Section 1504 of Dodd-Frank, the “Disclosure of Payments by Resource Extraction Issuers,” states that mining companies are obliged to publish an annual report of all payments made in countries where they have a presence.54
Critics have said that this bill has been too long in the making, and it focuses too much on exploitation and transactions related to resources without explicitly considering the impact on the war of competition for concessions in Congo. According to Dominic Johnson of the Pole Institute, the Congo Conflict Minerals Act paradoxically may well lead to the disappearance of the legal trade in minerals in the Congo and a new outbreak of conflicts, “as there is much to be gained by obtaining sole control of these areas in time for greeting the international monitors, observers, consultants and regulators.”55 But at least these measures show that a government can set up a regulatory framework for its industry even when that industry is operating beyond national borders.
Toronto, the World Mining Industry’s Nest Egg
Toronto serves the mining industry in two ways. First, it provides the risk capital needed for extraction project start-ups. Second, it makes it possible to raise money on discoveries or promising exploitation prospects.
“Generally speaking, in the mining industry risk capital comes from Canada,” explains, as though it were self-evident, Belgian engineer René Nollevaux in Thierry Michel’s film Katanga Business.56 He is discussing the Kamoto mine owned by Katanga Mining, a consortium registered in Canada, where it raises the risk capital on which it depends. For investors, it’s a casino-style wager, and as at a casino, they hope to make money on their bets. To ensure their luck, intense pressure must be exerted on the South. Katanga Business reports on the controversial evictions of local populations carried out by mining companies operating in the region, on the unemployment and mass migrations of the local inhabitants that follow, and on problems of smuggling and tax evasion leading to significant losses for the state. Shareholders are attracted by optimal returns, and therefore on Bay Street it is seen as bad form to ask whether the Toronto-listed company’s comfortable profit margins are produced at the expense of people in the South.
In financial terms alone, it seems clear that the countries of the South derive no advantage from mining activity. “Around two-thirds of the people living below the poverty line reside in nations rich with extractive resources yet they rarely receive any meaningful benefits from their country’s resource wealth.”57 More generally, according to Ecuadorian economist Alberto Acosta, resource-rich countries of the South suffer from a “curse of abundance,” often experiencing extreme economic vulnerability, rampant corruption, irreversible environmental destruction, repressive regimes, or the outbreak of internationalized civil wars.58
In Congo-Kinshasa, the post-conflict commission set up to analyze mining contracts during the war years (1996 to 2003), chaired by opposition MP Christophe Lutundula, cited many Canadian companies whose share prices rose on the Toronto exchange thanks to one-sided contracts.59 Worse yet, market considerations may have been the cause of war in the first place: the share price of an entity controlled by the Swedish Lundin Group soared from 20 cents to US$3.50 on the TSX when insurgent forces said they would countersign a mining agreement signed some time earlier by the central government they were attempting to overthrow.60 Journalist Nestor Kisenga describes the situation: “These wheeler-dealers earn fabulous short-term profits by speculating on portfolios bloated with unearned contributions” from the largest state-owned mining enterprises. For Kisenga, “It is as though the Congo were a cheap painting bought for next to nothing at a flea market only to be resold in art galleries at its true value as a masterwork.”61
In addition to providing powerful financial leverage for exploration, the Toronto Stock Exchange can also provide instant access to capital when a company makes the right announcements. Concessions obtained in the South are the basis for a game of poker in which huge sums can be earned overnight as soon as investors can be made to believe that a claim is valuable. A mining concession on which the most basic human rights have been violated, or one that has been obtained in wartime from an insurgent force, often becomes, in Toronto, a guarantee of value enabling a moribund share price to soar suddenly. Despite allegations that deposits in the Congo (AMFI [American Mineral Fields Inc.] among others),62 Sierra Leone (DiamondWorks),63 or Angola (Heritage Oil)64 may have been obtained through political corruption, by influence peddling, or by supporting belligerents, speculators remain indifferent to these issues. All that matters is how much the deposit is worth, what the exploration prospects look like, and how much money can be made if the project is developed.
2. Promoting Investment IN Mining
Second in the substantial advantages Canada provides to the world’s extractive industry is promotion of investment in the mining industry. The status of the Toronto Stock Exchange as indispensable purveyor of venture capital undoubtedly is related to the activist approach of the Canadian government. Investors who place their assets specifically in the mining field are provided with enormous tax advantages. One way for Ottawa to channel money toward the extractive sector is the use of flow-through shares, which enable junior firms to transfer to their investors the credits from which they would have benefited had they not already enjoyed tax-exempt status. Many junior resource companies “are in a non-taxable position and do not need to deduct their resource expenses. The [flow-through share] mechanism allows the issuer corporation to transfer the resource expenses to the investor.”65 With respect to exploration expenses, investors can deduct up to 115 percent of the amount invested. Quebec, true to form, is prepared to go much further. In some cases, flow-through share deductions make it possible for investors to deduct as much as 150 percent of the cost of their investment.66
Given that more than a thousand exploration firms registered on Canadian stock markets use flow-through shares, it is clear that governments are experiencing a huge shortfall in taxation revenues. This means that mining exploration activities (often sharply opposed by local populations or taking place in conditions of civil war), and possibly speculation by mining company juniors, are indirectly supported by public funds. The federal government itself, in its 2008 budget, evaluates the fiscal cost of these measures at $60 million a year, on average,67 and this figure does not even include parallel losses incurred by provincial administrations, or other forms of financial support to the extractive industry.
These other forms of financial support include loans and investment guarantees, which the Canadian government provides to companies operating abroad through the Export Development Canada (EDC) and the Canadian International Development Agency (CIDA). The investment guarantees are particularly advantageous when companies go looking for new funds from