Optima Volume 59

HUMAN RIGHTS: RUGGIE AND SELVANATHAN INTERVIEW USA: THE GLOBAL HUB – FOR NOWREPUTATION: WHAT HAVE WE GOT TO LOSE? INNOVATION: COAL TRAIN INSPIRED BY NATURE

OPTIMAJULY 2013

ANGLO AMERICAN MARKS 40 YEARS IN BRAZIL

02 | OPTIMA | JULY 2013

WELCOME

You earn reputation by trying to do the hard things well, as Amazon founder Jeff Bezos once put it.

The contributors to this issue of Optima make it look easy. Professor John Ruggie spent six years as the UN’s special representative, developing a new set of Guiding Principles for Business and Human Rights that gives businesses a chance – and a responsibility – to repair their tattered reputations in this area.

Perhaps we can learn from the Quakers, who built some of the most enduring business brands through their plain-dealing approach and reputation for probity, says Ogilvy’s Rory Sutherland.

Anglo American has spent the past 40 years building its presence and reputation in Brazil. Today, the country is set to become one of its major revenue generators. Trust has been fundamental. Norman Barber recalls former Anglo American do Brasil president Guy Young’s observation that when Brazilians were put in charge they generally did a better job than expatriates: “The cornerstone of our achievements in South America was our policy of ensuring that as far as possible local staff managed the operations.”

Still in the Americas, Bill Emmott celebrates the Energiser Bunny-like qualities of the US, whose confidence and reputation (battered by wars and the Lehman aftermath) are, once again, bouncing back.

CONTENTS

MARK CUTIFANICHIEF EXECUTIVE, ANGLO AMERICAN

14 TAKEN ON TRUST How understanding psychology in economics can help brands build instinctive trust

23 OUR BRAZIL STORYAnglo American marks 40 years in Brazil, from gold at Serra do Jacobina to iron ore at Minas-Rio

Editor-in-chief: Norman Barber

Anglo American plc 20 Carlton House TerraceLondon SW1Y 5ANEnglandTelephone: +44 (0)20 7968 8888E-mail: [email protected]

Optima is produced by Redhouse Lane, 14 Bedford Square, London WC1B 3JA, England

Redhouse Lane production teamEditor: Richard LomaxArt director: Colin GoadDesigner: Jorge GarciaProject manager: Rosamund Croft

Distribution enquiries: Bev [email protected]

34 SUPERPOWER American leadership is regularly declared to be at an end, but the US just keeps bouncing back

04 DIGEST Debmarine adds to fleet, demand for diamonds up in China and other industry news.

12 HONESTY POLICY UN guiding principles could heal long-standing rifts between corporations and communities

44 CREEPY CRAWLYThe coal-munching ‘Shongololo’ (millipede) is improving safety and production in South Africa

03 JULY 2013 | OPTIMA |

CONTRIBUTORS

48 BEARER OF LIGHTDiscovered in the search for the philosopher’s stone, phosphorus is improving crop yields worldwide

46 BOOK REVIEW A new book presents evidence that the policies of austerity literally kill a country’s citizens

OTHER CONTRIBUTORS NORMAN BARBER (PAGE 23); CAROLINE WILLIAMS (PAGE 44); ANDY PEARSON (PAGE 48) The opinions expressed by contributors do not necessarily represent the views of Anglo American. Provided that permission has been obtained from the editor-in-chief, and on condition that acknowledgement is made to Optima, publications (print and online) are welcome to reproduce articles in whole or in part and to use illustrative material, except where copyright © is especially reserved.

06 PRINCIPLED BUSINESSThe UN Guiding Principles on Business and Human Rights set a global standard for responsible corporate behaviour. More and more businesses recognise that their responsibility to respect human rights goes beyond legal compliance – and the mining industry is in the vanguard

CORBIS

ANTHONY HILTONAnthony Hilton is one of Britain’s leading financial journalists and is currently the Financial Editor of the London Evening Standard (and for many years its managing director) and former City Editor of The Times. He is the author of two books: How to Communicate Financial Information to Employees (1978), and City Within a State (1987) – a study of how the City of London really works. Anthony has won both the Wincott Prize for Business Journalism and Decade of Excellence Award for business and financial journalism from the World Press Awards.SEE PAGE 46

JOHN RUGGIEJohn Ruggie is an award-winning political scientist, professor in Human Rights and International Affairs at the Kennedy School of Government, and an affiliated professor in International Legal Studies at Harvard Law School. As the United Nations’ Special Representative he developed the Principles on Business and Human Rights, helping to break the civil society-business stalemate and set a global standard for protecting individuals and communities worldwide. John Ruggie is a Fellow of the American Academy of Arts & Sciences. SEE PAGE 06

RORY SUTHERLANDNotwithstanding an inauspicious start as “one of the worst graduate trainees Ogilvy and Mather has ever had” – the advertising agency’s words, not his – Rory Sutherland rose to become the group’s vice-chairman. An influential thinker and speaker in the marketing world, Rory is a keen student of behavioural economics and an enthusiastic early adopter of new technologies. SEE PAGE 14

BILL EMMOTTBill Emmott is a writer and consultant who was editor-in-chief of The Economist from 1993-2006, having previously served that publication in Brussels, Tokyo and senior editorial positions in London since 1980. He is also chairman of the London Library, a member of the Swiss Re Chairman’s Advisory Panel, and Group Economic Adviser to Fleming Family and Partners. The author of 12 books, many on Japan and Asia, his latest is Good Italy, Bad Italy (Yale University Press). He has just narrated and co-written a documentary feature film about Italy, inspired by his book, entitled Girlfriend in a Coma. SEE PAGE 36

OPTIMA NEWS


Digest A look at recent news from Anglo American and the mining industry.

Does the unveiling of the second asteroid mining venture in a year mean there could be promise in extra-terrestrial prospecting?

A company called Deep Space Industries is aiming to raise capital to design, build and launch three spacecraft – called Firefly – that will scan small asteroids for traces of precious minerals.

The firm hopes to attract corporate sponsorship and is counting on the support of NASA to help get the venture off the ground.

It follows the launch last year of Google-backed firm Planetary Resources, which is planning to blast spacecraft into orbit to observe and catalogue nearby rocks.

ASTEROID MINING: PIE IN THE SKY?

Anglo American's Thermal Coal business unit is taking part in a pioneering international project to develop near-zero emissions coal-fired power technology.

The FutureGen 2.0 project, an alliance between the US Department of Energy and the FutureGen Industrial Alliance (of which Anglo American is a member), aims to demonstrate a 90 per cent reduction in CO2 emissions in a US power station.

Having been granted approval by the US government, the project will

involve retrofitting the power plant with oxy-combustion technology, which burns coal in a mixture of oxygen and CO2 to produce a concentrated stream of CO2. This will then be safely and permanently stored in an underground aquifer using carbon capture and storage (CCS) technology.

Developing the demonstration model is essential to proving the technology’s viability. The FutureGen 2.0 project, if successful, could become the blueprint for similar plants around the world.

0

90%REDUCTIONIN CO2

EMISSIONS

EMISSIONS PERMISSION GRANTEDAnglo American Platinum’s Dishaba

mine in South Africa this year set a

new safety record, passing the three

million mark for fatality-free shifts.

The mine’s success is attributed to

an intense safety programme which

upholds an employee's or contractor's

rights to withdraw from a dangerous

working place. Operating on the

principle that “I am my brother’s

(or sister’s) keeper,” the programme

includes an element of “tough love”,

refusing to accept that it is normal for

people to get injured.

PLATINUM’S DISHABA MINE SETS AN HISTORIC SAFETY STANDARD

Debmarine Namibia, the largest marine diamond

mining company in the world, and the global

leader in offshore mining technology, has a

new addition to its mining fleet.

The MV Mafuta (meaning ‘seas’ or ‘great

waters’ in the Oshiwambo language of

Namibia) is expected to produce 350,000 carats

annually – about a third of the total production

of Namdeb (a 50:50 joint venture between

De Beers and the Government of Namibia).

President of the Republic of Namibia

Hifikepunye Pohamba commented:

“The partnership between the Government

of Namibia and De Beers is a fantastic model

for what is achievable when the private

and public sectors collaborate to create

meaningful economic empowerment for

the people of this country.”

The Mafuta has an interesting history –

as the Dock Express 20 it was the world’s

largest cable layer before its conversion in

2006, by UK ship repairers A&P Tyne, into

the sub-sea mining ship Peace in Africa,

dredging up 60 diamonds an hour.

PEACE IN AFRICA – BY ANOTHER NAME

DIAMOND DEMANDChina may buy a quarter of the world’s diamonds within the next 10 years, according to De Beers CEO Philippe Mellier.

Although currently only accounting for 10 per cent of world sales, Mellier forecasts China could soon rival the US as one of the largest markets for diamonds.

Demand in China, along with sales to India, could help lift De Beers’ total sales in the current financial year, according to Mellier.

By marketing diamonds in China as essential in wedding jewellery, De Beers has achieved significant growth in sales.


Mining’s centre of gravity continues to shift, according to

PwC’s Review of global trends 2013.

Alarmingly titled Mine: A confidence crisis, the report

says that, for the first time ever, half of the industry’s

40 largest miners by market capitalisation operate mostly

in emerging countries.

Production among the top 40 mining companies

was up in 2012, but profits halved as commodity prices

softened and costs rose, according to the review.

But it’s not all bad news. The review also found

dividends rose by nine per cent and long-term

fundamentals “are still there”. China will continue to be the

industry’s most important customer, having consumed

around 40 per cent of global metal production in 2012.

“The days of maximising value by solely increasing

production volumes are gone,” it concludes. “The future is

about managing productivity and improving efficiencies,

both of which have suffered in recent years.”

CRISIS? WHAT CRISIS?

40%share of global metal

production consumed by China in 2012

The renamed MV Mafuta gets a new lease of life as a diamond dredger


INTERVIEW

More and more businesses are recognising that corporate responsibility to respect human rights is a social responsibility that goes beyond legal compliance. Major players in the mining industry are in the vanguard,

with the International Council on Mining and Metals (whose council of CEOs is chaired by Anglo American’s chief executive Mark Cutifani) recently announcing a significant strengthening of its commitments to Indigenous Peoples.

In particular, this requires organisations to gain their consent for new projects (and changes to existing projects) on lands which they traditionally own or customarily use. These come into effect from May 2015.

Much of the heavy lifting to create the conditions for such initiatives to thrive has been done by Harvard professor and former United Nations Assistant Secretary-General John Ruggie.

His ground-breaking Guiding Principles on Business and Human Rights, unanimously endorsed by the UN in 2011 and six years in the making, set a global standard for business and human rights, building a consensus among countries, companies and other stakeholders and helping to release the debate from acrimonious and divisive deadlock.

The Guiding Principles have been widely praised by non-governmental organisations (NGOs) and endorsed by major corporations but, he says, the hard work in implementing them lies ahead.

PROTECT RESPECTREMEDY:

BUSINESSAND HUMAN

RIGHTSProfessor John Ruggie and

Dr Puvan Selvanathan discuss the challenges in implementing the

UN’s Guiding Principles.

01 Where human rights are at their most fragile: a Congolese victim of sexual violence takes refuge inside a women’s shelter in eastern Congo, having fled the violence there

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many of the companies and individuals involved, due to my previous life at the UN.

Within the extractives industry, though, my sense is that there are differences between the miners and the oil and gas companies. The miners have a much larger footprint, so in terms of community relations and push-back from communities they are even more exposed than the oil and gas industry. I think that has raised levels of awareness among the miners a bit more than within the average oil and gas company.

That would be one factor that accounts for the differences. The other is the existence of the International Council on Mining and Metals (ICMM), which I think has made a significant contribution. The council meets at the CEO level – it’s not a large number of companies and so they get to know one another. The existence of the ICMM has helped take some of these issues out of a competitive realm among the companies, so that you have more mutual learning taking place than might otherwise be the case.

