FOE and Peruvian allies call on Zijin mining company to come clean

Zijin Mining Group, a leading Chinese gold and copper producer, is in the hot seat yet again for the way it handles environmental and social risks related to its mining business.  

This past summer, the company was involved with a string of environmental disasters in China, for which fallout continues.  Meanwhile, disturbing developments are surfacing in the company’s international projects, particularly its Rio Blanco Mine in Peru.  This week, international and Peruvian NGOs raised concerns about the company’s projects abroad, including its failure to disclose major environmental and social risks.  The complaint sounds like bad déjà-vu: the company’s also had trouble with its domestic performance.  Zijin is past due for an overhaul of its environmental and social management practices.  But what will it take to make the overhaul a reality? 

Recently, Zijin’s Supervisory Committee, which is charged with overseeing the company’s financial transactions, unearthed some troubling news.  According to the Committee’s report in Zijin’s 2009 annual report, the company overstated the results from its overseas investments, in part because of environmental, social and political problems associated with those projects: “problems arose from the social and environmental protection in local society, higher political, economic and cultural risk for overseas investments. The senior management of the Company should plan and analyse carefully, adopt risk prevention measures, and build a foundation for future development.”

Despite this note of concern, Zijin’s 2009 annual report only vaguely touched on its overseas investments, without any mention of the risks flagged by the Supervisory Committee. The report entirely neglected to mention the controversy surrounding the company’s Rio Blanco mine in the mountains of northern Peru,which is believed to be the world’s largest undeveloped copper resource.  With an estimated US$20 billion worth of copper reserves, the mine has great economic potential.  But that is only if the company can get the metal out of the ground. 

Zijin is in a multi-year standoff with local communities that oppose the mine’s pollution of the scarcewater supply on which they depend for eco-tourism and traditional and organic farming.

According to Javier Jahncke of Peru’s Ecumenical Foundation for Peace and Development (Fedepaz), who works with the communities, “Polluting this area could bring about an environmental disaster for the entire region.”

Zijin has already been fined for violating local environmental laws and recent clashes with community members have brought about casualties on both sides.  Adding to Zijin’s woes, the Rio Blanco Mine was never authorized by local communities, as required by Peruvian law,and the mine’s previous owner, UK-based Montericco Metals, which Zijin acquired in 2007, is on trial in the UK for the torture and killings of local community members in 2005.

Despite its conflict with communitiesin northern Peru, in July 2010 Chinese media reported that Zijin would seek to increase its investment in the Rio Blanco Mine.  Controversy seems to be defining Zijin’s attempts of late to expand abroad.  Also in 2010, the company was seeking to invest in the Tampakan Gold and Copper Mine in the Philippines and a mine in the Democratic Republic of the Congo, both of which are fraught with social and political opposition.  Ultimately, these deals did not go through, but expanding Rio Blanco remains on the table.

So what will compel Zijin to improve its governance of existing and potential projects? Local environmental protection authorities have fined the company and its top executives, and the China Securities Regulatory Commission launched an investigation into whether Zijin violated rules for listed companies on public disclosure of major incidences after the company’s botched cover-up of its July 2010 chemical spill at Zijinshan.  However, some have questioned the strength of government regulation in this regard.

Outraged by Zijin’s failure to share pertinent information about its activities with stakeholders, 11 Chinese NGOs appealed to the Hong Kong and Shanghai Stock Exchanges, where Zijin’s shares are publicly traded, to demand greater public disclosure from Zijin and other corporate polluters that are ravaging China’s environment.  According to Ma Jun, Director of the Beijing-based Institute of Public and Environmental Affairs that was a signatory to the letter, “Information transparency itself won’t be able to solve environmental problems, but it is a prerequisite for public participation. … We believe without fully involving the public, the campaign to reverse the country’s environmental pollution can hardly make much progress.”

Full disclosure is also necessary for shareholders and banks to properly assess environmental and social risks associated with their investments.  In its campaigns in the United States and globally, Friends of the Earth U.S. has filed disclosure complaints at the Securities and Exchange Commission (SEC), which regulates U.S. stock markets, on issues such as companies’ failure to report on dam-building risks in the sensitive Amazon rainforest, and on the costs of cleaning up toxic contaminated land.Notably, it presented studies to the SEC to show that companies publicly listed in the U.S. were not adequately disclosing climate change risks to their shareholders.  Today, in part because of Friends of the Earth’s efforts, the SEC requires companies to analyze climate risks in their annual reports, which has in turn forced many companies to confront these issues in a robust way.

Drawing from this work and the desire of citizens in China and Peru to hold Zijin accountable, this week, Friends of the Earth U.S., in collaboration with Peruvian organizations, sent a letter to the Hong Kong Stock Exchange. Together, the groups requested that the Exchange ensure that Zijin report the social and environmental risks associated with its Rio Blanco Mine and other overseas investments to shareholders.   Under state-of-the-art rules for mineral companies issued by the Exchange in 2009, mining companies such as Zijin are required to disclose information about non-financial risks they encounter.  This could be a motivation for Zijin to be accountable to the shareholding public about environmental and social issues, which in turn is an important step towards helping Zijin recognize that non-financial risks are not to be ignored or covered up.