Paul DaSilveira, SGS

Report
Environmental and Social Risk management.
Financing Metal Mining Projects – The Equator Principles
Paul Da Silveira
Business Development
4th Annual Risk Mitigation Seminar
Metal Mining & Sustainability
 The mining and metals industry faces a broad
range of challenges in producing the essential
materials for today's society
 Among others issues, Environmental and social
risks management are key factors for grant
access to finance from Development or private
international Financial institutions
 The Equator Principles guidelines have an impact
on mining & metals project finance from the
perpective of sponsors and borrowers in terms of
their environmental and social contractual
obligations.
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Metal Mining & Sustainability
 The dialogue on the inter-relationship of financing, mining and
sustainability had four objectives:
1. to support a better understanding amongst the finance community of issues
raised by the mining industry’s uneven performance with respect to
sustainable development as they relate to financial and reputational risk and
shareholder value;
2. to examine what role, if any, the financial community could play to enhance
the mining industry’s performance (e.g. guidelines, standards, or similar
criteria);
3. to examine mechanisms (reporting, rating, certification, monitoring) suitable
to improve overall industry performance, thereby reducing risk exposure for
the financial community at large; and
4. to move toward a broader consensus on the evaluation of sustainability
specific risk factors in mining finance, and their application.
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Metal Mining & Sustainability
Type of Risks
Hard-to-manage risks:
Legal Risks
Market & Political Risks
Force Majeur
Manageable Risks
Technical & Operational Risk
Environmental & Social Risk
Economical Risk
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SOURCES OF RISK
LEGAL/FINANCIAL
> Contractor insolvency
> Breach of contract
OTHER
> Natural peril, disaster
> Earthquake, fire
explosion
> Force majeur
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MARKET/POLITICAL
> Price, currency, interest rates
fluctuation
> Inconvertibility of currency
> Disable currency transfer
> Change in law and legal system
> Political instability violence
> Riot, strike, civil commotion
> Terrorism, war
SOCIAL/ENVIRONMENTAL
TECHNICAL/OPERATIONAL
> Labor and working conditions
> Pollution
> Health, safety and security
(community, employee)
> Land acquisition and
involuntary resettlement
> Biodiversity conservation &
sustainable natural resource
management
> Handling/operation
> Construction
> Faulty design, materials,
workmanship
> Reliability of feasibility study
> Project performance
> Supplier performance
> Contractor performance
> Defects
> Alterations/betterments
THE VALUE OF STANDARDS AND AGREEMENTS, AUDITS
AND INDEPENDENT VERIFICATION
 The mining industry had embraced principles for
sustainable development and environmental best
practices to properly address those risks by developing
several voluntary codes of conduct such as;
 International Cyanide Management Code
 International council for mining & metals’s sustainable
development framework
 Mineral Policy Center’s Guidelines on Responsible
Mining
 World Bank’s 2003 Extractive Industries Review
 IFC’s Environmental H&S sector guideline for Mining
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EP 2 – Ten Principles
 Principle 1: Review and Categorization
 Principle 2: Social and Environmental Assessment (Process)
 Principle 3: Applicable Social and Environmental Standards
 High-income OECD countries vs. Emerging Markets
 Principle 4: Action Plan and Management System
 Principle 5: Consultation and Disclosure
 Principle 7: Grievance Mechanism
 Principle 8: Independent Review
 Principle 9: Covenants
 Principle 10: EPFI Implementation Reporting
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Equator Principles – The Project Finance E&S
Benchmark
The Equator Principles can bee seen closely mirror the International
Finance Corporation (IFC) Performance Standards on Social and
Environmental Sustainability,:
 Performance Standard 1: Social and Environmental Assessment and
Management System
 Performance Standard 2: Labor and Working Conditions
 Performance Standard 3: Pollution Prevention and Abatement
 Performance Standard 4: Community Health, Safety and Security
 Performance Standard 5: Land Acquisition and Involuntary Resettlement
 Performance Standard 6:Bio-diversity Conservation and Sustainable Natural
Resource Management
 Performance Standard 7: Indigenous Peles
 Performance Standard 8: Cultural Heritage
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Equator Principles
Benefits;
 Standardize E&S lender requirements;
 Equator Principles bring a level of social and environmental
evaluation, transparency and discipline to projects which
might otherwise be absent.
 Promote responsible investments development:
 The banks are secure in the knowledge that their
investments are being used to support ethical and
sustainable work and that the project conforms to the
required standards. Open new market.
 Provide effective project finance risk management;
 Protect Project Return of Investment
 Reduce cost overruns and delays
 Protect Financial Institutions from the environmental and
social liabilities of the project.
 Preserves Financial Institutions reputation
 Provides access to capital
 From international EPFI or Multilaterals
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Equator Principles Work-Flow
Lender
EP1)
Borrower
Project categorization
EP2)
EP3)
EP4)
EP7)
Independent Review
EP8)
Applicable E&S Standards
Action Plan and mangement system
EP 5)
Consultation disclosure
EP6)
Grievance Mechanism
Coventants
EP9)
EP10)
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E&S assessment
Reporting
Independent monitoring
Independent Third Party can Help?
 Many EPFI has set procedures to involve
independent third parties on these activities
 It clearly improve the way they partner with:
 Clients
 Governments
 Civil society and NGOs
 On-site assessments and monitoring also
improve transparency and accountability of EPFI
efforts on implementing EP and IFC performance
standards
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Case Study – Pt Agincourt Resources
 Business Challenge:
 Undertake an environmental impact assessment to Equator Principles to ensure PT
Agincourt Resources attained local AMDAL approval and could commence
construction on a Gold and Silver Mine in Indonesia.
 Approach
 The Third Party Firm collected information required to meet the government and
company’s requirements; from air quality to socio-economic data. Simultaneously
the Third Party also had to follow strict processes set out by AMDAL relating to
public engagement.
 The Third Party submitted Terms of Reference for the project which were reviewed
and approved by the relevant authorities. This was followed by submission of the
AMDAL itself and accompanying environmental monitoring and management plans.

Benefits & Value

AMDAL approval was granted in early 2008 and the project is on schedule according
to plans.
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On Site Assessment
On site assessment is used predominantly on the
basis of confirming: that the Project Operator and/or EPC contractor(s)
are aware of the need for certain socio-economic
and/or EH&S related issues to be addressed within
the project,
 that these requirements are factored into the
project development and execution process,
 that the project design, planning, approval
processes, project management and
implementation parameters are in line with EP /
IFC criteria, and,
 that the desired outcome is likely to be achieved in
respect of the project’s environmental and socioeconomic probity, if implemented effectively.
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Equator Principles
Assessment Objectives;
 To assess and report on - in the context of
statutory obligations, and any other applicable
discretionary corporate social and environmental
obligations - whether the Project is in accord with
the Equator Principles requirements and
associated IFC Performance Standards identified.
 To identify any areas where inconsistencies exist
between the Equator Principles, action plan or loan
terms and conditions requirements and current
performance or where some re-examination or
strengthening of current management performance
might be warranted.
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Thank You,
Paul Da Silveira,
SGS
Tel: 905 – 364 -3757
[email protected]
Chjm/SGS/17June09

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