Also ICMM membership isn’t as large or as diverse as, say, IPIECA, its oil and gas industry counterpart. So I think, on average, large miners have been more aware and have also communicated externally more, in part because of their greater exposure to communities and in part because of the institutional presence of the ICMM.

OPTIMA, JOHN RUGGIE DISCUSSES THE CHALLENGES INVOLVED...

The three pillars of the Guiding Principles are ‘protect, respect and remedy’. Could you elaborate ?In terms of the first pillar, it is a fundamental duty of states to protect against human rights abuses – not only those committed by state agents, but by third parties such as business. The second pillar is about the corporate responsibility to respect human rights, taking the concept of corporate social responsibility beyond legal compliance. It is the minimum expectation society has of business in relation to human rights and not infringing on others’ human rights. The third pillar relates to judicial remedy – which is a duty of the state – as well as the non-judicial grievance mechanisms companies have realised it’s sensible to create to address issues that involve them before they escalate.

Do you think the extractives industry has been supportive of the UN’s human rights agenda, and how do you see the industry’s development path in this regard?We (the UN and the extractives industry) had a good constructive engagement from the start, I think in part because the extractives industry itself – which has had to confront issues concerning taking over land and community resettlement, and which has experience of operating in conflict zones – has been hit by more lawsuits than any other sector, and thus appreciates the business case around human rights. And also partly because I was familiar with

01 John Ruggie (centre) at the Colombian government’s 16th Army Brigade Human Rights Training Centre at Casanare

02 Miners demon-strate outside the Ministry of Labor in Lima. Peru’s mining industry has a long history of adversarial relations with the government and affected communities

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HERE, IN AN EXCLUSIVE INTERVIEW WITH OPTIMA, JOHN RUGGIE DISCUSSES THE CHALLENGES INVOLVED...

03 Artisanal mining is a real challenge everywhere, which has not yet been dealt with properly. Here, women pan for gold along the Mekong river in Laos


1Ruggie’s initial mandate from the UN was for three years. He was tasked with looking at the contentious issue of corporate responsibility and accountability for human rights and the respective roles of states and corporations in this field.

A lot of the progress that has been made in the human rights field took place when it was a boom time for the mining industry, and it’s generally the big miners who can afford such interventions. Are we continuing to see follow-through, and are the smaller players some way behind? I think that’s right. I mean the juniors are still creating major problems. Artisanal mining is a real challenge everywhere, which hasn’t yet been dealt with adequately. The bigger players are generally staying the course on the human rights front, but the exposure of the major mining companies to community push-back is not costless for them. There are opportunity, financial, legal and reputational costs – as we know from experiences all over the place, and particularly in a country like Peru, where we have the example of protests against the Minas Conga gold and copper mining project and, just recently, the suspension of the Pascua-Lama gold mining project.

How well do you feel the Guiding Principles have been, and are being, implemented? Do you have any favourite success stories where they have led to a significant change?These are early days. You know how long it takes to drive significant policy change through a company – and it certainly takes at least as long to drive it through governments.

Even during the course of the mandate1, a number of companies shared with me ideas that they were pursuing for adopting human rights policies and translating them into

management systems. I followed some of those with interest, but it takes a good three to four years for that sort of policy change to become deeply institutionalised and to get to the point where you can actually assess performance on a systematic basis.

In terms of governance, I guess the most comprehensive approach is coming out of the European Commission. The EU’s corporate social responsibility (CSR) policy, which came out in October 2011, endorsed the Guiding Principles and requested that member states come forward with national action plans for how to implement those. A number of countries are getting ready to announce theirs and they will be fairly comprehensive policy statements and priorities.

The EU itself has followed up on the mandate to develop more granular sectoral guidance for a number of sectors, including information technology, the oil and gas industry and labour brokers – people who hire migrant workers and ship them to other countries. The EU is also developing a mandatory reporting requirement.

“We (the UN and the extractives industry) had a good constructive engagement from the start, I think in part because the extractives industry itself – which has had to confront issues concerning taking over land and community resettlement – appreciates the business case around human rights.”

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The International Finance Corporation (IFC) incorporated elements of the Guiding Principles into their sustainability policy, on which they base performance standards their clients are required to meet. These standards, in turn, are tracked by the so-called Equator Banks – covering three-quarters of all project financing worldwide.

The Organisation for Economic Co-operation and Development (OECD) introduced new guidelines for multinational enterprises, which for the first time include a human rights chapter, drawn directly from the Guiding Principles. The OECD requires that every adhering government (there are 42) establish a complaints procedure (National Contact Point) whereby anybody can bring a complaint against a multinational operating in or from that jurisdiction. There have already been several cases under the new guidelines.

I am now paying a fair amount of attention to emerging economies. I figure there are a number of people working on the North American and European fronts, so I am increasingly working with governments and companies in Latin America, Africa and Asia. I am much more involved than I thought I would be at this stage, but it is hard to say no when you see that you are making a difference.

Do you see a gap between having a policy on paper and implementing those policies from the corporate side?Implementation is always a challenge. The mining industry – at least the companies I am familiar with – is fairly decentralised and it is often a challenge to get organisations to sort out corporate-level policies and get them deeply ingrained on the ground. It takes time and a lot of work translating overall policy statements into bite-sized tools. The timing is important, too, in terms of incorporating these behaviours into incentive systems.

Every major company in the mining industry asks employees, as part of their assessment: how many injury-free days did you have, or how many days were lost due to safety issues? That focuses people’s attention on the subject, and that is starting to happen with regards to community relations issues and other human rights challenges.

Carbones del Cerrejón2 in Colombia helped test the Guiding Principles’ complaints and grievance mechanism. Can you explain what this involved? Cerrejón was one of five companies that agreed to participate in the pilot projects I conducted under the mandate. This was extraordinarily helpful to us because one of the things I was very conscious of in running the mandate was making

“It took six years and an enormous amount of effort, but the task of laying out the Guiding Principles itself was manageable. The implementation, of course, is much harder.”

2 Anglo American has a one-third interest in Carbones del Cerrejón, Colombia’s largest coal mining company.


At Anglo American’s Quellaveco copper project in Peru, a model of the proposed mine and processing facilities is shown to representatives from the local Moquegua community as part of a successful ‘dialogue table’ between the company and the host community

sure I didn’t put forward proposals that would be impossible to achieve in the real world.

The idea of pilot projects in a variety of the recommendations that we made, including the due-diligence processes and the grievance mechanisms, was a very important component of the mandate, which led to the Guiding Principles. Cerrejón was an important participant in that and we issued a report based on the experience.

What is your advice to the succession Working Group on taking your work forward and making it easy to provide guidance for companies and governments to implement?In some respects I had the easier job, which was to come up with the Guiding Principles for laying out the respective responsibilities of states and companies and how to discharge those obligations. It took six years and an enormous amount of effort, but the task of laying out the Guiding Principles itself was manageable. The implementation, of course, is much harder.

The UN Working Group on Human Rights and Transnational Corporations and Other Business Enterprises is now concentrated on implementation. It is focused on shared dissemination of best practices,

capacity building – particularly in the smaller developing countries – and small and medium-sized enterprises whose resource base is limited. The IFC affects access to capital and the export credit agencies have now also come around for the first time to systematically addressing the human rights issues. And the OECD national contact point system, too, raises awareness because it has a complaints mechanism.

So we now have a much broader portfolio of drivers at the international level to encourage implementation. In some cases, this even extends to not just encouraging but requiring implementation – for example, the US now has financial regulation legislation in the form of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Working Group fortunately doesn’t have to bear the entire weight of these challenges on its own shoulders.

So, looking ahead, what are the main challenges over the next decade or so?I’m not sure this is a useful metaphor, but let’s try it: there is a vertical dimension, which is driving these things deeper into companies that are already aware of the issues. Then there is the horizontal dimension,

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BACK AROUND THE NEGOTIATING TABLEIn the Navajo Nation – 27,425 square miles of Native American-governed territory in the deep south-west of the US – copper mining is high on the agenda.

which is to make companies and countries who aren’t yet fully in this game aware of human rights and begin to embed the principles.

Those are the two implementation-related challenges that I see and, as I say, I have started to pay attention to the horizontal issue more than the vertical issue, for obvious reasons. I think it is important to make sure countries and companies outside of the OECD area get in this game in a serious way.

We have recently had a Supreme Court ruling [US Supreme Court judgement in Kiobel v. Royal Dutch Petroleum, April 2013], which has seemingly narrowed the scope of the Alien Tort Statute (whereby US domestic courts may apply international standards) to be used as a means of legal redress for victims of corporate misconduct. I wonder if that might be seen in the developing world as Uncle Sam overly protecting business?That is certainly one framing that some people have given to the decision. The US Supreme Court is not known for its eagerness to regulate business. But given the specific case that was at issue here, I don’t think the ruling that dismissed the case against Shell came as a huge surprise to anybody. All nine judges agreed that the case should be dismissed because there was simply not an adequate nexus to the United States: more than ‘a mere business presence’ will be required.

My best guess is that when the dust settles – and it will take time and more test cases before it does – what we will have is a statute that will require a closer nationality link to the United States. It will, therefore, inevitably focus more on US companies’ conduct than on companies from other countries, except for very unusual case-specific circumstances.

Even then, I suspect that it will require conduct such as gross human rights violations, acts or complicity in acts that rise to the level of internationally recognised crimes – such as crimes against humanity, torture and forced labour. That is my best guess of where the US courts are headed.

Obviously, this will have an impact outside of the US, in that it makes it more difficult for advocates to be able to ‘thread the needle’ and get business-related cases into US courts. At the same time, it might also lead advocates abroad to focus more on their own domestic legislature to develop laws that hold their nationals to account for such overseas conduct.

I don’t see that happening in all countries, but I certainly think that in the Netherlands, the UK, Canada and Australia it is not a far-fetched scenario.

When Puvan Selvanathan, one of the five members of the UN Working Group on Human Rights and Transnational Corporations and Other Business Enterprises, visited the region, he found deep

distrust between the community and the mining company and deadlock in negotiations. The Nation has long-standing issues with the way mining concessions have historically been handed out, and was adamant that the situation could only be brokered by the US Government.

“My question was: if this approach hasn’t really worked in the last hundred years – why should we continue expecting that a government will ride to the rescue?” says Puvan. “Today, it’s the companies who are willing to talk. Whether communities are looking for compensation, or for ways to do things better, companies now have a vested interest in getting it right.”

That vested interest is enshrined in the UN Guiding Principles on Business and Human Rights. Puvan sees the Principles as a spark that could re-ignite conversations between corporations and communities that have long been smothered under bureaucracy and self-interest.


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NOT OUR PROBLEMThe deep-seated mistrust of big corporations among communities like the Navajo Nation is hardly irrational. Until quite recently, companies struggled to see what human rights issues had to do with them at all.

“There was a view that it wasn’t their problem,” says Puvan. “That’s what they pay taxes for – for the government to look after all that. While an issue may affect 200 people in one community, if the company’s products ultimately served millions in hundreds of countries that was a trade-off they could rationalise and live with.”

Most corporations have since changed their outlook, he believes, and intransigent traditional positions have been corrected by the Guiding Principles. So why are communities still so wary?

“Civil society groups fought long and hard over the Principles. What we’re seeing now, two years on, is frustration over why they haven’t changed the game yet.

“Part of the reason is that civil society groups don’t get to look inside companies. They don’t see that it can take two years just to get a letterhead changed – and to implement a human rights policy in an organisation whose culture is tied to risk management, to compensation for abuses, to compliance with the law, is a whole paradigm shift in business thinking.

“And business is not prone to wearing its heart on its sleeve. Companies do not advertise the fact that they have been struggling over how to handle the Principles for the last couple of years.”

