10:43 AM May 14, 1996

LIBERALISING GOLD MINES COSTLY FOR SOUTH

London, May 13 (PANOS/IPS) - The lustre of gold -- the most lucrative sector of the global mining industry -- is leading a growing number of developing countries to deregulate gold-mining in a bid to attract foreign investment.

But new safeguards are needed if they are to avoid paying a heavy cost, experts say.

From the Philippines to Ghana, gold-producing countries are holding out a raft of incentives, like lifting of foreign ownership restrictions and reduced taxes. In all, 70 countries have changed their mining laws to attract foreign companies, drawing in not only giant TNCs but also a new aggressive breed of 'junior' mining companies -- all jostling in a headlong rush for the yellow metal.

"The mining industry is suddenly confronted with a wide arena of opportunities that have not been available for several decades," Bob Wilson, chief executive of the London-based RTZ (Rio Tinto Zinc), said recently.

With buoyant gold prices, many of the world's gold mining companies are heading South. Jerry Ellis, chief executive of BHP Minerals of Australia says that the next century could see the world's mining industry dominated by "a handful of large companies."

Already by 1991, just over twenty companies delivered more than two-thirds of official global production (outside China), while the world's two largest mining companies -- RTZ/CRA and Anglo American -- controlled nearly half this amount.

The giant corporations are being joined by a new breed of junior companies financed by "smart money" on the stock exchanges of Canada and Australia. A Canadian government working group in 1992 identified some 200 Canadian mining companies operating outside the country. Between them, they held around 420 mineral properties -- and the figure trebled by 1995.

These companies are mobile, relatively inconspicuous and ready to take risks. Few of them will actually mine an ounce of gold on their own, since they lack the expertise and long-term investment capital to do so. On locating a promising deposit, they generally enter into partnership with bigger companies, thus giving the big corporations continuing sway.

Attracting foreign direct investment (FDI) for mining projects -- particularly in gold -- has become a key priority for many indebted developing countries, which are liberalising their economies, often as part of structural adjustment programmes.

The rewriting of mining codes is much the same worldwide: allowing tax-free imports, deferring royalties and similar payments and permitting the expatriation of up to 100 percent of profits and even the export of all gold mined. Jim Otto, an international expert on mineral policy, says 31 countries in Africa alone have made changes to their mining legislation in recent years.

For some of these countries, the changes have boosted production and export earnings, affording some relief from international creditors banging on the door. On the ground, mining has created badly needed jobs for under-employed and unemployed hands, even helping build schools, roads and power plants.But weighed against the benefits are the costs.

Extracting gold involves excavating billions of tonnes of ore. Trees, top soil and vegetation are removed, and only very careful closure and remedial work ensures the damage is not lasting. During operations, chemical treatments present further risks to the health of miners and the surrounding environment and communities.

Another area of concern is small-scale mining -- a vibrant part of mining operations in most gold-producing countries with the potential to support local communities across the developing world. Experts say environmental safeguards and regulation of the largely illegal small-scale industry are imperative.

Tangible benefits can accrue from regulation. Zimbabwe's ministry of mines, which legalised gold panning in the early 1990s, provides miners with detailed information on mineral resources, prospecting and mining exploration and ore processing.

Job losses result from privatisation of mines, which is another global trend. In Peru, Latin America's second largest gold producer after Brazil, new companies have substantially reduced their workforces --in one case by nearly three-quarters.

With predictions that in 20 years, about half of global production will come from territories used or claimed by indigenous peoples, many of whom have successfully protested against mining activities, further action will also be needed to protect the rights, environment and health of indigenous people.

Many mining projects are short-lived, while all are dependent on volatile markets and changing fortunes. In is no accident that "ghost town" has become a byword for relinquished mining sites.

Even where a mine proves profitable over decades, rather than years, the profits of TNCs tend to be deployed in opening up new prospects, rather than consolidating existing ones.

While many mines require new oil, coal or hydro-power schemes, their financing usually derives from government and multilateral institutions, not the corporate sector. Nor is there any guarantee that a significant proportion of electricity generated will go to local people.

However, some companies do invest in local communities. In Peru, the US-Peruvian joint venture partners Newmont Mining and Buenaventura invested three million dollars in 1995 in poverty alleviation schemes and paid fourteen million dollars to a workforce, which is almost completely local. This followed large- scale opposition to the mine.

The glitter of gold continues to seduce consumers worldwide. Global demand for the metal is now higher than ever before, 3642 tonnes in 1995, as against the previous highest of 3573 tonnes in 1992. The biggest single use of refined gold is as jewellery, perceived by millions in diverse cultures as a store of value. Demand is strongest in Asia. Industry and medicine account for about 12% of annual gold demand.

All this has made gold the most lucrative investment sector of the mining industry, which is the world's fifth largest in terms of capital deployed. That is good news for gold-producing developing countries, but without new safeguards the lustre of gold may well turn out to be as illusory for them as the fabled el Dorado.