Examination of Witnesses (Question Numbers
70-107)
Charles Emmerson, , Dr Jonathan Di John, Anthony
Lipmann and Charles Swindon
16 February 2011
Q70 Chair: Gentlemen,
thank you very much for coming. Apologies for the slight delay.
We will try and keep this fairly clinical and catch up some of
the time we have lost. For the record, please introduce yourselves.
Charles Emmerson:
My name is Charles Emmerson. I work at Chatham House on a range
of resources issues, such as food, land, water, energy and minerals.
Dr Di John: My
name is Jonathan Di John. I am a senior lecturer in political
economy of development at the School of Oriental and African Studies.
My primary research is on the political economy of growth in oil
economies.
Anthony Lipmann:
My name is Anthony Lipmann. I am a former chairman of the Minor
Metals Trade Association, which is a group that governs the smooth
running of the minor metals trade. I have my own company, which
is a metal trader, and we handle some of the special and strategic
metals that we are here to discuss.
Charles Swindon:
I am Charles Swindon, also a former chairman of the MMTA and currently
chairman of the MMTA Trade and Lobby Committee. I am also the
managing director of RJH Trading, which is a physical metals trader.
Q71 Chair: Thank
you very much. My first question is specifically directed to the
last two witnesses, Mr Lipmann and Mr Swindon. The Minor Metals
Trade Association said to us that minor metals are reaching industrial,
economic and political maturity. Can you expand on this?
Anthony Lipmann:
We may have said that. It is not something that I personally agree
with. In the 1970s we had a situation when there was a great lather
about strategic metals. There was even a company called the Strategic
Metals Corporation that enticed people to invest in things that
we were going to run out of. In the 1930s the Americans formed
a stockpile to buy tin that they thought was going to be threatened.
In practice, you just dig deeper. That is my view about strategic
metals.
Q72 Chair: So
you don't think there is a shortage?
Anthony Lipmann:
No, I do not.
Charles Swindon:
If we are considering the most strategic metals and we are talking
about the Rare Earths, and in particular the Heavy Rare Earths,
where China has such a predominance—it is alleged that they
produce about 99% of the Heavy Rare Earths needed by the world
at the moment—I think there are real problems. That is probably
one of the reasons why we are all sitting here today. The time
factor in investing large amounts of money from heavily capitalised
companies to find, outside of these areas, new supplies of these
strategic metals is very costly and will take time. But something
that the UK should work with and consider is long term supplies
of these metals.
Dr Di John: I take
a bit of a different view about this. While China does control
97% and upwards of Heavy Rare Earth metals—and there have
been two recent export quotas that China has put on, in 2006 and
2010, which have reduced the global supply of them—if you
look at a larger geopolitical picture, there is very little incentive
for China to use this as a geopolitical bargaining chip, principally
because it is very dependent on other base metals and fuels from
other countries. So I don't think you are going to see any further
shortfalls in that.
Secondly, a long time ago, Deng Xiaoping said that
Rare Earth metals are to China what oil is to the middle east.
The big difference in comparing Rare Earth metals with oil is
that Rare Earth metals comprise a very small part of the production
process, even of most high technology industries, unlike oil,
which is a big component of production in GDP.
The other issue is that China has legitimate reasons—environmental
and smuggling—for why they have put these export quotas
on. Also China, unlike the middle east, is undertaking industrial
policy and industrial transformation, and it is likely to use
and try to secure its own resources, like other countries have,
for its own industrial transformation process. That is something
the middle east didn't have the political commitment or capacity
to do with oil. Those are some big differences, but, also, I think
the concern has been exaggerated.
Charles Emmerson:
Just to come back on a couple of those points. The time horizon
issue is absolutely key. There is a qualitative difference between
the issues which arise in the near term, the medium term and the
long term, and the policies that one might use in order to deal
with the issues which arise in those contexts. There is always
the danger of suggesting that this time is different in terms
of resource scarcity. However, there are a couple of good reasons
for believing that this time is different. One of those is the
scope and pace of industrialisation in China. The other, with
regard to some of the Rare Earth minerals, is the extent to which
China's future economic development may be predicated on green
growth. In the 12th five-year plan, for example, electric vehicles
are key. Instead of having generalised industrialisation and growth,
you have some quite specific sectors where there are quite specific
needs.
Charles Swindon:
I would like to come back to a point raised by the penultimate
speaker. I don't agree that there are legitimate environmental
reasons on the part of China for restricting the exports of these
Rare Earths from China. Already this matter is being raised at
the WTO. The WTO does recognise that all countries must have unrestricted
access to all of these metals, however strategic they are. I believe
that China is artificially cloaking its claim of not being able
to export in any numbers.
The other quick point I would make is that,
even when we are seeing some of the most strategic metals coming
out of China, they are very much on value-added products, where
a huge margin of profit is being kept, like with so many other
commodities in China, so the price we pay in the UK and the west
is very inflated.
Q73 Graham Stringer:
The more we get into this inquiry, the more confused I get. Do
we have a real problem or not with the supply of these strategically
important metals? What factors are going to dominate the supply
of these metals? Is it hedge funds or is it China cornering the
market and hindering supply, or are other countries doing that?