TARRED WITH THE SAME BRUSHThe mining industry had to respond to human rights issues long before there were official Guiding Principles. As a result, many mining companies are already advanced in this area. Of course, not everyone outside the industry sees it that way.

“One of the frustrating things is that there’s still so much distrust that even good companies cannot move forward to resolve problems,” says Puvan. “Change is generally abhorrent to companies that have invested a lot in doing something a particular way, but if you look at top management, if you look at progressive companies, the Extractive Industries Transparency Initiative and so forth, they’ve more or less accepted that change is unavoidable. Now the question is: how do you make it happen?

“If a company is going to be on a project site for 50 years, the generation they are negotiating with today is not the one who will be renegotiating the concession in 25 years’ time. Indeed, the very prospect of ‘renegotiation’ mid-way through a concession is novel if your business model was forged in colonial times. So now businesses need to think about this for a dynamic longer term – but that presumes that communities are willing to come to the table to talk both now and later, and I think distrust built up from the past hinders effective conversations from happening.”

TELL IT LIKE IT ISIn Puvan’s view, “Both companies and governments have to first get their houses in order. Companies should have a human rights policy, and also be able to demonstrate that they’re not doing anything wrong. They must also be explicit about how they interact or dovetail with government actions and, critically, where governance gaps exist. Reciprocally, governments should continually highlight progress with business, and at the very least in their Universal Periodic Review (UPR) – the reporting mechanism of each UN member state to the Human Rights Council every four years.

“But appreciating that most consumers, investors and typical corporate stakeholders do not read UPRs, a company’s annual report should also provide enough information such that shareholders understand why businesses take decisions to avoid investment in particular countries… that’s the kind of thing that will actually drive change across the board. You need that kind of groundswell of information and transparency to keep all actors in check and balance.

“It’s not about naming and shaming. It’s just telling it like it is.”



OPTIMA REPORT

REPUTATION:1.The estimation in which a person or thing is generally held; opinion 2. A high opinion generally held about a person or thing; esteemWhy we don’t trust those we can’t hurt – and how a better understanding of psychology in economics can help brands build instinctive trust. Rory Sutherland, vice-chairman of advertising and marketing agency Ogilvy & Mather, probes the murky depths of probity and explains why he’d sooner trust a taxi driver than a banker...

WHO WOULD YOU TRUST?

CORBIS ALAMY

Firm believers in a single, fair price, the Quaker chocolate makers were the first to print the retail price on a product... ... while banks such as Barclays and Lloyds have come a long way from their Quaker roots


“Trust grows at the speed of a coconut tree, yet falls at the speed of a coconut.”

One of the noteworthy, and yet little-mentioned, facts about Britain’s greatest brands is quite how many of them were founded or co- founded by Quakers. This tiny religious group, numbering perhaps 30,000 people, spawned Cadbury’s, Fry’s, Rowntree’s and Terry’s; Clarks shoes,

Bryant & May; Carr’s and Huntley & Palmer; Barclays and Lloyds banks (and Oxfam, Amnesty International and Greenpeace – and, in mining, as far back as 1692, the London Lead Company). Abraham Darby, a key figure in the Industrial Revolution through his development of a method to produce pig iron through smelting coke, and Edward Pease, the main promoter of the pioneering Stockton and Darlington Railway, were also Quakers.

Small, tight- knit religious groups often do well in business: one reason may be that, because the threat of reputational sanction is strong and ever-present within the group, it is easier for the members of the group to trust one another. But, among the Quakers, trust levels must have been higher than usual in such groups. Honesty, integrity and ‘plain dealing’ were (and still are) central tenets of the faith – “My yea is my yea and my nay is my nay”. Even the swearing of oaths was forbidden, since it was assumed that every word uttered had the force of a legal document.

This probity extended to their dealings with non -Quakers. It was, for instance, the Quaker chocolate makers who were the first manufacturers to print the retail price of a product on the packaging itself. Previously the practice had been for shopkeepers to keep prices opaque: to size up each customer, and quote them a price according to their apparent ability to pay. Quakers believed the consumers of their products should pay a single, fair price. Though motivated by principle, this practice turned out to be good business. People felt more confident buying something when they knew there was one ‘fair’ price to be paid by everyone, and hence sales rose.

Because it is in large part the product of our unconscious instincts, and because it is numerically inexpressible, we are prone to overlook the essential role of trust in enabling economic activity. Yet, when viewed detachedly, the true wonder of capitalism has much less to do with the theories of efficiency and market equilibrium usually cited by economists than it has to do with the miracle of trust. From the viewpoint of a detached observer, it is truly miraculous

that, when I step into a London taxi cab driven by a complete stranger, I assume that our interests are sufficiently aligned that it is much, much more likely that he will briskly drive me to my intended destination than that he beat me over the head and make off with the contents of my wallet.

INVISIBLE FORCEMost economic models take this for granted. Trust is generally something which is invisible when present – we only really notice it in its absence. Yet anyone who has travelled extensively around the world knows that this confident assumption of a taxi driver’s probity is more the exception than the rule.

As John Stuart Mill wrote in Principles of Political Economy (1848):

“Conjoint action is possible just in proportion as human beings can rely on each other. There are countries in Europe, of first-rate industrial capabilities, where the most serious impediment to conducting business concerns on a large scale, is the rarity of persons who are supposed fit to be trusted with the receipt and expenditure of large sums of money.”

Moreover, we may neglect the importance of trust because we simply cannot see the economic activity which fails to take place when trust is not present. We are inclined to think that the opposite of trustworthy economic behaviour is untrustworthy economic behaviour. For the most part it is not: the opposite of trustworthy economic behaviour is generally no economic activity at all. Once you can no longer spend in confidence, the tendency is to keep your money to yourself or to spend it elsewhere. (I often wonder whether the astronomical prices of residential property in London may in part be a result of low levels of trust in the banking sector. Given $10 million to invest, I might feel safer putting it into a flat in Bond Street than depositing it with a bank in Lombard Street. Property has become a surrogate for gold.)

It occurred to me the other day that we should really talk about trust more. (Perhaps one of the great values of religion was that it once encouraged people to spend time discussing and pondering important intangibles of this kind.) You see I spent part of the time writing this article in the BA lounge at Amsterdam airport. And, while I was sitting there, a strange thought occurred to me. What an airline lounge is, in truth, is an area of heightened trust. If you asked us why we liked a lounge, we would not say this – we would talk about the chairs,

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the free drinks, the wifi. But the true value of the lounge may not be this at all. It is the fact that you can leave your laptop on a table, park your luggage in a corner, and wander off to fetch yourself a coffee without the slightest anxiety about anything getting stolen. That’s the real difference between a lounge and the rest of an airport. And that, perhaps, is why we unerringly head for the lounge, even when, objectively, the lounge is rather nastier than the rest of the airport.

NOTHING TO DECLARESitting there a long way from my luggage, I pondered whether businesses should really have a ‘Chief Trust Officer’. Indeed increasing your overall trustworthiness as a business may in fact be a far better strategy than cutting the price of your products: research into the Japanese, Korean and US autoparts industries has consistently showed that the transaction costs of dealing with the most trusted suppliers are many times lower than when dealing with the shifty.

Certain potentially valuable business sectors have stumbled because they failed to establish a bedrock of trust. The timeshare market was, perhaps, one such example. Timeshare was an excellent idea. Unfortunately it was so good an idea that the large profits attracted large numbers of unscrupulous middlemen. Trust in the category collapsed – so much that it took several decades to recover. Only now, rebranded as ‘fractional ownership’, and with the participation of several reputable hotel brands, has a revival begun.

SOURING THE MARKET MECHANISMI mentioned above that economists tend to discount the importance of trust, but this isn’t quite true. In a Nobel-prize-winning paper entitled The Market for Lemons: Quality Uncertainty and the Market Mechanism, George Akerlof explained how “in conditions of information asymmetry” (economist-speak for mistrust), buyers of, to take Akerlof’s example, secondhand cars are unable to distinguish between good vehicles (“cherries”, in Akerlof’s phrase) and “lemons” – poor-quality vehicles whose sellers know them to be defective, but which are indistinguishable from “cherries” at the point of purchase. In such instances, the price would fall below that at which “cherry owners” would be prepared to sell, leaving the market full of “lemons”. Bad vehicles would rapidly outnumber good ones, at which point the category would collapse.

Akerlof is a genius. His two books, Animal Spirits and Identity Economics, are tremendously intelligent and readable. But it is worth asking the question why a paper

whose conclusions were already instinctively understood by everyone who has ever bought a second -hand car should be worthy of a Nobel Prize in Economics. Even more interesting are the circumstances around its publication. Initially rejected by two leading economic journals on the grounds of ‘triviality’, it was then rejected by a third which claimed, “If these conclusions were true, then economics would be different.”

What is going on here? The peculiar reaction to Akerlof’s paper only makes sense when you understand some of the peculiarities of neo classical economic ‘doctrine’. Economics, as currently taught in most faculties and business schools, has become a rather strange, mathematically obsessed discipline which achieves its mathematical neatness at the price of ignoring a large number of factors which are vital to real -world businesses. It assumes that transactions take place in a spirit of complete trust, that customers are perfectly informed about what they are buying, and that each transaction takes place in isolation.

Moreover, the economic actors in this imaginary world belong to a species, sometimes called homo economicus, which has never existed on earth – or, I suspect, anywhere else. Rational, calculating, individualistic, unaffected by norms of reciprocation, or by genetic ties, this is a peculiar theoretical creation with no basis in biology or psychology.

BEAUTIFUL THEORY. WRONG SPECIESE. O. Wilson, the evolutionary theorist, and the world’s leading expert on ants, once reacted to the ideas of Karl Marx with the comment “Beautiful theory. Wrong species.” If he is right, perhaps Marx can at least be forgiven for proposing a theory for an inappropriate species; modern economists, it seems, have devised a model of economic activity for a species which does not exist at all.

In the imaginary world inhabited by homo economicus, trust is universal, knowledge is perfect and the value of everything is already established in actors’ minds. There is no need for marketing, relationships, reputation or trusted intermediaries. The goal of this system is efficiency alone.

The danger of this system is that it pursues efficiency while neglecting everything else. Imagine a house where you behave as though plumbing did not matter – it was a ‘given’. You go on installing washing machines, dishwashers and waste-disposal units with merry abandon – until the drains suddenly collapse. The financial sector in 2008 experienced a similarly catastrophic problem by pretending its sewage did not exist.


“Economics, as currently taught in most faculties and business schools, has become a rather strange, mathematically obsessed discipline which achieves its mathematical neatness at the price of ignoring a large number of factors which are vital to real -world businesses.”

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A London cabbie invests time and money in acquiring “The Knowledge”, so has much to lose by betraying trust

“Contrary to conventional economic thinking, which is dominated by the question ‘what’s in it for me?’, our instinctive mental processes also ask the question ‘what’s in it for him?’. And, more important perhaps, ‘what has he got to lose by ripping me off?’”

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What can we do to prevent this neglect of the intangible underpinnings of business life? Perhaps the first step is to develop a school of economic thought where the actors are seen as products of biology and evolution rather than relying solely on a mathematically contrived theory where all factors which are not numerically expressible are ignored. Some people are attempting to do exactly this (see Robert H. Frank’s The Darwin Economy, and Passions within Reason: The Strategic Role of the Emotions for more about the promising field of Darwinian economics).

The task is for all of us to cease from seeing man as an individualistic calculating machine and begin to see us all as we truly are – a race of anxious, moralising, herd -like, reciprocating, image- conscious, story telling game theorists.

Once you make this leap, you realise that human behaviour is actually much stranger, more complex, more instinctive – and, in many ways much cleverer – than economic theory gives it credit for. In the absence of complete trust and perfect information, we have both evolved and devised remarkable mental and social mechanisms to facilitate our functioning as a social species.

As well as a remarkable facility for analysing facial expressions and voice cues to detect when someone is lying, we have produced a range of modular adaptive, instinctive behaviours to help us divide our labour into increasingly elaborate specialisms. Among these instincts are the urge to reciprocate, the deep-felt drive to punish cheats and free-loaders and the herd-like instinct to copy the norms and behaviours of others.

TRUSTING NOT ONLY IN GODIn the area of trust, some of these instincts may continue to defy scientific understanding for decades. But work by academics such as the neuroscientist and neuroeconomist Colin Camerer at Caltech does suggest that humans (and chimpanzees) have highly developed game-theoretic instincts which we instinctively deploy in decision- making. Contrary to conventional economic thinking, which is dominated by the question “what’s in it for me?”, our instinctive mental processes also ask the question “what’s in it for him?”. And, more important perhaps, “what has he got to lose by ripping me off?” What is most interesting about these processes is that they are unconscious: we don’t describe them very well, simply because the processes at work do not impinge on human consciousness, and may in fact be inaccessible to introspection. No one walks into an airline lounge and immediately says “Gosh, it feels really trustworthy in here.”

What mechanisms are at work with your typical London taxi driver? What has he got to lose by mugging me? Well, rather a lot. He could get arrested. And, far worse than that, he could get a criminal record. You can’t hold a licence to drive a London taxi if you have a criminal record – hence a conviction would deny him his livelihood once he left jail. But, viewed from a more complex perspective than that, he has even more at stake. It took him several years to qualify as a London taxi driver in the first place – taking a complicated series of tests known as ‘The Knowledge’. In the event of losing his licence, all that up-front effort – a sunk cost – is wiped out at a stroke. (Interestingly, the personal consequences for a taxi driver who short-changes me £2 are rather more serious than those for a banker who cheats you out of £200,000. Whom do we trust more? I know my answer.)

The taxi driver is trustworthy – as Nassim Taleb would put it, he has skin in the game. He has acquired something at considerable cost and effort, which he is very reluctant to lose. Therefore why imperil that whole investment to make an extra few quid by taking an American tourist three miles out of his way? It isn’t worth it.

Many people have proposed that, in the age of the satnav, The Knowledge should be made less stringent and less arduous. “What’s the point?” they argue. Well perhaps the point of The Knowledge is not knowledge at all – it is a trust mechanism, a commitment device the high cost of which is its very purpose. If a taxi licence could be had in return for a few evenings at night school, would I still be able to hop in a taxi without a care in the world? I suspect not.

Life – real life, not the parallel universe understood by CFOs, procurement officers and autistic economists – is full of devices of this kind. Where there is a degree of uncertainty about the future, we have created mechanisms which align the interests of the two parties to an exchange. And not only to financial exchanges. An engagement ring, after all, is one such commitment device. An upfront expense which is proof of long- term commitment – as exemplified in the advertising slogan “A Diamond is Forever” and in De Beers’ marketing of the idea that a diamond engagement ring should cost two months’ salary, but last a lifetime.

REPUTATION REFLEXYou might argue that much of our education system is like The Knowledge. It is not valuable so much for what you learn but for how it proves your commitment and alters your subsequent behaviour. If you have spent 10 years of your youth forgoing alcohol, drugs, sex and other entertainments in order to get into Princeton, you are unlikely to throw it all

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away by nicking your employer’s photocopier paper, or turning up late every day with a hangover.

If you want to sum up this process in an aphorism, it is this. “You can only trust someone who has something to lose – and if you have the means to make him lose it.”

What feedback mechanisms exist for hurting someone who has abused you vary depending on the circumstances and the cultural context. Legal means are expensive, and prone to loopholes. Physical violence (the Mafia, is after all, a means of enforcing behaviour) may escalate out of control. To a great extent the mechanism we evolved for reciprocating with and retaliating against the people who ‘do us wrong’ is reputation. The advertising guru Robin Wight even refers to humans having a “reputation reflex”.

A reputation built at great cost over many years is a strangely double-edged business asset to possess. In good times, so long as you live up to your promises, people prefer to do business with people who have reputations, and pay a premium to do so, precisely because they know that the reputation is fragile – and that they, if mistreated, have the power to damage it. But it is a double-edged asset because, should you fall down on your promises, the retribution will be all the more swift and determined.

If you want to see this reputional mechanism operating at the simplest level, consider eBay’s rating service or the ratings of hotels on TripAdvisor. Someone on eBay selling designer sunglasses with a 100 per cent feedback rating can command a price for an identical product perhaps 50 per cent higher than someone who is 98 per cent reliable. Why do we trust him so much more? Because someone with a perfect feedback score is vulnerable to a single bad review. He has a reputation to protect. Just one or two bad reviews may dent the premium he can charge significantly.

Notice that this mechanism, to work, does not have to be mathematically perfect. It simply has to ensure that the seller is, to some degree, concerned with the buyer’s future happiness. We are instinctively distrustful of people who seem to be immune to reputational sanction. Notice how vehemently and persistently people criticise a company which has let them down – far more determinedly than they will ever praise a business which has treated them well.

A recent private bank advertisement at Heathrow Airport asked the question “You can fly with confidence – why can’t you invest the same way?” To which I had a simple answer. “Because the pilot sits at the front of the plane.” He would be just as badly affected by a plane crash as his passengers. Even if he survived the crash, if he were found to be at fault

his future as a pilot would be in jeopardy. Whereas in a banking crash...

Now imagine a world where someone has designed a car which is immune to crash damage. How safe would other motorists be in such a world? Just a few drivers of such cars would render the roads too unsafe to travel. Just a week ago, I was dropping my daughter off at the kerbside when a driver behind me beeped impatiently. For a second I had the powerful urge to put my car into reverse and smash into him. I didn’t. Was this from fear of the harm I might do him? Not really, to be honest; it was from the fear of damaging my own car.

Wherever such reputational feedback loops fail, trust collapses. And for them to function you need a concatenation of different factors. Stable identities, a business rooted in its home market, sunk costs in reputational investment, the inability to flee the consequences of your actions.

Look at the words we use to imply dishonesty: ‘shifty’, ‘fly-by- night’, ‘slippery’ – even the Stalin- era coinage ‘rootless cosmopolitans’. Anyone ever referred to with the word ‘alias’ is instantly assumed to be a crook. Races of travellers, whose homes are on wheels, find it very difficult to establish trusting relationships with others, simply because it is known that, in the event of reputational damage, they can simply move on another hundred miles and escape the consequences.

TAKEN FOR A RIDEBrands, when you think about it, provide quite a few of these different factors. Someone with a famous name is unlikely to change it. A reputation built at great cost over many years is too valuable an asset to put at risk for a quick buck. If you are a butcher who puts your name on your beef, you have something to lose when people discover it is horse. Beef sold without any hint of its provenance is rather more risky.

We don’t trust people whom we feel we can’t hurt, or whom we feel have nothing to lose. (One reason why we are instinctively terrified of drunks, drug-addicts or weirdos.)This reaction, by the way, may be completely unfair. But, instinctively, we just don’t trust people like this.

When anti -capitalist protesters were lambasted for protesting against banks while buying their coffee at Starbucks, a few people spoke in their defence. “We know we could, if we decided, close down Starbucks in a month, by the simple act of not going there. You can’t effectively boycott a bank. All you can do is break its windows.” Starbucks is, for its many faults, more sensitive to reputational damage than most businesses, and hence more


“A recent private bank advertisement at Heathrow Airport asked the question ‘You can fly with confidence – why can’t you invest the same way?’. To which I had a simple answer: ‘Because the pilot sits at the front of the plane.’”

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The complex and highly political business of mining arouses strong passions wherever it occurs, as here in La Paz, Bolivia, in 2005


receptive to the mood of the public towards it. One simple reason why they eventually buckled down and paid their tax.

(This power to retaliate, by the way, is why more extreme electoral systems may be more effective at ensuring the accountability of politicians than proportional representation – where the party lists effectively create an untouchable class of politician the voters can’t evict.)

MINERS AND TRUST – SOME WAY TO GO Now here is my final point. Unfortunately, and through no fault of their own, mining companies, rather like banks, mostly do not possess many of the attributes conducive to consumer trust. They often have long leases, determined by governments, not by the people whose lives they affect. And, although there has been a move away from the expatriate model of running things towards greater local management, they are generally headquartered thousands of miles from their major operations.

Their customers are mostly anonymous corporations and, with only the odd exception such as in the case of precious commodities like diamonds, platinum and gold, you won’t see their products advertised widely, if at all. Until fairly recent times, when NGOs, interest groups and the green lobby began to harness the instantaneous global reach of the internet and then of the social media, they tended to be judged by financiers and not people – and hence seemed largely impervious to reputational harm.

Mining companies, and particularly the majors who now have a multi-stakeholder following, have done much in recent years to raise the bar when it comes to issues like tackling corruption, protecting human rights, being transparent in their financial and fiscal arrangements, and putting in place job- and enterprise-creation schemes, infrastructure and value-adding processes to generally benefit the economy in the countries in which they have operations. But even today, not many of them have reputations to protect outside the investor community.

There is even the argument – the so-called ‘resource curse’ theory – that South America ended up poorer than North America precisely because of its greater endowment of raw materials and precious metals. Perhaps an extraction economy is not conducive to the creation of high-trust capitalism.

But with a better understanding of psychology and not just economics, it is, I believe, possible to create a mining brand people would instinctively trust. What would the economic gains be if this were possible? Is it possible to create a mining company which inspires instinctive affection, rather than mistrust? I certainly don’t see why not.

But a better approach to economics, one which better understands the value of things other than money and products, would be a great start in finding out.

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For the first half-century since its founding in South Africa in 1917, Anglo American was essentially a South- and southern Africa-focused company, with its capacity for international expansion being severely circumscribed by the apartheid regime and its stringent foreign-exchange controls.

ANGLO AMERICANMARKS 40 YEARSIN BRAZIL

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In the late 1960s and early ‘70s, however, with the acquisition of Hudson Bay Mining and Smelting Company and other investments in North America, and with the founding of Minorco largely from the proceeds of funds following the nationalisation of the Zambian

copper mines, Anglo American started to reach out from the confines of southern Africa.

It was during this period, too, that Anglo American made its first foray into South America. In early 1972, in the wake of on-the-ground exploration by its in-house geologists of gold deposits in the Quadrilátero Ferrífero (Iron Quadrangle) in Minas Gerais and the Serra do Jacobina in Bahia, a top-management team was sent to Brazil, headed by Julian Ogilvie Thompson (later, chairman of Anglo American) to meet up with various potential business partners – notably, Dr Augusto Antunes, Brazil’s leading private mining figure – bankers and leading government figures, and to make a thorough investigation of the country’s investment and business climate.

When the team returned to Johannesburg, Ogilvie Thompson went to the executive committee with the team’s report, which recommended that the country’s vast mineralogical and mining potential, relative economic and political stability, and a reasonably benign fiscal and financial regime, were sufficient grounds for Anglo American to invest in Brazil.

Given the assiduousness any team under Ogilvie Thompson brought to the task, approval, unsurprisingly, was quickly forthcoming. The immediate objectives were to finalise negotiations sister company De Beers was conducting to acquire a 49 per cent interest in the Sopemi

1917Formation of

Anglo American Corporation of South Africa

The reduction plant at the new Jacobina gold mine in Bahia state in 1983


diamond-prospecting venture, owned principally by Antunes (De Beers would eventually assume control in 1976); to form a prospecting organisation with Icomi, a joint venture between Antunes and the giant US Bethlehem Steel (which in early 1973 became Unigeo, with Anglo American taking a 40 per cent interest); and to look at the possibility of buying into the Morro Velho gold mine in Minas Gerais state and to try to acquire the claims over the Jacobina gold prospect in Bahia state.

