HudBay Minerals Inc. is making its first big bet overseas with a $1.5-billion copper mine in Peru. As its engineers work on mine construction, the Toronto-based company's accountants are proceeding with a related project – preparing to lay out, under contentious new U.S. securities regulations, precisely what revenues it pays to federal and local governments in the South American country.
While U.S.-listed resource companies like HudBay face such mandatory transparency reporting, companies listed only in Canada do not. Now, the mining industry is leading a charge in this country to adopt similar rules.
It's a move that is dividing Canada's mining and oil companies, and raises questions about whether payments to first nations should be also be made public.
And the federal government is now endorsing the adoption of mandatory reporting for both mining and energy companies, though Natural Resources Minister Joe Oliver cautioned Sunday that it will have to be done in collaboration with the provinces, which have jurisdiction over resources royalties and securities law.
"We believe we can play a leadership role with this initiative, but we have to do it within the framework of our Constitution," Mr. Oliver said in an interview.
"It's one of those instances where it makes good sense from a profitability point of view to be good corporate citizens."
Revenue transparency will help both the company and the local communities in Peru to identify the beneficial economic impact that mining is having – or should be having – in the country, David Clarry, HudBay's vice-president for corporate social responsibility, said in an interview.
Under regulations mandated by the U.S. Congress, the Securities and Exchange Commission requires all resources companies listed on U.S. stock exchanges to reveal what they pay to governments on a project-by-project basis, part of a global effort to increase transparency and to reduce corruption in the global energy and mining sectors.
Even as oil companies and the U.S. Chamber of Commerce fight the SEC regulations in court, the Canadian mining industry has joined with two non-governmental organizations to lobby for mandatory "publish what you pay" rules in this country. Later this month, the four partners – the Mining Association of Canada, the Prospectors and Developers Association of Canada, Revenue Watch International and Publish What You Pay Canada – will release a detailed proposal for provincial securities regulators in Canada to enforce transparency provisions for the mining sector, including project-by-project payments to all governments, whether domestic or foreign.
Their efforts come amid growing global pressure for greater corporate accountability, including the determination of British Prime Minister David Cameron to focus on financial and resource-industry revenue transparency at the upcoming Group of Eight meeting. Both the U.S. and European Union have adopted mandatory approaches, while Canada – one of the world's largest sources of mining and oil capital – has lagged behind.
The disclosure rules would aid companies' efforts to highlight the benefits of mining investment to local communities, Mining Association president Pierre Gratton and PDAC executive director Ross Gallinger said in separate interviews.
The issue of mandatory reporting of corporate payments to first nations is a vexing one. Many bands and some companies insist on confidentiality, claiming the benefit agreements are essentially commercial contracts.
"I think we'll need to have a process with first nations to get buy-in behind this concept of disclosure, but I think it will come," Mr. Gratton said.
While the mining sector has embraced mandatory reporting, the oil industry is wary. In the U.S., the American Petroleum Institute has led the battle against the SEC rules, claiming disclosure on a project-by-project basis will force them to disclose commercially sensitive information while many competitors need not do the same.
In Canada, oil industry officials say they support the principle of transparency, but worry about the burden it may impose. "The concern is that the level of disclosure will be very onerous on companies because they may have dozens of projects in any given jurisdiction," said Scott Meakin, manager for corporate responsibility for the Canadian Association of Petroleum Producers.
Talisman Energy Inc. was one of the pioneers in the Extractive Industries Transparency Initiative – a voluntary effort in which companies provide country-level disclosure – and is now preparing its SEC disclosure, a process that, a Talisman executive complained, is vague about the level of detail it requires.
Talisman learned some bitter lessons a decade ago when it was being targeted for its investments in repressive, war-torn Sudan. It has since become a major proponent of corporate social responsibility. Its transparency effort is paying dividends around the world, making it a "partner of choice" for governments and national oil companies, said Bob Rooney, the company's executive vice-president.
But Mr. Rooney said there are too many competitors and governments that remain outside the movement for greater transparency. And he wants Ottawa to show leadership to help forge a truly global commitment and a common set of rules.
Follow the links for examples of revenue-to-government reporting: