It is a pleasure to be here this evening to celebrate yet another successful CESCO Week. This dinner is one of the premier annual events in our industry calendar, and I was truly honoured when CESCO approached me to deliver tonight’s keynote address.
This year represents a personal and professional milestone for me, being my thirtieth year directly involved in this exciting mining industry. Having spent many years living in regional areas with my family close to the mining operations where I worked, I have seen first-hand the tremendous benefits our industry and its people can bring to communities and how our activities can provide the catalyst for transformational social and economic development.
Over the course of my career to date I have also witnessed significant transformations both within my company, Xstrata, and our industry. So tonight, along with briefly sharing with you a few highlights from Xstrata’s growth story, I would like to focus on some of the important challenges I believe our sector and its leaders must address to ensure its successful and sustainable future.
As a senior Xstrata representative it is particularly significant to be speaking to you this year as we have just celebrated our tenth anniversary since the London public offering. This was the first step in our company’s growth and transformation into a major global mining group. And what a decade it has been. From humble beginnings as a small company with a market capitalization of around 500 million dollars, we have grown rapidly to become one of the key players in the industry, with a current market capitalisation of over 50 billion dollars, operations and projects in more than 20 countries, and over 70,000 employees.
We have recently announced the next major step in our evolution, with the proposed merger between Xstrata and Glencore. This would create a major natural resources group with a combined enterprise value of 90 billion dollars, an enhanced market position in key commodities, and a unique business model in the industry that would encompass exploration through to marketing. For us in the copper division of the merged company, we would progressively become the leading copper miner with the largest sales position in the industry, as well as a major participant in the global smelting and refining industry. Our copper businesses would span four continents and ten countries, with exciting further growth opportunities.
At Xstrata we are very proud to provide natural resources that are vital to modern society. And, as we celebrate our 10th anniversary and position ourselves for the next ten years, we have reaffirmed our commitment to creating shared value. In other words, our ongoing commitment to delivering leading shareholder returns is matched by an equally important goal of providing for society things of real value - vital products, responsible operating practices, and lasting positive legacies for our host communities.
At Xstrata Copper, we recognised early the strategic importance of Chile within the South American context. Chile’s stable political and macro-economic environment had created an attractive investment climate, and continues to do so as illustrated by the recent upgrade by Chile’s SONAMI of projected mining investment in this country, to 100 billion dollars, by the end of this decade.
We opened a corporate office in Santiago in 2004 and subsequently achieved our growth momentum through key acquisitions in Peru and then Xstrata’s acquisition of Falconbridge in 2006, which doubled the size of our copper business and brought us important Chilean mining and energy assets and growth projects. Since 2004, we have invested more than 8 billion dollars in Chile and plan to invest further in sustaining and expanding our Chilean operations and developing new projects over the coming years.
While Xstrata is renowned for its acquisition-based growth strategy, we have also simultaneously pursued a highly successful and ambitious organic growth strategy, already commissioning over 20 major projects worth 17 billion dollars since 2002. In Xstrata Copper, our organic growth strategy will see us increase our annual mined copper production by more than 60% to1.5 million tonnes per annum within the next three years.
Underpinning this growth strategy has been our strong and relentless focus on the principles of sustainable development. We are proud of the reputation we have established in this field, having been named Mining Sector Leader in the 2011 Dow Jones Sustainability Index for the fifth consecutive year and Super Sector Leader for Basic Resources for the second consecutive year.
As industry representatives, we all recognise that our commitment to the principles of sustainable development is crucial to maintaining strong relationships with our stakeholders and to gaining access to and developing new mineral resources and mining projects. Having said that, I also believe that the concept of mutual value creation needs to be well understood and accepted by all stakeholders in our industry.
With recognition of the need to continually demonstrate a commitment to sustainability, companies will make major investments on behalf of their shareholders provided they are confident of an acceptable economic return. For their part, governments and host communities should endorse resource developments if they believe they will deliver real and lasting value for their society, but they then need to be prepared to partner and actively support those companies investing in resource developments, particularly given the large-scale and high-risk nature of these investments.