Anthony Lipmann:
I believe that you are absolutely right. I think the problem resides
here, in Europe. We have a law, called the EU Chemical Directive,
which is turning Europe into a dark age of lack of innovation.
People are afraid to handle materials because of the restrictive
law under which we have to register our mere ability to import
metals. For example, if I want to import titanium, I must buy
a letter of access that will cost my company £70,000,[1]
just to have the pleasure. If you translate that across the 20
elements that I trade, it is untenable. It creates monopolies,
which in turn create manipulation, which create high prices. Unfortunately,
I am one of those who thinks that the solutions lie here.
Q74 Graham Stringer:
Does anybody else want to add anything?
Charles Swindon:
You refer to hedge funds. It is well known that hedge funds have
moved into all commodities, whether it is gold or energy. Sadly,
they have also moved not just into exchange traded instruments,
as traded on the London Metal Exchange, but there is evidence
that they have moved into more strategic metals, which are only
traded between counterparties, including Rare Earths. If it is
perceived that the rate of return over the next 10 years is going
to be much greater by investing in very small quantities of rare
metals, that is a risk.
In response to your question, I think there is a
real problem that will take many years to resolve. There is no
quick fix, so we should start to look at doing something about
it. We should be looking at creative ways outside of the box,
through diplomacy, commercial channels and bilateral promotion,
even of more ethical areas, by showing people who are producing
these metals, or might want to produce them, that it is worth
working with a country like the United Kingdom that can help them
in the longer term with infrastructure, giving profit to stay
back in their country in return for what we can do with them.
I would like to reiterate, absolutely, what
Anthony Lipmann has just said. The punitive effect of the chemical
legislation, which is meant to protect the environment, is becoming
so financially onerous that it is exacerbating the problem. We
should look at ways of making sure that the costs of enforcing
this environmental legislation do not drive more and more industry
away from the United Kingdom.
Dr Di John: On
a broader point, it is worth keeping in mind that this is a time
horizon issue. The term "Rare Earth metals" is misleading
in the sense that they are not actually rare. There are known
deposits of them in many parts of the world, in the United States,
Canada, South Africa and so on but, at the moment, they are in
very isolated mines that are economically unviable. If we saw
any substantial price increase from today, and the prices have
increased substantially in the last five to 10 years, that would
provide an incentive, as it did with oil in the 1970s, for more
prospecting and exploration. That is underway in the United States,
Australia and in other countries as well.
In the medium term, I don't think there is a geological
reason why there should be a concern. There is an economic viability
concern, and there will be a time lag for these mines to become
viable, so we could have short to medium-term problems but I don't
see any long- term issue in terms of Rare Earth metals supply.
Charles Emmerson:
There is also a generic problem with market dominance by any country
for any commodity, and Rare Earths are no exception to that rule.
The question in my mind is how you get supply in the medium term
from countries where you can be confident they will operate according
to market principles and, indeed, where there is neither political
incentive nor economic incentive for exports to be curtailed.
China is different in this respect. China is industrialising rapidly
and it has a strong domestic demand for many of these minerals.
It may be that, frankly, rather than politics or any broader strategic
intent, which is behind conceivable curtailment of supplies to
countries such as the UK and, indeed, other advanced economies
in the future.
Q75 Graham Stringer:
We are talking about regulation, the market and national interests.
Are there particular problems with any of these metals? We have
been told in our recent evidence that there is only 20 years'
supply of indium and there are particular problems with neodymium
in terms of its application within wind farms, so you have given
us a good general description. Are there any particular metals
you would draw our attention to as being a problem?
Anthony Lipmann:
I handle a particular metal called rhenium, the total world production
of which would fit in this room. It is one of the densest metals.
The total world production is 45 tonnes. Yet every single gas
turbine engine, land-based or aero, needs 3% of rhenium in a single
crystal turbine blade. The greatest exponent of that is Rolls-Royce
here. Rolls-Royce depends on that element, but I am going to argue
against the case again. That element was worth $300 a kilo in
1996. In August 2008 it reached $10,000 a kilo, but there was
sufficient supply because price is like a beam of light that lights
a way on a subject. Then everyone starts to recycle. They collect
it, they dig a bit deeper, they mine a bit more, the market becomes
more efficient and Rolls-Royce is still building aero engines.
That is an example of how the market works to deliver.
Q76 Chair: Can
I just stop you? We heard some evidence from Tata in our last
session. One thing that struck me is that Tata has invested heavily
in some very sophisticated, large scale recycling of steel operations.
Anthony Lipmann:
Yes.
Chair: But nowhere is
there any apparent attempt to extract from it the rare metals
that do get diluted when you crush cars and whatever. Surely,
there is a problem of finite resource?
Anthony Lipmann:
I read that testimony. There is wastage. Without doubt, we are
not 100% efficient, either as an aero engine or—
Q77 Chair: It
sounds to me as though you are being a little complacent about
this.
Anthony Lipmann:
I am not complacent at all. I believe that price is a marvellous
stimulant to make people collect things that would be thrown away.