In early 1973, Anglo American do Brasil (Ambras) opened its first office in the heart of Rio de Janeiro’s business centre (it only moved to São Paulo in 1991). During these formative years in South America, it became quite clear that gold was the principal driver of Anglo American’s ambitions. Ambras quickly obtained the rights to Jacobina, with Unigeo becoming responsible for that prospect. Then, in 1974, Ambras carried out an intensive geological evaluation of the mining complex around Morro Velho, a gold mine which had been in near-continuous production for around 140 years and owned principally by Brazilian banker Dr Moreira Salles. The results were sufficiently encouraging for Ambras to acquire half of the share capital, along with technical control, of Dr Salles’s Mineração Morro Velho in March the following year and Morro Velho became the Anglo American Group’s ‘anchor’ project in Brazil.

What was also becoming clear was that Anglo American was prepared to acquire minority stakes (albeit substantial ones) in businesses while adopting a philosophy of working with local partners. During the 40 years Anglo American has been in Brazil, the extent to which its Brazilian employees have been left to run things has ebbed and

Anglo American acquires Hudson Bay

Mining and Smelting Company in Canada

1961

Anglo American do Brasil (Ambras) opens its first office,

in Rio de Janeiro

1973

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flowed. But Guy Young, who arrived in the country in 1986 and went on to become Ambras’ president during the first half of the ‘90s, saw for himself that when Brazilians were put in charge they generally did a better job than expatriates, and he remains convinced that: “The cornerstone of the Group’s achievements in South America was our policy of ensuring that as far as possible local staff managed the operations.”

In time, the partnership with Antunes weakened, partly because his group was reluctant to match Anglo American’s exploration expenditure, but other partnerships were already in the making. Dr Mario Ferreira, who had run Anglo American’s Lisbon office until the Portuguese revolution in March 1974, had relocated to Rio de Janeiro, where he introduced Anglo American to the Bozano Simonsen banking and industrial group. Anglo American took a minority interest in Bozano Simonsen, with Ferreira becoming a member of its administrative council. The association with Bozano Simonsen gave Anglo American added standing in Brazil and it was in conjunction with them that Anglo American acquired the remaining 50 per cent in Morro Velho in 1980. Full control also meant that the Jacobina mine, then under construction, could be made a division of Ambras, which greatly facilitated its financing.

The next major step was an investment in the Hochschild group. In 1973, Hochschild had approached Anglo American to go into partnership with them in the Codemin nickel project in Goiás state in central Brazil. At that time, Anglo American felt that the figures didn’t look right, but in 1977 Hochschild made another approach with

a revamped project and Anglo American decided to participate. Then, in 1981, Anglo American was invited to invest in Hochschild’s South American portfolio, held through Empresas Sudamericanas Consolidadas, which in Brazil included nickel, tungsten, niobium and phosphate mines and plants along with petrochemical and industrial businesses. In December of that year the deal was concluded, with Anglo American taking a 40 per cent interest. Less than two years later Anglo American was invited to acquire the remaining 60 per cent in the Hochschild group. The transaction was finally consummated in November 1984, with the new holding company controlling assets of more than $900 million.

For the first two decades of its existence, Ambras remained predominantly a gold mining company, the portfolio being expanded through the development of the Crixás mine in Goiás state and, in Minas Gerais, the construction of a processing facility at Queiroz and the establishment of a new mine at Cuiabá. By 1992, Ambras’

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01 In this 1975 photograph (seated, left to right) Anglo American director Julian Ogilvie Thompson, chairman Harry Oppenheimer and consulting geologist Dr Piet Pienaar, and (standing) Mineração Morro Velho technical director Jan Rossouw, discuss gold-mining operations at Mineração Morro Velho

02 Precursor to Anglo American’s Niobium & Phosphates business: a Copebrás phosphates plant under construction in Goiás state in 2004

1975Anglo American acquires half of the share capital of Mineração Morro Velho

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combined gold production had reached 12.4 tonnes, more than double the quantity Mineração Morro Velho had produced 10 years earlier.

The partnerships with the Bozano Simonsen and Hochschild groups, however, had provided the springboard for Anglo American’s diversification both commodity-wise and into other countries – principally, Chile, where Anglo American would gradually build up a significant presence in copper, but also Colombia, Venezuela, Argentina and Peru.

Although gold was its primary focus, Ambras over the years developed interests in an array of commodities, including nickel, copper, niobium, phosphates, petrochemicals, paper and packaging, and what was probably the world’s biggest cashew nut producer at Iracema in Ceara state. However, in the late 1990s, as the Group was looking in earnest at combining Anglo American Corporation of South Africa with offshore arm Minorco and moving its headquarters and primary stock exchange listing from Johannesburg to London, and in the process becoming more purely focused as a mining company, Ambras would reflect such seismic shifts in the business.

Acknowledging that pure-play miners were then trading on higher multiples than the diversified mining companies, and that holding its gold interests within a larger entity meant their full value was not coming through to the company or its investors, Anglo American began a process of gradually winding down its gold portfolio – a process that was to take until 2009 to complete.

Today, it is Anglo American’s other interests in Brazil – comprising nickel, niobium, phosphates and iron ore – that are making the running.

The Nickel business unit comprises two wholly owned operating assets, Barro Alto and Codemin, both in the state of Goiás. At Barro Alto, the new $1.9 billion pyro-metallurgy-based processing facility produced its first metal in March 2011 and delivered around 21,600 tonnes of nickel contained in ferronickel in 2012. It is currently ramping up to full

capacity of 36,000 tonnes per annum of nickel over a life of more than 30 years. In 2012, Codemin, which entered production back in 1982, produced around 9,600 tonnes. Looking to the future, there are unapproved projects in the pipeline at Jacaré in Pará state and Morro Sem Boné in the state of Mato Grosso. During 2012, a pre-feasibility study was completed at Jacaré and the current focus is on obtaining environmental licences.

Nickel CEO Walter De Simoni, a longstanding Group employee, is particularly proud that Barro Alto was substantially on budget. But there are other aspects, too, that are very close to his heart: “During the commissioning of Barro Alto we notched up 37.4 million man-hours at a remarkably low lost-time injury rate of 0.038 per 200,000 hours. But Barro Alto is much more than a ferronickel operation; through the partnerships we have established with NGOs we are making a real difference in the local community in areas like enterprise development, education, health and capacity building – while simultaneously being recognised for our work in saving water and protecting the region’s biodiversity.”

Anglo American’s Niobium business is based in the cities of Catalão and Ouvidor in Goiás state. It is one of the world’s three main producers of the metal, a key ingredient in the production of low-alloy high-strength steel to obtain lighter and more resistant structures used in applications such as pipelines, automobiles, buildings and aerospace devices.

In order to keep up with this rising demand, the $325 million Boa Vista Fresh Rock Project was approved in February 2013. As the 40-year-old Boa Vista mine approaches the end of its oxidised weathered ore, the existing beneficiation plant at Ouvidor will be adapted to allow the processing of unoxidised ore from the mine. This will increase annual niobium production capacity from a current 4,400 tonnes to more than 6,000 tonnes in 2014, while measures to optimise mining-extraction methods will

01 Construction of the Minas-Rio pipeline that will transport iron ore in slurry form 525 kilometres from the mine site in Minas Gerais state to the Port of Açu on the Atlantic coastline

02 Phosphates stockpile at Niobium & Phosphates’ Cubatão plant in São Paulo state

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03 Exploratory drilling at the Jacaré nickel deposits in Pará state

04 Construction of port facilities and filtration plant at Açu

05 The new Barro Alto ferronickel plant, which produced its first metal in March 2011


1981Anglo American acquires 40 per cent of the Hochschild Group, taking up the remaining

60 per cent in 1983


1999Formation of London-listed

Anglo American plc

“Barro Alto is much more than a ferronickel operation; through the partnerships we have established with NGOs we are making a real difference in the local community in areas like enterprise development, education, health and capacity building – while simultaneously being recognised for our work in saving water and protecting the region’s biodiversity.” Walter De Simoni, CEO Nickel

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Niobium and Phosphates’ facility at Cubatão

extend the mine’s life. First metal is expected in 2014, with full production the following year, by which time Anglo American’s niobium market share is expected to have risen from six to 10 per cent. Among the many positive impacts for the region, the Niobium business unit estimates to create up to 800 jobs during the implementation and commissioning stages of the project, while continuing to enhance opportunities for social development in the region through its socio-economic management plan.

Anglo American’s Phosphates business is the second largest integrated phosphate fertiliser producer in Brazil, accounting for around 15 per cent of current Brazilian phosphate mineral resources. Operations are vertically integrated and cover the mining of phosphate ore, beneficiation of the ore to produce phosphorus pentoxide (P2O5) concentrate, and processing into intermediate and final products.

Its Ouvidor mine is a prime deposit, containing some of the country’s highest ore grades and producing nearly

six million tonnes of phosphate ore per annum. Here, run-of-mine phosphate ore is treated at a beneficiation facility on the same site, and 1.4 million tonnes per annum of final phosphate concentrate is produced at an average grade of around 35 per cent P2O5. Ouvidor has a remaining mine life, at current production rates, of about 40 years.

The business also operates two chemical-processing complexes: one in Catalão, the other at Cubatão in the state of São Paulo. It produces phosphate products for the Brazilian agriculture sector, including phosphate fertilisers, dicalcium phosphate for the animal feed industry and phosphoric acid for the food industry and animal feed.

Anglo American’s Niobium & Phosphates business unit may not be one of the company’s biggest operations, but it is currently among the most profitable. As CEO Ruben Fernandes points out: “Niobium is a low-cost business, but one that enjoys high margins. As the demand for steel

Anglo American acquires 49 per cent in the Minas-Río iron ore project,

taking up the balance in 2008

2007


continues to rise, particularly in the developing world, the outlook for the metal is strong – and, if the second phase of the Boa Vista Fresh Rock Project is approved, we could double production. On the Phosphates side of things, we are in a beneficial position as our location in central Brazil is ideal for supplying a domestic fertiliser market that is growing by over five per cent a year.”

What will be the real game-changer for Anglo American in Brazil, however, is Minas-Rio, one of the world’s great mining projects. Acquired in two tranches in 2007-08, Minas-Rio includes an open-pit mine, a beneficiation plant, filtration plant and tailings dam in Minas Gerais as well as a 230-kilovolt transmission line. On completion of Phase 1 of the project, ore will be transported through a 525-kilometre slurry pipeline – the longest of its type in the world – to a dedicated export terminal (49 per cent held by Anglo American) at the port of Açu in Rio de Janeiro state.

Although the project has been confronted by many challenges, particularly in the permitting and licensing area, which has led to significant cost increases, a $4 billion impairment and slippages in the schedule, real progress is being made towards beginning Phase 1 ramp-up and initial iron ore shipment by the end of 2014. Earthworks at the beneficiation plant are almost complete, along with most of the civil works and transmission line, and about half of the pipeline has been laid.

CEO of Anglo American’s Iron Ore Brazil business unit, Paulo Castellari, comments: “We have had to deal with more than 1,500 individual landowners and 32 municipalities, but the great majority of permits have been acquired. All the work, however, will have been in vain if we don’t obtain the four operating licences that are needed ultimately. Our focus now, therefore, is on working towards converting installation licences into operating licences.”

Barro Alto produces its first nickel

2011

IN NUMBERS

$15 BILLION Committed to Anglo American’s Brazilian operations since 2007

26.5 MILLION TONNES Minas-Rio Phase 1’s expected annual iron one production

37.4 MILLION MAN-HOURS Without a lost-time injury during the construction of Barro Alto

Estimated date of first iron ore shipment

from Minas-Rio

2014

OPTIMA REPORT


Minas-Rio is a world-class iron ore project of rare magnitude and quality, with one of the world’s largest undeveloped resources. The project is expected to capture a significant part of the pellet-feed market, with its premium product having a high iron content and low contaminants.

