Rio Tinto: Investing in Instability
Over the past decade, China’s rapidly expanding economy has caused a dramatic jump in metal prices, specifically copper. Although some analysts predicted a 30% decline in copper prices for 2007[1], a BHP-Billiton (BHP) executive, Diego Hernandez, noted recently that “the market is firm,” citing that demand from China will continue to support record prices: “…last year the Chinese bought less because they used a lot of inventory and have now started to go back to the market.”[2]
In 2003, then-Rio Tinto chairman Robert Wilson said “China’s growth, with its heavy emphasis on infrastructure development, has become a major influence in the market for many of our products….China’s consumption of metal has been growing by more than 10 per cent annually and rapid growth seems likely to continue.”[3]
That demand has continued, prompting chairman Paul Skinner to say, in 2007, “Growth in China, which is critical to the demand outlook for many of our products, remains strong and well balanced.”[4]
It is due largely to China’s demand for metals such as iron ore[5] and copper[6] that have fueled the rise of Rio Tinto into a mining giant. This has caught the eye of the world’s single largest mining company, BHP. BHP has expressed an interest in selling its oil interests in the Gulf of Mexico in order to bid for ownership of either Rio Tinto or Anglo American.[7]
This dependence upon China’s demand for commodity metals presents potentially dire consequences for economies in the western world. In February, 2007, China forced banking lenders to keep an additional one-half per cent of their deposits in the central bank in order to prevent the country’s massive trade surplus from overheating the economy[8], a trend which could lead to more devastating effects on small investors in the event of an economic meltdown. The minor change and speculation that China would begin to tightly regulate investment in Chinese companies led to drastic falls in stock exhanges around the world, as well as contributing greatly to drastic changes in BHP, Anglo-American and Rio Tinto share values.[9]
The US, specifically, has followed a trend toward providing the world economy, not with manufactured products, but raw materials, such as grains, iron ore, and timber. The result has been that the US sells China its steel, nickel, copper, palladium and other metals and China, in turn, exports a higher-value manufactured product back to US. Don Fosnacht, director for the Center for Applied Research and Technology Development at the Natural Resources Research Institute said, "There are real opportunities for Minnesota to be a supplier of raw materials to China in both the ferrous and nonferrous areas."[10]
While this has proven profitable, at least in the short-term, for mining companies and their shareholders, the effects on working class Americans has been devastating.
From 1989 to 2003, at least 1.5 million US jobs were displaced due to the growing trade deficit with China, with the pace of job loss more than doubling following China’s entry into the World Trade Organization (WTO).[11] The State of Michigan was among the nation’s top ten losers. The state lost at least 50,991 jobs as a direct result of this trade relationship.[12]
China’s demand for metals has directly contributed to the current rush in mineral exploration in the Upper Peninsula. Mining executives continually exclaim that mining companies should be permitted to mine wherever they can because modern society needs metals.
Despite this expressed need for continued mineral extraction, most mining companies have made little if any investment in recycling the metals that we already have, incidentally selling more than 50% of US scrap metal exports to China.[13] In 2002, China purchased 50,000 tons of scrap steel from the destroyed World Trade Center buildings in New York.[14] The reuse of our current metal supply, although not nearly as profitable to executives and shareholders of the largest mining corporations, would offset this presumed need for fresh minerals.
Another argument against the need for hazardous mining projects in water-rich areas can been found in the questionable need for an isolated Upper Peninsula community to carry the environmental burden for economic growth in countries with egregious human rights records.
A recent Amnesty International report noted that “Tens of thousands of people [continue] to be detained in violation of their human rights and were at risk of torture or ill-treatment. Thousands of people were sentenced to death or executed.”[15] Following the massacre of demonstrators in Tiananmen Square, the Chinese government has been increasingly known to detain, torture, and even kill journalists for publishing information critical of the government.[16] The US State Department’s recent report on human rights accuses the Chinese government of restricting public access to information, particularly through the internet.[17]
China’s human rights record does not necessarily contradict with Rio Tinto’s modus operandi. Indeed, the company has made its name not only in selling to but also by operating in countries that violate Geneva Conventions on human rights.