Our entire minor metal trade is made up of elements which were
once discarded. 30 years ago, or when this association was founded,
1973, the elements that we trade in today that end up in your
mobile were discarded. They are not today because we need them.
I will give you one example, and I want to be very
specific because it makes things real for people. An element called
thallium—rat poison to the Victorians—is one of the
most toxic elements in the Periodic Table. You cannot make a repeater
in a fibre optic cable without thallium because it has a unique
diffraction of light, yet we are having trouble trading it because
the EU says, "This is toxic. You mustn't handle it",
so it goes to landfill. That is the paradox. The law is unintentionally
preventing us from delivering, as merchants, to the people who
need the strategic elements.
Q78 Graham Stringer:
Can you go back to the two metals I mentioned? You have given
a very strong case, as far as I am concerned, for it working on
rhenium. Do you believe it will work on indium and neodymium?
Anthony Lipmann:
Neodymium is a perfect example. In the 1990s General Motors sold
the technology for neodymium boron iron magnet-making to the Chinese.
No one can blame the Chinese for developing that patent. Now we
wonder why we are beholden to China for the very product for which
the patent was sold. So now we feel vulnerable and people are
digging. In California there is a company called Molycorp that
has raised huge amounts of money on the American stock exchanges
to fund it and, in the end, neodymium will come back to the market
in other parts of the world than China. That is what I believe.
That is the market delivering.
Q79 Stephen Metcalfe:
Really, you are an exponent of the argument that the free market
will deliver whatever we need and when we need it, because it
will set the price and that will stimulate activity?
Anthony Lipmann:
Yes.
Q80 Stephen Metcalfe:
What happens in the lag? With some there is a gap of up to 15
years between the market demand—presumably we all accept
that market demand is rising—and the delivery of product,
because it is often quite difficult to get these mines up and
running.
Anthony Lipmann:
Mining houses, metal merchants and everyone involved in the cycle
wants to make money and they will invest in it. They will bring
forward metals by their investments. The one thing that I am very
critical of, as our stock exchange prostitutes itself before huge
commodity companies that wish to list here, is that we forget
the ethical and environmental sides of our need. The two, in my
opinion, must co-exist. That is where this country needs to put
much greater emphasis on the enforcement of the existing laws
on ethical and environmental behaviour during that process. This
is the Companies Act 2006.
Charles Emmerson:
There are things that you can do in the time lag, and there are
things you must do in the time lag. One thing is to invest in
better frameworks for the management of trade in some of these
minerals. You can insist on transparency, diplomatically, as to
how these minerals are dealt with by various exporters and you
can raise the political cost of any interruption or curtailment
of supply by indicating that it is not, for example, a uniquely
UK issue but a UK and EU issue. I think it is very important to
remember that what the UK can do on this qua the UK is fairly
limited. What the UK can do with its partners in the European
Union is much stronger.
Dr Di John: In
terms of the lag, I think this varies according to which metal
we are talking about. The share of the cost that these metals
constitute in terms of the production process is much less than,
say, oil was. While there will be a lag, the effects of any dramatic
increase in price is likely to be of much less effect in terms
of production costs. That is something to bear in mind.
Also, countries that use these metals more intensively,
such as Japan and Germany, are more vulnerable, because if you
look at the industrial structure of those countries they are much
more intensive users than the UK. In the EU, the UK would certainly
want to ally with Germany, the biggest player in this market in
terms of its production process.
Charles Swindon:
At the MMTA we have espoused a minor metals policy. We believe
that this is effective for the whole world and is not peculiar
to the United Kingdom or any other country. We believe it is fair.
All the objectives and components of that minor metals policy
embrace everything that is important in minor metals. We would
like to see more and more recycling and promote more green technology
in the minor metals. In the short to medium term over the next
15 years, I believe that the new technology coming into urban
recycling and urban technology, which can be done easily in the
United Kingdom, or, if it is not appropriate, in collaboration
with other countries, so that the finished product comes back
to where we want it, is a way forward.
In addition to that, the UK could work much more
closely within the EU in terms of looking at areas that the MMTA
sees as important to the economic and financial viability of the
metals manufacturing industries in Europe. We will continue to
promote, at the MMTA, the elimination of unfair or restrictive
import duties on minor metals into the EU. That will help to prevent
some of these shortages in the coming years.
Q81 Stephen Metcalfe:
Thank you. One final question: Do you believe that the current
producers are able to meet the rising world demand in that very
short term? Do you see any problems, coming down the line, we
should be aware of? I understand that you said we need to look
at this closely and do some work on it, but is there going to
be a period where we are going to have a real critical problem?
Is there anything the Government should do about that specifically?
Charles Swindon:
This is all about economic cycles. There was a very strong economic
cycle for all commodities from 2002 to 2008 and then, of course,
there was the bust and no investment. Now we seem to be back in
a period of very high commodity prices—having peaked in
most cases. Certainly, copper and most of the other metals we
are involved in, and most particularly the ones we are talking
about here of a strategic nature, have reached very high prices,
well above the levels they achieved in 2008. If this cycle continues,
there will be investment. There will be fat in their balance sheets
to invest for the longer term. We cannot predict how long this
good cycle of strong demand goes on, but it will help mitigate
the problems we are looking at.
