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Glencore Under Fire on Colombia Coal Mines

 Glencore PLC, one of the world’s largest commodity and mining companies, is battling activists who allege its Colombian coal mines have whisked profits out of the country, while causing environmental and labor issues.

“We are proud of our long presence in Colombia, the contribution we have been able to make to its people and economy, our commitment to be a force for positive change,” the Switzerland-based firm says in a 17-page response to a report being published by nongovernment organizations in Colombia and Switzerland.

The report lays out more than 100 pages of grievances about environmental problems, labor practices, royalties to the government and funding for military groups. It was written by a Colombian group called Pensamiento y Acción Social, which says it spent four years collecting evidence, with the help of Switzerland-based Arbeitsgruppe Schweiz-Kolumbien.

The report is another headache for Glencore. Coal prices have been declining alongside other bulk resources such as iron ore, a key steelmaking ingredient. Weak coal prices have weighed on shares of Glencore, which is among the world’s largest producers and shippers of the commodity.

The chief culprit is waning demand in China, where coal imports fell 26% from a year ago in April. Coal consumption and production in China fell in 2014 for the first time in 14 years. Coal exports from the U.S. are also off sharply.

In April, after receiving the document, Glencore sent executives to Bogotá to hole up in a Marriott arguing against many of the findings.

Days later, Glencore Chief Executive Ivan Glasenberg traveled with the activists to several mines, where they met with workers and community representatives. The allegations continued to dog Glencore last Thursday at its annual meeting, where activists aired some of their complaints.

The report and Glencore’s rebuttal highlight the growing tensions between financial firms and the communities where they extract raw materials such as coal, copper and oil. Some operations expanded during the commodities boom but in recent years have seen prices fall.

In addition, financial firms are under pressure by regulators to reduce their holdings of commodities-production companies. Now, some workers and residents say that firms are leaving environmental scars but not a lot of the wealth.

The tension has been particularly intense in Colombia. BHP Billiton Ltd. in recent weeks has been faced with a strike at one of its Colombian nickel mines where workers are protesting longer shifts. Goldman Sachs Group Inc. is in talks to sell its Colombian mining operations at a loss following labor disputes along with environmental and shipping problems. Glencore and Drummond Co., a mining company, have invested heavily to comply with new Colombian shipping rules.

Part of the issue is the fundamental nature of the business. Coal mining often leaves nearby communities choked with dust. For that reason, the Colombian government has ordered several coal-mining companies to relocate three communities. The companies involved say it takes time and that they are working hard to complete the moves.

Glencore says that it typically takes four to six years to relocate a community. One, called Plan Bonito, it says, has been resettled and “compensation has been substantively made to residents.” In another, El Hatillo, it is consulting with every family “to ensure a positive outcome,” the rebuttal says. Meanwhile, it is providing food baskets, a health post, medical services, schools and other compensation.

Glencore is responsible for 8.5% of the financial contribution for the El Hatillo resettlement, with other mining companies accountable for the rest, according to a company spokesman. A United Nations development group is helping implement the resettlement process, the spokesman said.

In its rebuttal, which the firm has posted online, Glencore acknowledges working closely with a unit of a Colombian military force. Glencore says it is required by Colombia law to make payments to the military for “security services”—paying $300,000 in 2012, for example, for fuel and other expenses plus $22,000 in cash for human-rights training. Payments in recent years have been roughly the same, according to people familiar with the matter.

Glencore began operating in Colombia in 1995 with the acquisition of Prodeco Group and the Calenturitas mine, according to its response.

It subsequently bought the La Jagua deposit. Prodeco in 2014 posted net revenue of $1.4 billion, 13% of the company’s total coal revenue, down from $1.51 billion in 2013.

Glencore says it has been an economic boon to Colombia. It says it invested more than $2 billion in development of Prodeco Group’s assets during 2014. Prodeco Group, it said, spent more than $610 million through local procurement in 2014.

Now, Prodeco has 6,500 employees and contractors, nearly all of whom are Colombian, the company says.

“If you compare mining with agriculture sector, they don’t actually create that many jobs,” said Santiago Piñeros Durán, general counsel for Pensamiento y Acción Social. The report says that Glencore doesn’t pay sufficient royalties to the government and misreports financial statements.

Glencore says it shares sales with local authorities, the National Mining Agency, and has its books audited.

The Colombian government has derived over $1.4 billion, largely from taxes and royalties, from Glencore’s operation since 1995, the firm says. “Prodeco Group always paid the royalties and taxes due under the terms of each of the concessions it operates in full and in compliance with applicable Colombian law,” the rebuttal says.

The report also accuses Glencore of dumping toxic waste into a river. Glencore says all of its activities are “approved and monitored by the Colombian environmental authority,” which it says hasn’t found any evidence of toxic-waste dumping.

source: http://www.wsj.com