Rio Tinto’s Rossing Uranium mine, in Namibia operated in violation of the United Nations Council for Namibia’s (UNCN) “Decree No. 1” and various UN and International Criminal Court (ICC) sanctions that related to Namibia’s occupation by South Africa’s apartheid government. A UN report at the time noted that workers at the mine operated under “near slave conditions.”[18]
Similarly, the Rio Tinto/Freeport McMorRan Grasberg Mine, in mineral-rich West Papua operated with the country under occupation by the government of Indonesia. When local citizens formed the armed Free Papua Movement (OPM), the Indonesia military, using US-supplied attack jets, fought on behalf of the mining company. In 1998, when Amungme spokesperson, Yosefa Alomang tried to attend Rio Tinto’s annual general meeting (AGM) she was prevented from boarding her plane. In response to her public criticisms of the mine, Alomang had been detained and kept locked in a closet for three weeks by Indonesia soldiers, in 1994.[19]
Recently, mining companies have expressed greater interest in the Democratic Republic of the Congo’s (DRC) copper supplies.
Initiated as a battle of the country’s vast resources, the DRC’s most recent civil war began in 1998 and caused the deaths of at least 3.3 million people, as of 2003.[20] The roots of the current resource war originate in 19th century when the Congo was under Belgian rule. King Leopold’s quest for ivory and rubber caused a holocaust that exceeded in scale that under Nazi Germany, with roughly 10 million Congolese killed over a 20-year period.[21]
Multinational companies from around the world have fueled the current war through the extraction of oil, gold, diamonds, timber, copper, and valuable cobalt and coltan, which is used primarily in laptop computers and cellular phones. However, despite being one of the most resource rich countries on the planet, DRC currently has an overseas debt of $6.4 billion.[22] The corrupt nature of the DRC government and the historic media isolation and lack of political influence of its citizens has made the area particularly appealing to investors.
2 Reuters, “Billiton Exec Sees Firm Copper Prices in 2007,” March 26, 2007
5 Iron Range Resources, “Changing Landscapes: Base and Precious Metals Projects Bring New Prospects to East Range,” Range View, Winter 2006; See also: Wachman, Richard, “Rio Tinto Digs Deep for Victory,” London Observer, January 30, 2005
6 Press Association, “Rio Tinto Boosted by Chinese Demand,” London Guardian, February 3, 2005; See also: Davis, Gregory, “Freeport McMoRan Profits from Copper and Gold (FCX),” Investopedia.com, April 2, 2007
9 BBC News, “World Stocks Plummet on China Woe,” February 27, 2007; See also: Blackden, Richard, “Global Stocks Tumble as Chinese Market Falls,” London Telegraph, February 28, 2007
12 Ibid, 17; 42-5
13 Advanced Steel Recovery, “ASR Scrap Report 2005,” Advanced Steel News (Online)
14 China.org “Baosteel Will Recycle World Trade Center Debris,” January 24, 2003; See also: Jayaraman, N.; Bruno, K., “Trading in Disaster: World Trade Center Scrap Lands in India,” Corpwatch.org, February 6, 2002
15 Amnesty International USA, “Annual Report for China,” 2005
16 Drinan, R.F.; Kuo, T.T., “The 1991 Battle for Human Rights in China,” Human Rights Quarterly, Vol. 14, No. 1 February 1992, pp. 21-42
18 Moody, Roger, “Plunder!,” PARTiZANS/CAFCA, London, 1991, pp. 83-112
20 Fagen, Christopher, “What’s Behind the Killing in Central Africa?,” Socialist Worker, June 12, 2003
21 For an excellent, timely and well-documented work on this period in history, see Sir Arthur Conan Doyle’s “The Crime of the Congo,” Hutchinson & Co., London, 1909; More recently, Adam Hothschild published “King Leopold’s Ghost, A Story of Greed, Terror and Heroism in Colonial Africa,” Houghton-Mifflin, New York, 1998; For a popularized account see Mark Twain’s, “King Leopold’s Soliloquy: A Defense of His Congo Rule,” P.R. Warren Co., Boston, 1905
22 Tabb, William, “Resource Wars,” Monthly Review, February 19, 2007; See also: Delpechin, Jacques, “Resources, Conflicts, Reconstruction: A Congolese Global Perspective,” Summary of presentation given at the symposium entitled Futures of Southern Africa, Windhoek, Namibia, Sept 15-17, 2003. Posted at ZMagazine on October
22, 2003 & Justin Podur’s book review, “The Congo Conflict,” March 5, 2004, also posted at ZMagazine
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