Anthony Lipmann:
I believe there is a lot we can do just by enforcing correct commercial
law. For example, on the London Metal Exchange there are four
very large companies that own the very warehouses that people
deliver metal into. J.P. Morgan[2]
is one of them. They own a company called Henry Bath. They are,
therefore, a ring-dealing member of the exchange and they also
own the warehouse. That is restrictive. They were also reported,
at one point, to have had 50% of the stock of the metal on the
London Metal Exchange. That is manipulative. These are things
that we can do something about here. That would mean the copper
price probably would not be $10,000 a tonne, which is higher than
for some forms of titanium. That price is not down to the fact
that the metal is not being mined, it is because of such actions.
Dr Di John: Just
to reiterate the penultimate speaker's point, if I could refer
you to an article in the Financial Times of 12 February,
a few days ago, which reported on the general mood of the Indaba
mining conference in Cape Town, which is one of the big mining
conferences in the world. It seems that most of the big players
are quite optimistic about increasing reserves and the development
of new mines, even in places like the DRC. What we are talking
about is the big western multinationals that have quite an optimistic
mood. In the short term it seems as though there already is a
lot of optimism and investment going on, particularly in southern
Africa.
Q82 David Morris:
As you said before, China is currently dominating the resource
market.. You have also mentioned that, due to economic activity,
the prices are being driven up in certain elements and minerals.
Do you believe that the industries are willing to pay a premium
for a reliable supply of Rare Earth metals? If not, should they
do something? Should various Governments get involved across the
world in making a readily available supply of metals?
Anthony Lipmann:
There is a specific problem in the Rare Earths at the moment because
of the predominant position of China. China also will sell and
is selling the Rare Earths. We do not have an industry that could
use them. We have one company in the north of England, Less Common
Metals, which makes neodymium boron iron magnets. They are feeling
the pinch but they, heroically, are the only magnet maker, probably,
in Europe actually making the stuff. They are still managing,
amazingly, to do this, despite an import duty of 2.6% on neodymium,
which has been suspended. But why not cancelled? How can you plan
if something is only suspended? These are the problems, but we
have already denuded Europe of the type of businesses and products
that China wants to make with the Rare Earths.
Charles Swindon:
39 different raw materials—metals—go in to making
a normal air engine. You cannot carry on if you are missing one
or two of these. What is more important to you is the continuity
of supply, not just for tomorrow but for the next five years.
You absolutely are obliged to ensure that you have a reliable
supply, probably from more than one area and from more than one
producer. Yes, you will pay a premium. You have to pay a premium.
You pay what the market is dictating. There is no substitution
for nearly all of these metals that are needed to make complex
manufactured goods, like air engines.
Whether the Government should intervene to do this,
short of being involved in diplomatic areas and in the G20, the
WTO and the OECD, which I think is very important, on the specifics
of helping out the UK Government because the price has gone high,
I don't think so. Prudent large manufacturers do plan five years
ahead, will pay premiums and will pay the price for what they
need.
Q83 David Morris:
Dr Pitts of the Royal Society for Chemistry said that there is
a social cost that could be involved in mining these certain elements.
Do you think that that should be included in any production price
to even out the fair trade balance across the countries? If so,
as an example, how much would the cost of a mobile phone, a laptop
or whatever we are using in the western cultures, go up as a readily
available media outlet that we seem to be addicted to?
Charles Swindon:
There is a social cost involved in the production of many of these
metals. Much of it is already inbuilt. If the price was to go
up another 10% or whatever we are talking about, you and I would
not know. We should pay that social cost, work for the better
good and make sure the benefit goes to the other areas we have
spoken briefly about, such as the DRC. There is so much work that
can be done in a country like that for the greater good of the
people. We would collaborate with such areas and make sure that
the public and everyone at the end of the day pays that social
cost. It does not need to be done in a way that is made to seem
a premium; it is the cost you pay for living, working and being
involved in commercial goods in today's society.
Anthony Lipmann:
In the Klondike-type rush for resources in this resource war that
we are living through, we need to use things like the Companies
Act 2006, in which any UK-registered company must abide by an
environmental audit and provide an environmental audit. That is
the means by which we try and ensure that the by-product of our
unhealthy rush for metals does not produce untold suffering, basically,
in developing countries. I am talking about pollution and things
that go on that are out of sight and out of mind. We have listed
companies on the FTSE 100 whose practices away from home are not
what they are here, and no one brings them to book. They are not
audited in that way.
Dr Di John: In
terms of social cost, from a developing country perspective, I
have done some work on the political economy of tax regimes in
sub-Saharan Africa, and in particular mining tax laws. The current
situation is that in many sub-Saharan African countries a lot
of strategic metals were nationalised and very poorly managed.
Many of these countries ran into very heavy debt crises, and they
were, in some sense, forced in their structural adjustment programmes,
to privatise. An example is the copper industry in Zambia.
In return for that privatisation, there was a very
investor-friendly deal to companies to revitalise the copper mines
in Zambia, for example. In the 2000s Zambia was receiving a 0.6%
royalty on copper. That is, basically, peanuts. The IMF originally
endorsed that but now is coming round to saying that these countries
need to get a much better deal from mining in general. The tax
proceeds from mining would far outweigh any amount of increase
in aid from which they would be able to benefit during commodity
booms, which they are not. Zambia gets virtually nothing from
the commodity boom in terms of fiscal resources.
I think we are likely to see a move in which the
IMF promotes an increase in the royalty rate, especially in poor
countries, because, in some senses, that is very consistent with
the social corporate responsibility movements, not just in the
OECD countries but in less developed ones. I would see a movement
towards a high royalty rate in mining generally, even in poor
countries.
Q84 Chair: That
ethical line that is coming from you seems to suggest that there
would have to be some significant co-operation between Governments
in developed countries to find ways of making good the social
and environmental impacts in underdeveloped countries?
Anthony Lipmann:
Let me just put one figure on what Jonathan has just said. Zambia
exports 700,000 tonnes of copper. That is $7 billion today. That
is before the by-products of silver, tellurium, selenium, gold
and cobalt, which comes from copper as well, and all the other
things. Yet Zambia does not see anywhere near that, as Dr Di Jonathan
said. That is because of the huge tax breaks that were given,
under pressure from the IMF, when President Chiluba was in power
in Zambia, to companies that themselves reside in places like
Zug, and yet who own vast shares of companies listed on our FTSE
100.
Charles Swindon:
It is absolutely true that these countries in sub-Saharan Africa
are not benefiting to any great extent. Ironically, it is the
UK and France that have been working with the Governments of sub-Saharan
Africa in advising them on new mining laws and everything. It
could go too far the other way. In terms of royalties that we
are talking about, we do not want to be paying incredibly high
ones. We do not want to go from one extreme of their not benefiting
at all to the other extreme where they are just extorting, or
imposing vast royalties and if you don't pay them, you go to some
court to resolve it.
We need to find a mediation, a way through this that
is not just looking at the bottom- line royalty, but is sharing
in the social problems of the country, the infrastructure problems,
the housing and the education. Working with the bigger picture
is what I believe they want, from my experience of dealing with
these sub-Saharan countries, and not just the extra buck on the
royalty.
Q85 Pamela Nash:
I would like to explore the role of China a little further than
we have already this morning. It was reported last year that China
had halted the export of Rare Earth elements to Japan following
the arrest of a Chinese trawler captain. However, at the same
time the export quota in China was reduced and they were very
close to meeting that quota. In your opinion, do you think this
was, indeed, a diplomatic decision by China or was it a trade
decision?
Anthony Lipmann:
I am afraid that I believe China was throwing its weight around.
They know that they are big in the playground, and there is no
love lost at the moment between Japan and China. As metal merchants,
we have inquiries every day for metals that come from China where
Japan is simply searching for them in anywhere that is non-China.
It is a diplomatic trade problem. In the end, it will stimulate
all the investment that is going on all over the world for more
Rare Earths. That will happen and it will be delivered.
Charles Swindon:
I totally agree with Anthony here. There are trade and other political
problems between China and Japan. The excuse is given by China,
which is absolutely not good enough, that the fact they have taken
over central control of the south Yangtze area, where most of
these metals are produced, is good evidence that they want it
run and controlled by Beijing. This is absolutely unacceptable
and we should not be fooled by the sham that says it is to protect
the environment.
Dr Di John: I agree
that the price increases will stimulate investment elsewhere in
these metals, but this policy is not just a trade one. It is central
to China's industrial policy. One of the reasons why, in the medium
to short run, there might be increases in export quotas and they
might disguise it in the form of environmental concerns and smuggling
concerns, is that they would like, as they have done in many other
industries, to force, or at least provide a lot of incentives,
for firms to locate in China. It is an FDI policy. It's a foreign
direct investment strategy and an industrial strategy. Every country
that is wealthy today has done it in the past. OPEC has done it
with oil, so this is nothing unusual that we are seeing. The difference
with OPEC is that China has an industrial transformation strategy
as well as being the country that has the largest amount of these
minerals at the same time. It is a little more concerning than
oil was, but its effect is less because the price of these metals
in production is much less than oil. So for the world's economy
it is not as big a concern.
This is something that is part of an historical continuity
of countries trying to catch up, and one of the things that they
have used is import tariffs and export quotas to stimulate domestic
industry. China has enough leverage, I would suspect, vis-á-vis
the WTO, that they will be able to get away with some of it but
I don't think they have any interest in the long run of seriously
curtailing supply because they are dependent too much on oil and
other strategic fuels and minerals for them to play too much hard
ball.
Charles Emmerson:
I would entirely support what you have just said. China is going
to want to move up the value chain, and one way of doing that,
maybe, is to encourage manufacturing firms to invest in China
rather than to produce products outside China. In a sense, the
question of whether the curtailment was political or not in the
medium to long term is irrelevant, actually. However, the perceptions
matter. We have seen a real flare up in perceptions of scarcity
around certain minerals. That, in itself, will drive investment
and Government policy. It may drive price but it is dangerous
and we have to make clear that transparency, market mechanisms
and open international frameworks are the key to building in—and
this is the key word for me—long term "resilience"
as opposed to risk management, which is an approach that is often
taken in this area.
