The IFC Performance Standards Review: Implications for Exploration-Stage Mining Company Clients

• Jurisdiction: Derecho Internacional

International Mining and Oil & Gas Law, Development, and Investment
(Apr 2011)
CHAPTER 16A
The IFC Performance Standards Review: Implications for Exploration-Stage Mining Company Clients
James F. Cress
Holme Roberts & Owen
Denver, Colorado

Jim Cress

Partner, Holme Roberts & Owen LLP

Denver, Colorado

jim.cress@hro.com

Director, Sustainable Development

Strategies Group

www.sdsg.org

Outline of Presentation

• Context: IFC exploration stage mining equity investments

• Overview of IFC Performance Standards and IFC framework

• Selected revisions to IFC framework (PS 1, PS 3, PS 6, PS7, Access to Information Policy)

• Example: Antares Minerals

• Issues in applying the IFC Framework to mineral exploration companies

Activities Supported or Financed by IFC

• Direct lending to private sector companies (including corporate and project finance)

• Lending to various types of financial institutions and through funds and facilities

• Minority equity stakes in companies, including investments through financial institutions

• Guarantees, municipal finance, investments managed by IFC's Asset Management Company

• Short-term loans, guarantees, and trade finance products, with maturities of up to three years

• Advisory products: technical, financial or regulatory advice, project structuring, training for companies, industries, governments

IFC Exploration-Stage Investments

• US$495 million in IFC's mining portfolio in 2009 (debt and equity)

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IFC Exploration-Stage Investments

IFC's Mining Equity distribution by Market Value

IFC Exploration-Stage Investments

IFC Equity Investment characteristics

• Corporate placement / unincorporated JV investments

• Minority investor: typically 5-15% shareholding

• Long-term investor, typically 6-8 year holding period

• Not just financial investor, an advisor adding to shareholder value - building E&S management capacity of the client

Source: IFC (2009)

IFC Exploration-Stage Investments

Recent IFC Mining Equity Investments, LAC

• Antares Minerals (Haquira project, Peru, pre-feasibility drilling, technical & S&E studies, 2009)

• Argentex Mining (Pinguino project, Argentina, prefeasibility study, 2010)

• Eurasian Minerals (generative exploration, Haiti and other countries, 2009)

• Greystar Resources (Angostura project, Columbia, feasibility Study/ESIA, 2009)

See: www.ifc.org/projects web site reflects a developing "experience database" for mining exploration issues in different country and community settings

IFC Exploration-Stage Investments

Criteria for IFC mining equity investments

Countries - Focus on projects in developing countries, unincorporated JVs (project level) and private placements (corporate level) investments

Strong project economics, including:

• Strong management with established track record

• Competitive, low cost resources with 7+ year potential mine life

• Potential for attractive financial returns

Sustainability - IFC looks for demonstrated client commitment to environmental and social aspects of project. IFC builds on and adds value to these aspects.

Source: IFC (2009)

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Exploration-Stage Projects Impacts

Ex. Antares Haquira project covers 50,000 acres in a district four times larger

How to apply IFC framework in a stage appropriate way to manage early stage impacts on environment and communities?

IFC Sustainability Framework

IFC Performance Standards - Application

• Not all standards apply to all projects

• In each project, IFC focuses on particular performance standards applicable to the type of project / location / communities impacted

• Development of an "Environmental and Social Action Plan" (ESAP) and a "Health, Safety, Environment, Labor & Community Policy" (HSELC) to improve client's HSELC performance based on issues and applicable Performance Standards identified in IFC due diligence

IFC Performance Standards - Application

"free^* advice"^*

• You will take this advice if you take IFC's cash; an IFC investment is an ongoing dialogue and relationship on environmental and social issues

• ESAP and other project documentation lists the environmental and social actions to be taken for the specific company and project to meet IFC Performance Standards

• Ex., some cash must be used to hire E&S manager to build an environmental and social management system under PS 1

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IFC Framework

• Disclosure and Transparency - IFC's "Policy on Disclosure of Information"

— Documents and Company policies disclosed on internet and appropriately communicated to affected local communities

• Performance Standards - Applied consistent with IFC's "Policy on Social and Environmental Sustainability"

— Performance Standards 1-8

— Supplement national environmental and social requirements, especially where few or none exist

• Enforcement (Contractual and Independent)

— Client's contractual commitments for IFC investment

— Compliance Advisor/Ombudsman (CAO), independent accountability mechanism for IFC that impartially responds to environmental and social concerns of affected communities

IFC Framework

• IFC Sustainability Framework Documents (see http://www.ifc.org/ifcext/policyreview.nsf/Content/Resources)

— International Finance Corporation's Policy on Social & Environmental Sustainability (April 30, 2006)

— International Finance Corporation's Performance Standards on Social & Environmental Sustainability (April 30, 2006)

— International Finance Corporation's Guidance Notes: Performance Standards on Social & Environmental Sustainability (July 31, 2007)

— International Finance Corporation's Policy on Disclosure of Information

— IFC Environmental and Social Review Procedures (Ver. 4.0 Aug. 14, 2009)...