Within our industry we are all aware of the significant contribution our activities make to the countries and regions in which we operate. However we would also agree that we need to be much more effective in communicating the full benefits of our efforts, as well as continually looking to ensure that we are meeting the aspirations of our host communities. Here in Chile, the macro numbers are impressive. The mining sector contributes 16% of the country’s GDP and around 23% of government revenues. Approximately 230,000 people are directly employed in this country by our industry with nearly 700,000 people also working in support services industries. In other words, around 10% of Chile’s work force is currently employed either directly or indirectly in the mining sector.
Of course, the social and economic benefits flowing from our industry go beyond jobs and taxes. We invest in public infrastructure and community development projects, create business opportunities for local suppliers, support education and skills training initiatives, and share company resources to support communities and local governments in strengthening their own management and governance capacities. In many remote regions, mining development can act as a catalyst for further development, creating the infrastructure and skills that enable other industries or small businesses to become established in the regions over time, thereby securing a more prosperous, broad-based future for communities.
However, as the International Council for Mining and Metals has highlighted through its Mining: Partnerships for Development initiative, mineral wealth does not always equate to social and economic prosperity. While mining investments can drive economic growth and reduce poverty, companies alone cannot unlock the development benefits from mining – good governance is key and multi-stakeholder partnerships are essential to fill capacity gaps.
In a South American context, I believe that our Antamina joint venture company between Xstrata, BHP Billiton, Teck Resources and Mitsubishi, is a good example of where we can see effective multi-stakeholder partnerships delivering tangible sustainability results. In 2007, the company established the Antamina Mining Fund following a formal agreement with the Peruvian government.
Through the fund, and working with community and government representatives, Antamina established strategic alliances with development institutions with experience in implementing social projects. Local communities and governments actively participated to determine investment priorities. By the end of last year, Antamina had contributed 263 million dollars to the Fund and its activities are delivering significant results.
Since 2007, the fund’s health programs have reduced chronic malnutrition in 800 communities by 17% and rates of anaemia by 22%. In 2011 alone, over 53,000 medical consultations were provided to community members.
In addition, it has delivered potable water systems benefitting 8,000 families, refurbished or expanded 13 health facilities and installed over 1,000 hectares of water efficient irrigation systems to support local farmers.
The Antamina Mining Fund clearly demonstrates that multi-stakeholder partnerships can effectively direct funding in a targeted manner to address critical areas of need and deliver tangible social benefits.
We have other good examples in Peru with Funds in action at our Tintaya mine and Las Bambas project, as well as project-based examples here in Chile and at our other global operations. Indeed an increasing number of mining companies are now recognising the benefit of this multi-stakeholder approach in their businesses around the world.
As our industry expands beyond the borders of traditional mining regions into more challenging and remote areas of the world, our ability to work in multi-stakeholder partnerships will be all the more important in ensuring mining can continue to be positive for society while continuing to thrive and delivering adequate returns to our shareholders.
To ensure we make a lasting beneficial contribution to society we must also demonstrate that we can develop mineral resources responsibly and sustainably. Water and energy availability and use are two critical sustainability issues facing not just our industry but also other social and economic activities in many countries. Here in Chile these issues are particularly evident. Chile is approaching a critical energy balance challenge in the coming years as demand continues to grow strongly in line with the country’s economic and social development and yet energy supply is looming as a potential constraint to that growth. At the same time, limited fresh water availability in the north is driving the mining industry to seek alternative solutions such as sea water and desalination plants, although these alternatives are typically much more energy intensive, which could further compound the energy challenge.
These are complex, inter-related issues that can, however, be addressed through strong political leadership and policy direction, together with broader industry and community support. In fact they must be addressed if different regions are to achieve their growth potential. In Latin America, mineral resource developments alone are projected to attract 300 billion dollars in direct investments into the regional economies over the next decade, provided these investments are not constrained by sustainability challenges.
I believe that events such as the Mining and Energy Supply summit being held as part of this year’s CESCO Week demonstrate that, as an industry, we are taking sustainable development issues seriously and actively seeking solutions. We have also been focussed in recent years on forging public-private partnerships between industry, governments and educational institutions to advance new mining technologies and enhance our workforce capacity.
Through these partnerships, universities and other educational institutions are playing an important role in addressing some of the key technical and sustainability challenges facing our industry through their research and advisory services; the development and commercialisation of technology; and, importantly, through their programs to skill our current and future workforces.