Following further investigation by Anglo American’s Exploration team, Minas-Rio’s published resource has increased more than fourfold since acquisition to well over five billion tonnes, of which 1.45 billion tonnes have been subsequently converted to ore reserves, with further conversion of resources to reserves expected through the project’s ongoing infill-drilling programme. Phase 1 is expected to produce 26.5 million tonnes of iron ore a year, with potential optimisation to 29.8 million tonnes – while, beyond Phase 1, the potential exists for future expansion up to 90 million tonnes annually.

The expansion of Minas-Rio’s known resources is indicative of Anglo American’s exploration success in Brazil and its value contribution over the past four decades. In addition to new ‘greenfields’ discoveries, exploration around existing mines and on more advanced projects continues to add value. During the period Anglo American had an interest in them, significant resources were added to mines or projects such as Crixás and Salobo, while resources have been augmented at the Group’s current assets such as Barro Alto and Codemin and at its Niobium & Phosphates business.

With regard to greenfields discoveries, the Anglo American Exploration Brazil team initially focused on gold during the 1970s, which led to the finding of the Cuiabá, Córrego do Sítio and Lamego gold deposits that are still being mined today. As Anglo American diversified its exploration programme, both in terms of the number of minerals on its target list and the regions where it was looking for them, it found further significant deposits: zinc-lead-silver-copper-gold at Aripuanã in Mato Grosso state; separate deposits of gold and iron ore at Amaparí in Amapá state; copper-gold at Serra do Rabo in Pará state; and the 376 copper-gold deposit also in Pará – all of which Anglo American subsequently exited, but which non-competitor companies are currently mining or have at the implementation or feasibility-study stage. Since 2000,

there has been a concentration on nickel exploration, which has resulted in the discovery of world-class deposits at both Jacaré (nickel saprolite and nickel-cobalt laterite) and at Morro Sem Boné (nickel saprolite), along with a number of other promising more recent discoveries.

It is now four decades since Anglo American made its first investment in Brazil, and the country is set to become one of its biggest sources of revenue. Brazil is home to no fewer than three of the Group’s business units – Iron Ore Brazil, Nickel and Niobium & Phosphates – all of them led, and overwhelmingly staffed, by Brazilians.

Since 2007 alone, Anglo American has committed some $15 billion to its Brazilian operations. That really shows confidence in Brazil’s future.

AUTHORNorman Barber is editor of Optima.

ACKNOWLEDGEMENTSLyall, Bob: The Story of AMSA: Optima, Volume 39, Number 2, October 1993. Mortimer, Barry (compiler and editor): HFO, The Brenthurst Press, 1985. Young, GS (compiler and editor): The AMSA Chronicle 1970-2000.


DELIVERING BENEFITS TO SOCIETY

Liomar Silva Rocha Vidar, a community relations manager for Anglo American, learns first-hand about the Projeto Via Láctea milk-farm scheme to assist farmers in the Barro Alto area in increasing milk yields

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The sustainability of Anglo American’s business is inextricably linked to the sustainable development of communities around its operations.

The company’s large footprint in parts of the developing world means its capacity to contribute to the social and economic development of vulnerable communities today and well beyond the mining phase is significant.

But to be able to effect meaningful change, mining companies have to be prepared to engage and understand what really matters to people living near their operations. Anglo American has been a pioneer in this respect, helping to create and nurture new small and medium-sized businesses, using its internationally acclaimed Socio-Economic Assessment Toolbox (SEAT) to develop communities; and providing healthcare through workplace health and wellness programmes to combat HIV/AIDS and Tuberculosis.

Initiatives in Brazil, and also in Chile and South Africa, are helping to build municipalities’ capacity to deliver improved services to their citizens.

Other initiatives support partner-led interventions to strengthen community healthcare in under-served areas. In Brazil, for example, more than $15 million is being invested in municipalities in Minas Gerais to improve the health infrastructure in host communities.

Growing enterprise development work in Brazil has involved training around 150 entrepreneurs, who today support nearly

3,000 local suppliers in an integrated development programme, developed in partnership with the state’s federation of industries (FIEMG) and local commercial associations.

Also in Minas Gerais, in partnership with SENAI, an organisation that helps train future operators and maintenance teams, Anglo American has invested in a professional qualification centre in the town of Conceição do Mato Dentro, close to where the Minas-Rio mine site and beneficiation plant are located.

Here, people are trained in key skills such as plumbing, carpentry, bricklaying, welding and electrical work as part of a programme of opening up long-term employment opportunities with Anglo American and its contractor companies.

MILK AND HONEYAt Barro Alto, Anglo American is partnering non-governmental organisation (NGO) CARE International in a three-year programme to support the town and its surrounding area. It involves working with CARE Brazil and a number of other NGOs on a range of projects from capacity building and support for local entrepreneurs, to refresher training for teachers and micro-credit loans, to helping local farmers increase milk and honey yields.

The Barro Alto programme is deliberately diverse, to focus on the region’s various priorities. Anglo American has invested more than $5 million in social and community infrastructure, including schools, water and sanitation. The company has built a technical training institute and provided a new hospital.

Other NGOs are playing key roles. Agenda Pública has worked with Anglo American since 2008 on a project to strengthen the capacity of the city council in Barro Alto, training councillors and equipping them with the skills to carry out their jobs effectively. There is also a formal partnership with the NGO Fauna & Flora International, which has completed a detailed survey of the Barro Alto area’s biodiversity.

Anglo American also supports Reprolatina, which has been raising awareness about HIV and other sexually transmitted diseases.

As part of the Minas-Rio project development, six water-treatment stations are being installed that will provide approximately 5,000 people in the communities of Catuné, Água Santa de Minas, Tombos, Porciúncula and Natividade with safe, potable water.

At Barro Alto more than $12 million has been invested in environmental-preservation initiatives, including creating a closed circuit which limits evaporation losses to five per cent. Recycled rainwater is being used in all of the project’s industrial processes.

Anglo American’s presence and activities as a mining company create products crucial to global development. They also bring tangible social benefits, helping to lift millions of people out of poverty.


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ANOTHER AMERICANLED

CENTURYWhen Henry Luce, founder and publisher of Time

magazine, first coined the phrase “American Century” in 1941, his aim was to encourage Americans to forsake

isolationism and to lead the world. Since then, there have been many moments when American leadership has been declared to be at an end, not least in the past decade given

the debacles in Afghanistan and Iraq and the economic crisis following the collapse of Lehman Brothers. Every time, so far, the declarations have been proved wrong. And that looks like happening again, says Bill Emmott.

AMERICAN LEADERSHIP


Where eagles dare: the US economy is starting to stretch its wings again

For sure, the nature of American leadership keeps changing, since both the nature of the world and, to some degree, the nature of America keep changing too. Still, just as after the shock of Sputnik in 1957, after the fall of Saigon in 1975, and after the

country’s apparent eclipse by Japan during the 1980s, so following the latest crisis America is now on its way back, as is the widespread demand for renewed American leadership. There is something about the United States that, like the Energiser Bunny, keeps it getting back on its feet and running forwards.

But what? And can it really be depended upon, even as China, India and other emerging economies loom ever larger both politically and economically, and as America’s own domestic politics looks ever less functional? Those are the $64 trillion questions for this 21st century, which could determine whether the world remains predominantly at peace and whether the long 20th-century rise of what can loosely be described as ‘Western’ values – democracy, human rights, the rule of law, open markets – will continue. Or whether some alternative set of values, the most oft-forecast candidate for which are Chinese, might prevail or at least compete.

The answers can and should begin with the evidence from recent performance, as well as that from some of the earlier bounce-backs. As in the best Marxist analysis, it should be based first on the economy, for without economic strength America would be unlikely to lead, at least for long. Five years after the Lehman shock sent the world into recession and seemingly tainted the US brand of capitalism for good, America’s economic recovery has been slower than in previous post-war economic upturns. But its growth rate in 2012 and in the first period of 2013, roughly two per cent

per annum, has considerably outpaced that of its transatlantic cousins in Europe. And, with unemployment now down to 7.5 per cent of the labour force and house prices rising again, the chance of rising consumer spending reinforcing business investment and rising exports as boosters of GDP is growing by the day.

‘Normal’ recoveries have typically seen annual GDP growth rates of three to four per cent, so this is disappointing. But this has not been a normal recession. A crisis of the financial system, combined with the unusual phenomenon of a virtually nationwide drop in property values, virtually guarantees a long, slow process of recovery. Yet the reasons why America’s recovery is nevertheless proving faster and quicker than those in Britain or the 17 Eurozone countries are themselves revealing.

They lie in the speed and decisiveness of the policy response, in the flexibility of the economy, and in America’s continued position on the frontiers of technology. Decisiveness and speed are not always words associated with Washington, for the US Constitution and its strong checks and balances often seem designed to block exactly those characteristics. Yet in a crisis, such as those following the 9/11 atrocities in New York, Washington and Pennsylvania, or the Lehman shock, American politics typically shakes off its divisions and divided powers and becomes temporarily united. So it was, in particular, with the cleaning up of the US banking system.

Japan’s slow response to its financial collapse in 1990, and the ensuing deflation and economic stagnation, have been

“America’s most important sources of economic renaissance have always lain in its flexibility and its record of technological innovation.”

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widely used as cautionary tales for how America and Europe might fare after 2008. But while in Europe, or more particularly the Eurozone, the slow, patchwork response, forever deferring a full clean-up or reform of the banking system, has indeed been reminiscent of Japan, America’s response was quite the opposite. The ‘big bazooka’ of public money that the Treasury Secretary, Hank Paulson, deployed to take out toxic assets from US banks’ balance sheets helped stoke a rapid recapitalisation of banks as well as encouraging an early recognition of the potential losses. As a result, bank lending began to revive sooner than in Europe, which seems to be sliding slowly down a Japanese-style slope.

In addition, America, as a single federal entity, was able to move faster to introduce new financial regulations under the Dodd-Frank Act than has been possible in multi-country Europe. Whatever your opinion of those regulations, their fairly fast implementation at least provided clarity for financial institutions and their clients alike.

CREATIVE DESTRUCTIONAmerica’s most important sources of economic renaissance have always, however, lain in its flexibility and its record of technological innovation. The most worrying signs that America might be set for stagnation or a long decline would be if the power of interest groups, political parties or state governments were to succeed in blocking the processes that Schumpeter called “creative destruction” to a significant extent, protecting large numbers of firms through subsidies or regulations, or obstructing the growth of new firms and entry of new competitors. This in turn would slow the rate of technological innovation, a process that would be further assisted if American universities ceased to be meritocratic and world class, or if Defense Department investment in research and development were to be cut back considerably.

“The ‘soft’ power of getting other people to want what you want through culture, values, a reputation for relative transparency and honesty, and an attractive political, social and economic model at home, is both a power of attraction and a power that comes from a belief in your legitimacy.”


01 A revolution in the US shale gas and oil industries has taken everyone by surprise. America may soon even rival Saudi Arabia as the world’s largest energy supplier

In each downward business cycle, it is important to look for these signs. Always, a few of them can be seen: the trade protection given to motorcycles, automobiles and semiconductors during the 1980s, for example, or the large subsidies given to support the car industry in 2008-09. The Ivy League universities in particular are in constant danger of letting their alumni-preference schemes get out of hand, reducing the quality of student entrants without providing sufficient funding to support an adequate inflow of poorer but talented students.

Yet the overall verdict from 2008-13 must be that both flexibility and technological excellence remain intact, to a degree unrivalled in the developed world. Both are epitomised by the way a revolution in the shale gas and oil industries during those same five years has taken virtually all forecasters by surprise. Technological innovation in deep, horizontal drilling has been accelerated by a boom in new investment and exploration, sending America rapidly on the road to becoming self-sufficient in fossil-fuel energy by the end of this decade, and even rivalling Saudi Arabia as the world’s leading energy producer.

