May 13, 2004
Outsourcing Polluters -- a Strange Tale of Success
Posted by jbholston at 12:22 PM
Some of those with longer Colorado memories than mine will remember the story of the Summitville Gold Mine:
In 1984, Galactic Resources Limited renewed gold mining at the site using the cyanide heap leach method to remove gold from low-grade ore. Between 1984 and 1992, Galactic Resources produced gold worth an estimated $81 million. During this time, toxic mine waste that included copper, iron, manganese, zinc, aluminum, and cadmium was dumped into the headwaters of the Alamosa River, causing a massive fish kill in the Alamosa River and the Terrace Reservoir. Acid mine drainage, which occurs when sulfur-bearing rock is exposed to water, has affected the entire length of the river.
The Alamosa River provides irrigation water for ranchers and farmers in the San Luis Valley in southern Colorado. The river and nearby wetlands provide important habitat for fish, ducks, and other wildlife, including the endangered whooping crane. Acid mine drainage and toxic mine waste have contaminated the river, killing fish and harming wildlife, possibly damaging crops, and ruining irrigation equipment worth hundreds of thousands of dollars.
In 1992, Galactic Resources declared bankruptcy and abandoned the mine. Shortly afterwards, the State of Colorado asked the U.S. Environmental Protection Agency (EPA) for emergency help in preventing a cyanide-contaminated waste pond from overflowing a spillway. EPA responded quickly, placing the mine on the National Priorities List of federal Superfund sites. Cleanup has cost about $185 million so far. The costs of operating a water treatment plant on site, which may be necessary for decades to come, are estimated at $1.5 million annually.
In late 2000, the Department of Justice announced a settlement with Galactic's founder, financier, and operator, Robert M. Friedland, by which he committed to pay $27.8 million of the $185 million + clean-up costs:
Denver - The United States Department of Justice today announced that a settlement has been reached with Robert M. Friedland in the case, United States of America and the State of Colorado v. Robert M. Friedland, et al, for the environmental hazard at the Summitville Mine. This settlement involves Robert M. Friedland and others who were associated with him. The government continues to pursue other defendants named in the lawsuit.
The settlement calls for Mr. Friedland to pay the federal government and the State of Colorado $27,750,000 over the course of the next ten years. Friedland was the president at various times of three now bankrupt corporations, Summitville Consolidated Mining Company, Inc., Galactic Resources, Inc., and Galactic Resources, Limited, when they first started mining operations at Summitville. The proceeds of the settlement will be used to pay for ongoing and future cleanup actions at the site, and for restoration, replacement or acquisition of natural resources which were damaged by operations at the Summitville Mine. The first year's payment will total $5.25 million, with additional payments of $2.5 million a year for the remaining 9 years. Mr. Friedland has provided a letter of credit to ensure that all future payments will be made.
End of Friedman's career? Hardly.... He now runs a $1.45 billion mining conglomerate distributing Galactic's tactics around the developing world... (continued...)
International financier Robert Friedland is the founder and Chairman of Ivanhoe Mines Ltd., a Canadian public company whose copper and gold discoveries in Mongolia have sparked a gold rush by western mining companies during the past two years.
One of the best-known mining financiers in North America, Mr. Friedland was named an Investor Envoy of the Year by the Government of Mongolia for his accomplishments in directing new investment capital into exploration and development projects in Mongolia’s mining sector during 2002.
...During the past eight years, Mr. Friedland has directed the assembly by Ivanhoe Mines of a portfolio of interests in several countries in the Asia Pacific region. The company is focused on the production of base and precious metals, the development of new producing assets and exploration discoveries.
...As Co-Chairman and controlling shareholder of African Minerals, Mr. Friedland is closely involved with privately held mining projects in Africa, in particular the current development of a significant platinum-nickel-copper deposit on South Africa’s Bushveld Complex.
Forbes explored Friedman's latest self-promotions -- and self-dealings in November, 2003:
Once again, Robert Friedland is talking up a huge strike. This time it's copper and gold in Mongolia.
These are mighty days for Robert Friedland. The 53-year-old natural resources billionaire has been racking up miles on his corporate jet, charming investors at conferences from Hong Kong to New Orleans, cajoling Japanese and Korean bankers, working with the repressive governments of China and Burma. It helps that commodity prices, as recorded by the Reuters-Commodity Research Bureau index, are up 30% in the last two years.
But the real attraction is Friedland himself and his tales of copper and gold deposits buried under the Gobi Desert. This Mongolian mother lode is in a remote place called Turquoise Hill, or Oyu Tolgoi, as the locals refer to it. Friedland calls it "the treasure chest," and claims it contains perhaps as much copper as Falconbridge's rich Collahuasi mine in Chile. Turquoise Hill is right on the doorstep of China, which last year sucked up 2.5 million tons of copper, making it the world's largest consumer. Indigent Mongolia, Friedland says, has pledged to do everything necessary to help develop the site. "I'm not in the business of giving investment advice," Friedland recently told Bloomberg News. "On the other hand, this is one of the major copper and gold discoveries in the world." His evidence: core samples taken over the last two years, but no comprehensive engineering studies yet.
Investors have been hearing what they want to hear. Shares of Friedland's Singapore-based Ivanhoe Mines--which trade on the Australian and Toronto stock exchanges, and (at $9) on the Pink Sheets in the U.S.--are up 318% in the last year, making his 41% stake worth $940 million. This notwithstanding that Ivanhoe Mines last year lost $30 million on revenue of $87 million, largely from mining iron in Australia, copper in Burma and gold in Kazakhstan. Mutual funds like Tocqueville Gold and Scudder Gold & Precious Metals have made Ivanhoe Mines their biggest single holding because they believe Friedland is on to something in Mongolia.
The stock is also being cheered on by stock analysts and newsletter writers, who are brushing aside the self-dealing through which Friedland has increased his stake. Shareholders also seem to be dismissing Friedland's past legal battles with the U.S. government, his cozy relationship with the thugs running Burma and the lack of in-depth engineering analysis of Turquoise Hill. "Everybody gets excited when Bob Friedland is pumping some stock, whether it makes sense or not," says Ryan Bennett, principal at Resource Capital Funds, a Denver private equity group, who just returned from Mongolia.
...Ivanhoe Mines inked an agreement with the Burmese government to develop a copper mine and split the profits. Human rights groups were quick to denounce Ivanhoe, accusing the mine of taking advantage of forced labor and poisoning the environment. The company denies the accusations, saying the mine bolstered the area's economy.
...No one applauds louder than Thom Calandra, a columnist at CBS MarketWatch, a business-news Web site, where he writes a column and pitches his newsletter. Calandra has plugged Ivanhoe Mines in numerous columns and has gone on Ivanhoe-bankrolled trips to Mongolia, Beijing and London. He freely admits that he is "a large holder" of stock in Friedland's Ivanhoe Energy and has recommended both Ivanhoe Mines and Ivanhoe Energy in his newsletter. (He has also shilled for Ivanhoe Energy on CBS MarketWatch's weekend network-TV broadcast.)
Calandra resigned from MarketWatch after these revelations and amidst SEC inquiries ...and Friedland apparently threatened to sue Forbes...
Then's there's this story from Australia's public radio serivce about Friedland's use of Hindu charms to find minerals, his Nixon-era LSD run-ins, mercenary companies which run mines in Africa, and his partnerships with sons of Suharto in Indonesia, and Burmese Generals... .....
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