Dr Di John: On
that point about transparency, one of the key features of sub-Saharan
African mining deals is the fact that they are very rarely transparent.
As a matter of fact, with a country like Zambia and copper, and
this is true of most of the countries, almost all of the deals
are off budget in the sense that the Finance Minister never sees
it and it is never declared for tax. This is part of, perhaps,
elite bargains in the country where the top leaders, politically
and economically, are sharing the proceeds from this. It is a
very serious problem, and not just for China but also in sub-Saharan
Africa. I would say that 95% of deals were secret in mining.
Q86 Pamela Nash:
Just to go back to China, you have all expressed your concerns.
But, Dr Di John, you said that you still feel that a genuine reason
for their restricting exports is their domestic requirements for
these metals. Do each of you think that China is well able to
use this monopoly on the international market in political negotiations
throughout the world?
Charles Swindon:
Politically, China do not want to have further embarrassments
at the WTO. If we raise the pressure and the bar, I believe that
top meetings like the G20 should be talking about such events.
They don't want the embarrassment. If world leaders can make sure
that politically driven disputes, such as we are talking about,
are raised at the highest level, it will push back China and the
near monopoly that they are going for. Let's raise the game and
the bar rather than making it go away, because it will not.
Anthony Lipmann:
China say that their Rare Earths are national treasure. If only
every African country said that their minerals were national treasure.
This is the difference. You can't blame the Chinese for developing
everything from the raw material through to the hybrid car. That's
what they want to do.
Q87 Pamela Nash:
I have one final and very quick question. Last year the Chinese
reduced their export quota relatively suddenly. Would it be helpful
for the industry if these quotas were known far in advance, and
is there any possibility of that happening?
Charles Swindon:
From what I know, as you say, these export quotas were cut on
the key areas of bauxite, coke, fluorspar, silicon carbide, zinc
issues and so on. There is no way of knowing in advance, not even
with the greatest intelligence as far as I know. Of course, if
it were possible, that would be of great value.
Q88 Stephen Mosley:
In your answers to previous questions, you have mentioned sub-Saharan
Africa quite a bit. I want to bring it all together. The Democratic
Republic of Congo is the largest supplier of cobalt and one of
the largest supplies of coltan in the world, yet it has huge problems.
In eastern Congo you have got militias controlling the mining.
In the rest of Congo there are huge problems with corruption,
bribery, etcetera. We had First Quantum Minerals in Parliament
a couple of days ago speaking about it, giving a very forthright
opinion of the situation there. Of course, there is a court case
currently in Paris at the moment, so I don't think we should stray
on to that ground, but it does give an indication of the problems.
Of course, you talk about environmental things. The
mining that is going on out there is not to the same standards
that we would expect in this country. As a result, the people
don't benefit. How can we use our mining policy to promote peace,
stability, stability of supply and also help those people who
do the mining often in small-scale mines in the Congo? It is a
big question. Can we have quick answers because I am aware of
the time?
Anthony Lipmann:
I would like to come back to what we can do. Companies are attracted
to Britain to list. They come out of cover to list on our stock
exchange. These are the companies where a light has to be shone
on them through the Companies Act 2006 to make sure that they
bring up the level of their practice in sub-Saharan Africa.
Tantalite has one particular problem, which
is that you can take it out with a bucket and a spade. It is artisanal.
It doesn't lend itself to huge companies. All the problems in
eastern Congo and western Uganda are because it is so easy to
mine. People are mining at the point of a gun. That is why the
war lords are able to have that power. The laws which have come
in, such as the Dodd-Frank from the US about conflict-zone minerals,
are actually changing the situation on the ground. That is where
law is beginning to help.
Charles Swindon:
We can change this. Anthony forgot to say that he was instrumental
in setting up the MMTA's charity where we have been sponsoring
the Mufulira area in the last three years. Tremendous work has
been done there. My own daughter went to work in the schools of
Mufulira to help be amongst the community, which is a huge copper-producing
region, and one of the polluted areas. By education, by example
and by working with these people, the social cost and problems
will go away. Of course, what will help is promoting good governance
and the London stock exchange and its rulings being stricter in
the terms it requires of such mining areas, wherever they are,
and we should do more in that direction.
Dr Di John: The
challenges of achieving a good governance agenda and a transparency
agenda in mining are going to be formidable. We have the Extractive
Industry Transparency Initiative, the EITI. The World Bank championed
this for the Chad-Cameroon pipeline and it fell apart. As to one
of the reasons why it fell apart, one has to keep in context how
political stability is maintained in a country. Historically,
and certainly in sub-Saharan Africa, it was often maintained by
bargains between different types of elites, to give them incentives
not to rebel against the state. These bargains tended to take
the form of giving huge economic privileges and rents to various
regional elites. Under state intervention it was quite easy to
do that because the state had big patronage machines. Through
state-owned enterprises they could control and fix multiple exchange
rates, give cheap credit and so on and so forth.