That investment, and the accompanying boom in construction and supply networks, has played a big part in helping the US economy overcome the loss of jobs and spending that came from collapsing house prices and a contraction in conventional construction. The resulting tumble in domestic prices of natural gas has lowered domestic energy costs for all businesses, but especially energy-hungry manufacturers. Thanks to that, and to innovation and investment in factory automation, manufacturing’s share of US GDP has now risen for three consecutive years (albeit from a low base), reversing a trend of many decades.

The future course of American economic growth will depend substantially on whether jobs can be created rapidly

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CORBIS

02 Seat of power: the heavily endowed Ivy League universities such as Harvard (pictured) epitomise excellence in higher education and are the crucible of American leadership in many walks of life


enough to generate rising incomes and thus household spending, and whether corporations can feel confident enough to spend the cash they have been hoarding on their balance sheets on new investments in factories, offices, software and equipment. Global economic trends will, as always, have a crucial influence on that. So will international prices for energy and other commodities, and the value of the dollar on international exchanges.

Those factors are inherently unforecastable, at least beyond the fairly short term. What can be said, however, is that America looks in a position to outperform, over the medium and long terms, Japan and developed countries in Europe. Flexibility and technology will play a major part in that outperformance. So too, in a more readily forecastable way, will demography.

Demography is not quite destiny, in the famous words of Auguste Comte, for both the numbers that determine population growth and structure – fertility rates and death rates – can change. But they take a long time to have a big effect, so demography is pretty much destiny when looking forward over the next few decades. And while America’s population structure is, like those of most other countries, destined to age and become less favourable for economic growth, it is going to do so more slowly than in Europe or Japan – and, most strikingly, more slowly than in China.

FERTILE GROUNDThe United States was, as usual, a pioneer in the way changing social mores and improving health led to declining fertility rates, especially from the 1970s onwards. But its demographic profile is much more stable than either Europe’s or Japan’s for two reasons: immigration (which not only adds younger people but also supports the fertility rate) and some recovery in fertility rates beginning in the 1990s.

As a result, the US population is forecast by the United Nations to grow from 314 million today to about 400 million by 2050. Its dependency ratio – which compares the number of children and pensioners with the number of people in the labour force – was about the same as that in Europe in 2010 but by 2050, on those UN projections, it will be 10 points lower.

Having a younger labour force is good both for costs and for productivity growth. That has been one of China’s big competitive advantages during the past 30 years, just as it was for Japan from 1950 until 1980. Yet, thanks to the way China’s ‘one-child policy’ suppressed its fertility rate much earlier than would likely have resulted simply from affluence, that advantage is disappearing rapidly. Most people think that the ageing of China is, however, still several decades ahead. The bulk of it is, but the impact of ageing is going to be felt much sooner. According to Megachange: The World in 2050, a book published in 2012 by The Economist, China’s median age – the age below which half the population is younger and above which half is older – was 22 in 1980 but had risen to 36 in 2010. Astonishingly, China’s median age is set to overtake America’s in 2040 and will even overtake that of grey-haired Europe in 2040.

Contrary to the theories popular in 19th-century and early 20th-century Europe, neither demography nor economic size leads automatically to global political leadership. Some combination of them has always been necessary. America promises to have both: a relatively advantageous demography and a rich, still dynamic economy. But, especially in the modern world, this is not sufficient. What is also needed is the political will to lead, and acceptance by others of the legitimacy and desirability of your leadership.

These characteristics wax and wane with the vagaries of domestic politics, the often hazardous terrain of overseas military and political interventions, and the evolving

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interests of other countries and regions. It was at a time when America’s desire to lead seemed to be weakening and when its confidence was being dented by the economic rise of Japan, that Professor Joseph Nye of Harvard wrote a book called Bound to Lead, with the aim both of analysing and re-energising the case for American leadership. The irony was that it was published in 1990, just before the fall of the Soviet Union and the First Gulf War made the United States appear not just a leader, but an all-powerful and triumphant one. Its message suddenly seemed not contrarian, as it was intended to be, but almost a statement of the obvious.

BOUND TO LEADThis is always happening. The short-term signals are often confusing and even more often dispiriting. As geopolitical leaders have always learned, at least from the time of the Roman Empire, shaping events and societies across the globe is a very hard business, one that brings a lot of tough knocks. Yet political leadership is not about always getting your own way, about being some sort of omnipotent presence. It is about shaping events and setting or maintaining the rules of the game over the long term, in your own interests but also, if it is to work for long without causing an unstoppable backlash, in the wider global interest too.

So now again, after the disastrous intervention in Iraq in 2003, and the more successful but ultimately also discouraging intervention in Afghanistan that began in 2001, America looks more impotent than omnipotent. But that impression misses the point, for the same reasons that Professor Nye deployed 23 years ago. Military power alone has always been a blunt and often ineffective instrument. But anyway, the world has changed to become one with many poles of power, a huge array of countries that have become stronger, with more

01 and 02 The US system of government demonstrated a surprising speed and decisiveness in its response to the 2008-2009 financial crisis. Despite lingering concerns over government unduly protecting business through subsidies, Detroit’s once-crumbling auto industry is seeing a renaissance following the bailout by Congress of its three major auto manufacturers

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AMERICAN LEADERSHIP


01 For all its flaws, the US remains the world’s most attractive country to immigrants. This, along with a recovery in fertility rates, is giving the US a competitive advantage over China, which is experiencing the demographic pressures of an ageing population

02 Rising from the ashes of Ground Zero, New York’s One Trade Center, or Freedom Tower, stands as a proxy for American resilience and self-confidence

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global interests, and keener to exert themselves internationally. Navigating the currents of that new, more complicated, more diverse, more liberalised world is difficult, and offering leadership even harder.

Nevertheless, the one country that is capable of providing such leadership remains the United States. The important questions have been whether it is willing to do so, and whether American leadership would remain acceptable to others, following the damage done to the country’s reputation by Iraq, Afghanistan and Guantanamo Bay.

SOFT POWERAmerica’s greater reluctance to intervene militarily has been shown clearly during the uprisings and civil wars in Libya and Syria. Yet that has happened plenty of times before – even, during the early 1990s, when a fairly small but failed operation in Somalia discouraged subsequent military intervention, despite coming soon after the very successful First Gulf War. Influence is exercised in many ways other than through the military. In particular, economic power, diplomatic power and what Joseph Nye called “soft” power are all just as important.

Those other forms of power have a common theme: they all concern the power to persuade rather than the power to

coerce. The soft power of getting other people to want what you want through culture, values, a reputation for relative transparency and honesty, and an attractive political, social and economic model at home, is both a power of attraction and a power that comes from a belief in your legitimacy.

Guantanamo Bay, and the scandals over the treatment of prisoners in the Abu Ghraib prison in Iraq damaged both that attraction and that legitimacy. But they did not destroy it, despite the fact that even the internationally popular President Barack Obama broke his promise to close Guantanamo Bay during his first term in office.

The best evidence of this can be seen in Asia, the region towards which President Obama has “pivoted”, to use his administration’s chosen term. That is the region in which it has the greatest potential rival in terms of economic power, soft power and military power: China. Attractiveness and legitimacy are relative rather than absolute. The welcome given in Asia to the pivot and to the continued presence of the US military in South-East Asia has shown that countries such as Vietnam (the old enemy), the Philippines (which kicked out the US naval base at Subic Bay in 1992), Singapore, Indonesia and others continue to find America relatively more attractive and trustworthy than China.

Whatever the flaws in US democracy, the country nevertheless symbolises democratic accountability, the rule of law, and human rights. It remains the world’s most appealing country to immigrants. It took quite a knock over Iraq, Afghanistan and the Lehman shock, both in its self-confidence and its reputation. But both are now bouncing back. The enduring appeal of America, warts and all, was well summarised by the title of an essay written by an Indian politician, Jairam Ramesh, in 1999 ahead of a state visit by President Bill Clinton designed to repair relations between the two countries: Yankee Go Home – But Take Me With You.


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TECHNOLOGY PROFILE

I ts nickname is the ‘Shongololo’, after the Zulu word for millipede, and it isn’t difficult to see why.

At 105 metres long, and made up of over a hundred jointed segments, Anglo American’s new flexible conveyor train (FCT) looks like a giant creepy crawly as it wriggles underground, advancing slowly on rotating metal legs.

It not only looks impressive, but according to recent figures, its achievements so far are just as remarkable. Since being installed in Anglo American Thermal Coal’s Greenside colliery in Witbank, South Africa, in October 2011 and the nearby Goedehoop colliery six months later, monthly production rates have risen by up to 25 per cent. The hope is that the systems will continue to increase output, while also improving the safety of the workforce.

The FCT is a step forward for two of South Africa’s most productive mines. Both used advanced continuous-mining technology, where coal was cut and carried away by high-speed shuttle cars. Before the FCT, though, ‘continuous mining’ was something of a misnomer, because there had to be regular short breaks while the shuttle cars ferried the newly mined coal to the nearest conveyor belt.

Despite these short breaks, known in the business as ‘away time’, the

system worked pretty well – at Greenside the shuttle car section averaged production rates of up to 600 tonnes of coal per hour, more than the most advanced mine managed in a day in the 1920s. But there was definite room for improvement.

In the old days, cutting coal was the bottleneck. The modern continuous miners had much greater cutting potential and the bottleneck became the coal-removal system. The FCT offers a solution here that the two colleries are exploring.

WISE INVESTMENTMore importantly, having high-speed shuttle cars zipping around in the confined environment of the mine carries a risk to the people operating the machinery underground. Miners around the world have been killed in collisions with shuttle cars owing to a potentially dangerous combination of poor visibility in dusty mines and fast-moving equipment.

Because of these difficulties, Anglo American decided to invest around $40million in two FCTs. The system was designed by Joy Mining Machinery (which has a collaborative relationship with Anglo American’s Thermal Coal and Metallurgical Coal business units), and had already proven itself by breaking production records in mines in the US.

APPETITE FOR COALAnglo American’s new coal-munching ‘millipede’ is challenging production norms in two South African collieries and improving safety for miners. Optima tracks down the beast with a big appetite.

The key breakthrough of the FCT is that it eliminates the need for shuttle cars, which cuts down on dust and reduces the likelihood of collisions underground. That’s because the FCT’s hopper, which does the job of the shuttle car, catches coal from the continuous-mining machine and funnels it directly on to a flexible conveyor belt, which then whisks the coal away. “You are able to transfer coal as fast as it is cut, by conveyor, all the way out of the mine,” says Derek Laing, asset optimisation project manager for Anglo American Thermal Coal.

BETTER BY DESIGNAnother benefit of the FCT is that its many short sections make it highly flexible, so that it can snake its way deep into the mine and around corners. Each 75-centimetre-long section is connected to the next with a single pin, which allows it to cope with sharp turns and uneven surfaces.

And the conveyor belting itself is specially designed to fit the purpose. “Because it has to go around corners, the FCT belt itself is very special,” says Laing. “It must be under constant tension to produce enough friction on the drive pulleys to make it move. At the same time, it must be able to stretch easily on the outer

Caroline Williams is a science writer and broadcaster, and formerly features editor at the New Scientist.

AUTHORCAROLINEWILLIAMS


edges as it goes around a corner and ‘crumple up’ on the inside of the bend.

“To do this, the belt is made of a very pliable type of rubber and has a Kevlar strip along the centre line which provides rigidity. With coal on the running belt, the FCT can negotiate two 60-degree corners.”

Then, when the cutter advances, the entire machine crawls forward, gripping the floor of the mine with its spiked tracks. This constant slow and steady movement is also safer for the mine’s workforce as the fast-moving shuttle cars are replaced with a much

Anglo American’s flexible conveyor train (FCT) is made up of over a hundred jointed segments and moves on rotating metal legs

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larger, slower-moving structure. The system also cuts down on dust, which improves visibility.

