialise in different areas of the law related to the mining industry, such as administrative law, mining law and contracts, among others.

The idea is to have a team of highly qualified professionals that could provide the best legal service to the clients.

Tell us about any recent special projects you have been working on.

We have been working on an agreement in support of the Quellaveco copper mine project which will allow Anglo American to begin construction. The negotiations have been ongoing for the past 18 months and we finally reached an agreement with the regional government of Moquegua in July of this year. As part of the agreement Anglo American will make voluntary payments of roughly $350 million for the benefit of the Moquegua community throughout the mine’s 30-year life. The social commitments that we have made have been embraced by the government as a model for future mining activities.

What skills and qualities do you require in external counsel?

First, they need to be an expert in their field of law. Alongside this, they need to know the business. We require commercially viable solutions; therefore, we need to be advised on possible alternatives and the scope of the law. It is important that they deliver what we require in a timely manner. A law firm can be excellent in terms of their legal expertise but unless they deliver on time they are of no use to us.

It is my job as in-house counsel to prioritise and to communicate to external counsel what is important and what is less so. They can then organise themselves internally and be in a position to comply with our expectations.

Describe the Peruvian legal marketplace. Is there a lot of choice for clients? Do you turn to international law firms or local firms?

There is a lot of competition between law firms and it is highly competitive in certain fields, such as finance and M&A – areas where a number of firms can provide the service. In natural resources, the choice is a bit more limited. We use local firms for the most part, but for some matters such as an EPCM agreement we worked on recently we used a foreign law firm.

Environmental and social conditions are important requirements in acquiring an exploration permit in Peru. How has this impacted your company? What social relations plans has the company put in place?

Ensuring that projects get social approval is a real challenge in Peru for the mining industry. The process involves dealing with government, presenting information, and getting the community involved.

My job as legal counsel is to keep track of the process. Many of the largest mining companies already actively engage in social plans for the local communities in which their projects are located. This involves supporting the community in sustainable projects, planning for the closure of the mine and assessing the social and environmental impact this will have on the community.

As I mentioned earlier, as part of the Quellevaco project in the south of Peru, Anglo American will be making voluntary payments of around $350 million for the benefit of the local community over the course of the mine’s life.

In addition to social conditions, environmental law and safety are also high priorities in Anglo American culture. Safety is a key priority for the company and we work closely to keep this monitored. We work with external counsel in this area to regularly review our internal policies to ensure compliance at the highest level. We run workshops for employees so that they are aware of the importance of health and safety. It is a matter which is becoming increasingly important. We are a company made up of people and it is vital we look after those people.

With the political unrest and expropriation of assets in Latin American countries, has Anglo American refocused its efforts in the region? Which jurisdictions are attractive for exploration and development? Do you expect an increased focus on politically safe countries like Peru?

In Peru, expropriation is not a risk at the moment. The current government has sent clear signals to the mining industry that it is respectful of private property. However, in light of the expropriations in other parts of Latin America, I do expect to see more companies entering Peru. Peru has many opportunities and newspapers report daily of new investors entering the country.

What is the most challenging aspect of mining law today?

In mining the most difficult aspect is tackling the social conditions and gaining approval for projects from the local communities.

Recognising that our activity will have an impact on the life of the community and clearly conveying that it would be a net positive impact is the key to creating a successful relationship with such communities that will lead to a successful operation of a mining project.

In addition, laws have been passed or are being discussed in connection with the relationship between the government and the indigenous population, as well as for the environmental impact study approval. These rules could have an impact on the way mining business is carried out in Peru.