In the era of economic liberalisation, a lot of the
hands of the state are tied. For instance, privatisation removes
many of the patronage opportunities that public enterprises. With
financial deregulation there is less control of the financial
sector, so the patronage levers of elites to maintain stability
are much more restricted now than they were in the past. So you
are likely to see things like secret mining deals and the tolerance
for tax evasion. We are seeing those other ways to give elites
rents beginning to emerge. The problem of maintaining political
stability doesn't go away just because you have liberalised economically.
I think that it will be a formidable challenge to implement a
good governance agenda in these very poor countries because of
the nature of the way elite bargains need to be constructed. Douglas
North, an economic historian who won the Nobel Prize, has recently
written a lot about this particular problem in a co-authored book
called Violence and Social orders. It is something to keep
in mind. We must ask whether, historically, good governance has
been the means by which countries have maintained political stability.
If you look back in history, the answer is very troubling; regimes
have hardly maintained institutions that resemble anything like
'good governance'.
Q89 Stephen Mosley:
One of the issues that Congolese Government officials and Parliamentarians
have raised here is that of minerals from the east of Congo being
flown out. Basically, they describe it like the drugs trade, with
makeshift airfields, small planes; they dig it out and then move
to neighbouring countries to the east which then export it. Is
there any technological way of proving where it has come from,
such as fingerprinting or something, in the same way that they
have done with blood diamonds where they can trace the source?
Is it physically possible to do the same?
Anthony Lipmann:
There is a system of tagging that is supposed to happen, direct
from the approved place right through the system. But then you
would probably get a trade in tags.
Charles Emmerson:
It will be easier to tag minerals that are produced on an industrial
scale than those that are produced artisanally, anyway. That is
the challenge.
Anthony Lipmann:
The real thing is the failed state scenario. At the very extreme,
the tantalite mining is just an extreme version of what is going
on throughout Africa. You are not going to solve the tantalite
problem before you resolve the problem of the failed state and
the way our companies, which are listed here on the stock exchange,
behave in those countries. That is where we can get them, when
they are vulnerable here—when they need to raise finance.
Q90 Roger Williams:
You have talked about recycling. Perhaps we could look at it in
a little more depth. The UK is a world leader in metal recycling
and a major exporter. Could the UK become a global leader in secondary
production of minor metals? If so, how could we promote it?
Charles Swindon:
It is a commercial matter. The UK has been a world leader in non-ferrous
and ferrous metals recycling but not so much in the areas that
would be of great strategic importance because of the difficulties
of having substitution in these areas. Certainly, it would stop
the landfill and mean that we look to recycle these metals with
which we are most concerned. If they are commercially viable in
the UK, we should do it; otherwise we should do it in collaboration
with other countries. Everything should be done from Government
legislation downwards to promote this green technology.
Q91 Roger Williams:
Does any work need to be done on an academic basis to initiate
new ways of recycling or new ways of extraction?
Charles Swindon:
Academically, a lot of research goes on in universities that is
becoming more and more commercially viable. Top scientists should
be encouraged to focus on this and keep those scientific brains
working on the recycling of strategic metals because I am sure
that the top listed companies with large budgets would do a commercial
deal with such universities.
Anthony Lipmann:
If you take it to its very simplest, recycling includes picking
up an aluminium can or a steel can and getting it back to the
recycler. We are in a kind of anti- manufacturing period, where
even the small yard that wants to open up as a collecting yard
faces such an enormous amount of regulation—just the health
and safety in case someone is cut by a piece of sharp metal—that
that militates against the scrap recovery that should be taking
place and all the recycling. Again, price is the issue. It shines
the light. Wherever that metal is, people will try and recover
it.
Q92 Roger Williams:
We were told by Ian Hetherington of the British Metals Recycling
Association that part of the problem is that, for some of the
metals we are talking about, there isn't a market. He says that
he can find no market for secondary neodymium.
Anthony Lipmann:
He couldn't find a price for it. I read the transcript. He said
he couldn't find where a price existed for secondary neodymium.
You make a price. The current price for neodymium is $60 a kilo.
If I recycle it and it costs me $20 to recycle, I will try and
sell it for $60, or, maybe, because it is recycled, I will sell
it for $50.
Q93 Roger Williams:
I think it was you who was telling us about this company in the
north of England that makes neodymium boron iron magnets.
Anthony Lipmann:
Would you say that again?
Q94 Roger Williams:
I may have misunderstood you, but you said that there was a company
that makes these magnets made of neodymium, was it?
Anthony Lipmann:
Yes, that is right.
Q95 Roger Williams:
And boron, was it?
Anthony Lipmann:
Yes. They make neodymium boron iron magnets in Widnes.
Q96 Roger Williams:
Where do they get their neodymium from?
Anthony Lipmann:
They import it from China.
Q97 Roger Williams:
But they would have no problem with reprocessed or recycled neodymium
if it was of the quality?
Anthony Lipmann:
Yes. The atoms are the atoms. Once the atoms are back out, as
in 99.9% neodymium, it's re-useable.