One example of this is the Sustainable Minerals Institute (or SMI) based at the University of Queensland. Formed more than ten years ago as a collaborative initiative of the mining industry, the University of Queensland and the Queensland State Government, SMI was established to boost research and education in sustainable development in the minerals sector, within Australia and internationally. The Institute is dedicated to integrating specific research in mining engineering, geology, water, health and safety risks, mined land rehabilitation, social responsibility and community relations, to provide real solutions to complex issues that invariably span several disciplines.
Today SMI has a global presence and an annual budget of 40 million dollars, with over 300 staff and activities on every continent, and has been active in recent years with specific sustainability projects in Chile. In fact Codelco became SMI’s most recent corporate member last year.
As Xstrata, we are also pleased to be one of five companies collaborating with Australia’s CSIRO, the Universities of Chile and Antofagasta and Chile’s mining research organisation CICITEM to establish a new international mining centre of excellence in Chile. This Centre will promote research and technology development with a specific focus on industrial applications and will further develop Chile’s workforce capacity through postgraduate training.
These types of collaborative approaches must be further promoted to help address the range of sustainability challenges that we as an industry are confronted with.
I’d now like to turn briefly to another topic that I’m personally very committed to in my role as Chairman of the International Copper Association, or ICA, - raising the profile of copper as a significant contributor to modern society and its sustainable future.
Governments and communities today are grappling with serious issues relating to public health, food supply, climate change and energy use, basic infrastructure for urban slums, air quality, green building requirements and earthquake protection; issues that have no social, political or geographical boundaries.
These global challenges all have one thing in common: Copper’s unique properties allow it to be part of their solution. Based on the good work of our colleagues in the ICA, we have scientifically-proven evidence to support these strong claims for copper.
For example, increased use of copper in electrical equipment and components improves energy efficiency and reduces carbon dioxide emissions. If we brought all countries into line with current best practice for copper use just for industrial motor efficiency alone, we would save 300 billion kilowatt-hours of electricity and 200 million tonnes of carbon dioxide emissions per year. This is equivalent to around 10% of total current US electricity consumption.
Research has also shown that with its antimicrobial properties, copper can rapidly reduce the number of potentially deadly bacteria on touch surfaces by over 99%. This has now been proven to reduce the risk of infection in intensive care units in the US by 40%.
Here in Chile, antimicrobial copper touch surfaces are being used at the Calama Hospital as well as in public spaces such as the Santiago Bueras metro station to reduce the spread of infection between passengers. Chilean salmon farmers have also introduced copper alloy mesh cages to improve the health of their stock, keep fish pens clean, and decrease the use of antibiotics in food production. Antimicrobial copper is an exciting development for our industry - the potential applications and new markets are extensive.
The ICA is leading efforts to promote copper’s essential role in contributing to sustainable development solutions for society. For their role in supporting this work, I proudly acknowledge the collaboration of my fellow ICA member company senior executives, many of whom are represented here tonight, as part of the Global Copper Alliance.
As an industry, we have a very positive story to tell in terms of copper’s contribution to a sustainable and healthy society and I believe this is another area in which we all can and should do more to effectively communicate the story.
In concluding, I would like to note that over the past few years the copper market has proved resilient to international economic crises, thanks to its fundamental importance to developing countries and to modern society generally. Strong demand for copper should continue as the major developing countries drive demand growth, the US and Japanese economies slowly recover and the economic situation in Western Europe stabilises.
Growing demand for copper means that copper producing nations have a prime opportunity to achieve further significant economic and social growth through the responsible development of their mineral resources. And Chile, as the world’s largest copper producer and with the world’s largest copper mineral resource base, surely stands out as being perfectly positioned to take advantage of the moment.
The modern mining industry is well positioned to be a strategic partner for governments and communities that have a vision for a better, sustainable future that includes the development of their nations’ mineral endowment. The concept of shared value creation rests on a symbiotic relationship between responsible business and a supportive broader society. The copper industry must demonstrate the lasting benefits it can provide to society, but at the same time, modern societies need to recognise that they need a thriving business sector, supported by clear policies, a stable fiscal regime and the willingness on both sides to work in partnership.
If we can continue to foster trust and mutual value creation, responsible mining companies, copper-rich nations and the many stakeholders in our business have a wonderful opportunity to reap the full benefit of copper resources, not only here in Chile, but around the world to provide economic and social development for the benefit of all.
I would like to express my sincere thanks again to CESCO for giving me the opportunity to address you all tonight.
(Ends)