TANGIBLE RESULTSThe FCT also offers improved productivity. The Greenside mine reported production rates from 600 tonnes per hour (tph) to up to 776 tph in the last seven months of 2012. During this period the FCT displayed the potential to produce about 1.2 million tonnes per annum, some 20 per cent above the base production on which the purchase of

the FCT was justified. At Goedehoop there has been a similar improvement, from 450 tph to 680 tph.

But that’s just the beginning. The payback period on the investment is around 4.5 years, and relies on incremental increases in production over the next year or so. The company is working with an experienced FCT operator from the US to keep the production in the right direction and is confident that the millipede with the big appetite for coal will continue to prove its worth.


BOOK REVIEW

E very three months the extended community of journalists, economists and

financial analysts in London works itself up into a lather of expectation as it awaits the publication of the latest economic growth figures.

It is a bizarre ritual because anyone who has thought seriously about the subject knows that the first cut of the figures is almost certain to be wrong. It is odd, therefore, to care so much what the number is.

But the even stranger aspect of our national obsession is that we have made economic growth the touchstone for national success or failure, the benchmark by which the performance of governments will be judged, the yardstick even by which we rank ourselves in the pecking order of successful nations. We have done all this without asking what the growth is for, why we want it so much and whether it is worth the pain and effort of economic retrenchment to get it.

But these are precisely the questions raised by a disturbing new book, The Body Economic – Why Austerity Kills.

In essence, the authors chart the impact of changed economic circumstances on public health – and by extension, demonstrate how

different economic policies produce wildly different health outcomes in countries grappling with similar problems. As the title suggests, they show how the policies of austerity which are currently in vogue in many countries literally kill their citizens.

And this brings us to the central paradox. Austerity is seen as the key to growth. The declared (or assumed) purpose of growth is to increase the welfare of its citizens. But why would we want growth if the side effect of the policies designed to foster it is to kill off a significant number of the people it is supposed to benefit?

And the central finding of the book is that these policies do literally kill people. By mining health records and economic data, the authors look in detail at the impact of austerity in a variety of countries and eras – from the 1930s depression in the United States, through the post-Communism collapse of Russia in the 1990s and the Asian crisis of 1997 and coming right up to date with a hard look at what has been happening in Greece in recent times.

They found in the United States that suicide rates were significantly higher in those states which did not accept Roosevelt’s New Deal policies in the 1930s compared to those which implemented them with enthusiasm.

THE BODY ECONOMIC: WHY AUSTERITY KILLS BY DAVID STUCKLER AND SANJAY BASUALLEN LANE, LONDON 2013Review by Anthony Hilton

KILL OR CURE?

“The starting point for any government contemplating how to deal with an economic crisis should be the medical mantra – ‘first, do no harm’.”


They discovered that male life expectancy in Russia plummeted from 64 to 57 between 1991 and 1994 in the economic chaos that followed the collapse of Communism. Premature death occurred on a scale normally only ever seen in countries experiencing war or famine.

And though not as bad, Greece has gone from having the lowest suicide rate in Europe to one of the highest and, less predictably perhaps, the rate of HIV infection has soared 50 per cent.

TURNING TO DRINKNow if the conclusion was simply that in hard times people suffer, mental illness increases and too many of the unfortunate unemployed turn to drink, then the book would be unexceptional. People would say it is indeed tragic but it is a price that has to be paid. Some must suffer for the majority to prosper.

The authors don’t accept this. They say it is not recessions which kill; it is austerity.

In evidence they say that Sweden in the 1990s and Iceland in the current crisis (among others) had recessions during which the overall health of the population actually improved. This happened because governments maintained or enhanced their social safety net programmes in spite of grappling with budget deficits, or in Iceland’s case, bankruptcy.

Those who were thrown out of work by recession were caught, counselled, sorted out and put on the path back to

employment. It meant they avoided the negativity, loss of self-worth and despair which caused so much suicide and self-destructive drinking in countries where support programmes had been cut to save money. Austerity turns losing your job into a health crisis.

POSITIVE MULTIPLIERThis brings the authors to their final point. They reject the idea that this debate is simply a difficult choice between those who believe government should pay down the debt regardless of the human cost versus those who believe government should sacrifice fiscal rectitude to maintain social safety nets.

They say it is possible to have good health and balanced books because health spending has a positive

economic multiplier, meaning that £1 spent on a health programme delivers £3 of value to the economy, while austerity has a negative multiplier – a £1 cut from budget could easily reduce spending in the economy by £3. The numbers will no doubt be disputed, but the issue is the direction of travel. Health spending grows the economy; austerity shrinks it.

Too much of modern economic debate is theoretical and abstract. This book is brutally down to earth in showing that economics is not about lines on a graph, it is about the welfare of the people… all the people. Thus they say in conclusion the starting point for any government in contemplating how to deal with an economic crisis should be to remember the mantra of the medical profession: “First do no harm.”

“Austerity turns losing your job into a health crisis... health spending grows the economy; austerity shrinks it.”

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RESOURCES PROFILE

P hosphates have been essential to feeding the world since the birth of modern

agricultural science in the 19th century, when minerals were first shown to be essential to plant growth. They are the naturally occurring form of the highly reactive, non-metal element phosphorus (P). Plants get phosphorus from the soil, along with nitrogen, potassium and a number of other nutrients they need to thrive.

There is no substitute for phosphorus in agriculture; the phosphorus taken up by a crop must be replaced, which is why processed phosphate rock is a key ingredient in fertiliser. Most of us will eat crops grown on fields fertilised by phosphates. In fact, 90 per cent of all phosphate ore mined today finds its way into fertiliser as phosphorus in one form or another.

However, in addition to its use as a fertiliser, this versatile mineral has countless other uses. Phosphate-based products are found in applications as diverse as dishwasher detergents, leavening agents in baking, and in the manufacture of water-based paints. Phosphates also act as a preservative to retain moisture and flavour in packaged

shrimp and ham. In its di-calcium and tri-calcium formulations, phosphate is even used to make bio-ceramic materials for bone replacement and prostheses.

There are more: phosphoric acid is used to add tartness to cola drinks and to chemically polish, or brighten, aluminium and aluminium alloys.

The acid is also used to protect (phosphatise) steel with a phosphate coating. Add to this countless applications for phosphorus-containing materials as flame retardants for textiles, plastics, paper and mastics and you can see why there is a growing demand for this useful mineral.

URINE SAMPLEThe story of phosphorus and its journey from detection to ubiquity has an unusual start. The element’s discovery is credited to German chemist Hennig Brand in 1669, after he is said to have accidentally stumbled upon phosphorus while distilling urine in his search for the philosopher’s stone, which would turn base metals into gold.

Instead of a lustrous metal he isolated a white, waxy material which he named phosphorus, or ‘bearer of light’, because it glowed in the dark.

THE BEARER OF LIGHTFrom tarting up cola drinks to leavening bread, and bone replacement to steel manufacture, phosphorus is a versatile mineral. But its role in helping to feed the world is what makes this element so valuable, as Andy Pearson reports.

A decade later, Robert Boyle, the English chemist, discovered the element independently. Boyle was the first to use phosphorus to ignite sulphur-tipped wooden splints, the forerunner of the modern match. A century later, Swedish chemists Johan Gahn and Carl Scheele showed that phosphate is present in bones as calcium phosphate; they even obtained elemental phosphorus from bone ash.

FERTILE GROUNDIn the 19th century, the discovery that phosphorus promotes growth in plants kicked off an agricultural revolution. Plants need phosphorus to grow as much as they do water, but many soils do not contain the element in sufficient quantities to meet the voracious demand of many food crops.

Initially, the soil was supplemented with ground bones as an agricultural fertiliser. In the latter half of the 19th century, bird and bat guano started to be ‘mined’ on tropical islands as an organic substitute. Bird poo is even credited as the casus belli of the War of the Pacific (1879-1883) between Peru and Chile, as it was a valuable export for them.

Changes in the fertiliser industry started with the introduction of the

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Andy Pearson is a business writer, award-winning editor and former mechanical design engineer. He writes for various business and construction magazines and has recently contributed to a book on sustainability.

AUTHORANDY PEARSON


electric arc furnace in 1890, which enabled inorganic phosphate rock to be used to produce phosphorus. The success of this new process coincided with the depletion of the world’s guano sources. As a result, mineral phosphates became the major source of phosphate fertiliser production.

Phosphate ore mining increased significantly after World War II in response to an increase in the global demand for fertilisers to increase food production. The ore remains the primary global source of phosphorus and phosphorus chemicals to this day.

RISING GLOBAL DEMANDToday, 215 million tonnes of phosphate rock is mined around the globe in countries such as Morocco, the US, China and Australia. It is also mined in Brazil, where Anglo American’s phosphate operations are based.

Situated principally in the state of Goiás, in the heart of Brazil’s farming region, Anglo American’s Niobium & Phosphates business is the second largest producer of phosphate fertiliser in the country, with an annual production of 1.39 million tonnes of phosphate concentrate.

Here, phosphate ore is mined and is then transformed into a product suitable for processing by beneficiation, a process which eliminates contaminants such as sand and clay. The concentrated ore is then transported to two processing plants. A strong domestic demand ensures 70 per cent of the open-pit mine’s output is used in fertiliser; further processing also produces di-calcium phosphate for the animal-feed industry as well as phosphoric and sulphuric acids.

Phosphates from Anglo American’s operation are helping Brazilian agriculture increase yields to meet growing demands. Brazil’s agricultural sector is the fastest growing in the world, while its phosphate fertiliser market, of which imports make up nearly 50 per cent, is fourth in the world. Growth is particularly strong in Goiás.

“The expectation is that Brazilian phosphate fertiliser consumption will increase at 5.2 per cent per year for the next four years,” says Marcos Stelzer, phosphates commercial director of Anglo American’s Niobium & Phosphates business.

In response to the growing demand, Anglo American’s plans include improvements to further

enhance efficiency of the operation and, ultimately, to double phosphate production.

Demand for phosphate is rising globally. “World consumption of phosphorus fertilisers is projected to grow by two per cent every year up to 2020,” Stelzer says. The largest increases are expected in Asia and South America. In China, in particular, consumption of fertiliser is expected to grow in response to changes in the nation’s eating habits as the population becomes increasingly affluent.

01 Phosphorus (meaning ‘bearer of light’) was discovered in 1669 by Hennig Brand, who named it for its glow-in-the-dark quality

02 Anglo American’s phosphate processing plant at Ouvidor, Brazil

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ANGLO AMERICAN’S PHOSPHATE PRODUCTION

OPERATIONS: Brazil: a mine and beneficiation plant in Ouvidor and a processing plant at Catalão, both in the state of Goiás. It also has a processing plant in Cubatão, near the port of Santos in the state of São Paulo

ANGLO AMERICAN OWNERSHIP:

100%

OPERATION TYPE: Open-pit mine

ANNUAL ATTRIBUTABLE PRODUCTION

1.39 million tonnes of phosphate concentrate (37% phosphorus pentoxide – P2O5)

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ARCHIVE SHOT


Copebrás phosphate fertiliser plant under construction in 1982 in Brazil’s Goiás state. In 1985, Copebrás became part of the Anglo American Group. Today, Anglo American’s Phosphates business is the second largest integrated phosphate fertiliser producer in Brazil, its operations covering the mining of phosphate ore, the production of phosphorus pentoxide (P2O5) concentrate, and processing into intermediate and final products .

ANGLO AMERICAN: ESTABLISHED 1917

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Printed by The Colourhouse. The paper is produced using a 100% chlorine-free (ECF) bleaching process and contains material sourced from responsibly managed and sustainable forests, together with recycled fibre, certified in accordance with the Forest Stewardship Council.

COVER:Anglo American first arrived in Brazil 40 years ago. The country is now set to become one of Anglo American’s major sources of revenue. See article on page 23.

ISBN 00304050

Optima Volume 59

Documents

Transcript of Optima Volume 59