Q98 Roger Williams:
The other evidence that we have received is about the WEEE directive
and that it needs extending. Your association stated that the
legislation needs to be streamlined. Can you tell us what that
means?
Charles Swindon:
The purpose of the legislation is to promote something like at
least a 85% recycling rate for all of this waste product. It shouldn't
even be called a waste product. It should be called a new product.
Calling it "waste", in the first instance, is the misnomer.
The legislation is difficult and onerous, and it needs to be streamlined.
Recycling has to be made easier. At the MMTA, we are fully in
favour of the environment, health and safety and all of this,
but when it goes mad and it is stopping vital recycling, which
we need, it has gone too far.
Q99 Roger Williams:
Most of the metals that we are talking about are in the form of
an alloy of some sort. Is there ferrous scrap that is going out
of this country that would contain some of the metals?
Charles Swindon:
Sadly not, not in terms of ferrous scrap or, at least, not in
any commercially viable way. We would have to carefully target
the non-ferrous scrap and, by scientific processes, we would know
what to focus on in order to obtain something like a commercially
viable recovery rate for these strategic metals.
Q100 Roger Williams:
The point I am trying to get to is that we do export a lot of
our scrap and it might not be in the ferrous scrap.
Anthony Lipmann:
Because we have set the bar very high in Europe to prevent any
injury to any EU citizen, we have, therefore, allowed the recycling
process to be exported to places like China, where the same standards
may not exist. That is part of the unintended effect of the EU
Chemical directive.
Q101 Roger Williams:
Some of that scrap would contain some of the metals we are talking
about?
Anthony Lipmann:
Absolutely, yes.
Charles Swindon:
The labour costs are one of the reasons for this. I have seen
grannies in their 80s in the freezing cold in China taking apart
these pieces of scrap metal. That is not something we want to
see happen here, of course, but that is one of the problems we
are facing.
Q102 Gavin Barwell:
This is my final question. You touched on them in some of the
earlier answers, but in the Minor Metals Trade Association's submission
you talked about the detrimental effect on the industry of the
EU's REACH regulations.
Charles Swindon:
Yes.
Q103 Gavin Barwell:
Could you say anything to the Committee about how those regulations
could be improved to avoid some of the detrimental effects but
still maintain the necessary environmental and health and safety
controls?
Charles Swindon:
It is a case of finding the balance. The REACH legislation is
enforceable now and different tonnage bands will come in gradually
over the next two years through to the end of this decade. The
headquarters of that, even though it is spearheaded by Brussels,
are in Helsinki. We would like to see enforceability in each country,
and I believe different countries will have their own way of enforcing
it. At least the UK could have its own user-friendly way of enforcing
it, whatever happens in the other 26 EU countries. Perhaps we
could have a more pragmatic approach within the UK towards enforcing
REACH, one where you can pick up a phone, send the emails and
find out how you can conform. In terms of more draconian changes
to it, which might be desirable, it might be too late.
Q104 Gavin Barwell:
To pick up on that, the body responsible for enforcement in the
UK is?
Anthony Lipmann:
DEFRA.
Q105 Gavin Barwell:
The Ministry is directly doing the enforcement?
Anthony Lipmann:
I think so, yes.
Charles Swindon:
They are mandated. In each country someone has been mandated.
Within the UK it is DEFRA.
Q106 Gavin Barwell:
Finally, one of the things you said in your submission was that
you felt the destructive effect of this regulation was unintentional?
Anthony Lipmann:
Yes.
Q107 Gavin Barwell:
Can you tell us a little more about what it is you think they
have done that they did not intend to do?
Anthony Lipmann:
The EU Chemical directive is a law directed to all substances,
not elements. In a Rolls-Royce gas turbine engine it is thought
that there are between 3,000 and 5,000 substances that go to the
making of that engine. This law is a cradle to grave law that
requires any import of any substance into Europe to have had carried
out a whole range of tests for carcinogenicity, mutagenicity,
toxicity, etcetera. Then, for the privilege of importing that
element or substance, you are either part of a consortia where
you spend a lot of money to be a part of that consortia—in
rhenium, for example, it will cost our company a couple of hundred
thousand pounds—or I buy a letter of access which, in the
case of titanium, will be £70,000[3]
to import that material. That is an incredible dead-weight on
the free market and trade. It simply exports the jobs, the technology,
the innovation and the wish to produce anything in Europe. It
goes abroad because overseas they are not beholden to REACH. That
is the problem.
Chair: Gentlemen, appropriately,
international development questions are on the Floor of the House
at the moment covering a number of areas of their responsibility.
We thank you very much for your evidence. As we had to skip through
some of the questions rather quickly, if any of you who did not
have the opportunity to respond to particular questions have something
to add, please feel free to drop us a note on it. We are anxious
to get your side of the story in developing what I think is quite
an important inquiry.
1 Ev 71, para 1 Back
2
"JP Morgan grabs £1bn of copper reserves", The
Daily Telegraph, 14 December 2010 http://www.telegraph.co.uk/finance/newsbysector/industry/8180304/JP-Morgan-revealed-as-mystery-trader-that-bought-1bn-worth-of-copper-on-LME.html#
Back
3
Ev 71, para 1 Back
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