20 December 2013

Reverse the Curse: Maximizing the potential of resource-driven economies

According to a recent report from think-tank Chatham House, arbitration cases have increased nearly fourfold between 2001 and 2010 in the mining sector, reflecting tensions among stakeholders which escalated with the commodity price boom. The rise in commodity prices increased popular expectations, and governments accordingly came under pressure to show that citizens would receive greater benefits as a result of the rising resource revenues.

In the face of growing uncertainty about future prices and demand, however, extractive companies started to face pressure from their shareholders to scale back, delay or even cancel projects.

Governments were therefore seeking to benefit from windfall profits during price spikes, whilst on the other hand the companies wanted the ability to delay or downsize the project during a downturn.

Unfortunately, many contracts did not provide the flexibility required; the Chatham House report notes that model contracts of the 1990s have by and large failed to weather the commodities price boom.

For more information click here for the full article.

For further information, please contact Jay Leary, Partner, Naomi Lisney, Associate or your usual Herbert Smith Freehills contact

18 December 2013

New McKinsey Global Institute Report: Reverse the Curse: Maximizing the potential of resource-driven economies

On 5 December 2013, Herbert Smith Freehills hosted a breakfast panel session in its London offices to mark the publication of a new report by the McKinsey Global Institute (MGI), 'Reverse the Curse: Maximizing the potential of resource-driven economies'.

Dr Fraser Thompson, a Senior Fellow at MGI, gave an overview of the report. Fraser then joined the panel, chaired by Greg Mulley (Herbert Smith Freehills, London, Head of Mining), with Kate Carmichael of International Council on Mining & Metals, and Herbert Smith Freehills Mining Team partners Stéphane Brabant (co-head Global Head of Mining) and Jennifer Bell.

The latest report outlines the changing resource landscape and the opportunities and challenges for resource-driven governments and companies in the extractive industry.

All too often, governments have failed to make the most of potential resource wealth. In fact, many resource-driven economies have underperformed those without natural endowments, which is a huge lost opportunity for economic development and poverty alleviation when we consider that about 70% of the world’s poor live in resource-driven countries. If resource-driven countries, particularly those with low incomes, could use their resource sectors effectively as a platform for broader economic development, this could transform their prospects.

This changing resource landscape will also have significant implications for extractive companies, financing and investment. As exploration and production increasingly shift to developing countries and frontier markets, companies that can reframe their mission from simple extraction to ongoing partnership in economic development are likely to secure a real competitive advantage.

Please click here for the full MGI report.

Attendees at the seminar commented that they found the session to be very insightful, informative and overall felt the report identified significant issues that the resources industry is facing.

A key theme of the MGI report is effective communication and engagement with the government and local stakeholders at all stages of a project.  Our dedicated global mining team covers every aspect of the industry, including public and private M&A, joint ventures, IPO’s and secondary capital raisings, compliance, crisis management, dispute resolution and every stage of the project life cycle.

For further information, please contact Greg Mulley (Partner, London), Jennifer Bell (Partner, London), Stéphane Brabant (Partner, Paris), or your usual Herbert Smith Freehills contact.

13 December 2013

Qld: Government grants Environmental Approval for North-Queensland projects

On 11 October 2013, Federal Environment Minister Greg Hunt (Minister) approved three North-Queensland projects.

The Minister approved:

  • the Abbot Point capital dredging program which involves removal of 3 million cubic meters of spoil in respect of Terminals 0, 2 and 3, making the Port of Abbot Point one of the world’s largest coal ports;
  • Adani’s T0 Project, a $3 billion, 70mtpa expansion of Terminal 1 at the Port of Abbot Point and associated infrastructure (including a 2.75km outloading jetty and conveyor, new wharves, ship loaders and development of two offshore berths);
  • Arrow Energy’s Curtis Island LNG processing plant, a $17.46 billion project involving a 9.45km underwater gas transmission pipeline from the mainland to Curtis Island.

The Minister’s approval of the projects was accompanied by some of the ‘strictest conditions in Australian history’ due to the potential impact on the Great Barrier Reef. The Minister imposed 95 environmental conditions on the Abbot Point capital dredging program and 53 on the Curtis Island LNG processing plant.

Indian mining giants GVK and Adani Group, the owners of Terminal 3 and Terminal 0 (respectively) stand to benefit most from the Minister’s approval. Both companies are developing significant coal projects (and associated infrastructure) in the Galilee Basin, the coal from which is expected to be exported through the Port of Abbot Point.

The projects mentioned above are all still subject to final investment decision.

For further information, please contact Jay Leary, Partner, Roger Allingham, Graduate, or your usual Herbert Smith Freehills contact.

10 December 2013

Australia-Korea FTA concluded

On 5 December 2013, Australia and South Korea concluded negotiations for a Free Trade Agreement (FTA).

Trade with South Korea was valued at AU$31.9 billion in 2012, making Korea Australia’s fourth biggest two-way trading partner (following China, Japan and the United States) and third largest export market.

As a result of the FTA, tariffs will be eliminated on key Australian exports to Korea such as beef, wheat, dairy, wine, horticulture and seafood, resources, energy and manufactured goods. The FTA will also provide new market opportunities in other industries such as education, telecommunications and financial, accounting and legal services.

View the full article here.

For further information, please contact Lewis McDonald, Leon Chung or Donald Robertson or your usual Herbert Smith Freehills contact.