Minerals, Wealth and Progress - Mining and the Environment: From Ore to Metal - page 16

be designed to encourage environmental protection, sustainable development, public
health measures, local purchasing, or local labour force content. Such provisions often
transfer substantial responsibilities for regional development to the mine investor. In
addition, some host countries create state-owned mining companies. Foreign investors
are required to enter into a joint venture with these companies to ensure effective state
participation in mineral exploitation. An understanding of national mining code pro-
visions that aim to encourage local, sustainable development and environmental pro-
tection is essential in the environmental assessment of a new mining project.

The Economic Dimension of Mining - Who Benefits from
Mining, and Who Does Not

Mining is first and foremost an economic activity. As in any other economic sector, min-
ing companies are in business to earn profits, a valid and necessary objective. Their chosen
sphere of operation is mining, carried out within a set of constraints put in place to sat-
isfy the interests of various stakeholders. The first and foremost of these is the host coun-
try government, which represents the national interest, as well as elite, regional and local
powers. Mining companies will try to negotiate the form and nature of those constraints,
while host countries may try to shift additional responsibilities onto the industry. But the
main objective of mining, to earn profits, remains.

Mining is fi rst and foremost an
economic activity.

The Concept of Resource Rent
The classic concept of economic rent originated with David Ricardo (1962) in his theory
of land rent, and has been subsequently applied (Garnaut and Ross 1975, 1983) to min-
eral resources development overall and to mining in particular. In the case of mining,
Ricardian economic rents can be viewed as the excess of economic return on a project
above the total economic cost of the project.
In the case of natural resources, governments often transfer selected property rights to
industry, such as the right to mine or to exploit an area in exchange for some amount of
economic rent (with mining codes providing the legal vehicle to do so). These economic
rents collectively are known as 'resource rents', since they are derived from the utiliza-
tion of natural resources. Resource rents encompass all direct revenues derived by a nation
from a mining project. The most common forms of revenue are direct taxes (corporate
income tax, royalty tax, withholding tax, import and export taxes, excess profits tax) and
fees (registration, land, water, infrastructure use) for the use and development of the
nations' resources (Garnaut and Ross 1975, 1983).
Two additional types of resource rents that are associated with many mining projects
are landowner compensation and national/local equity participation in resource develop-
ment projects (Clark 1994). In the latter case, often the rule rather than the exception in
the oil and gas industry, the national government, and occasionally the province, becomes
an actual partner in a project, thereby, acquiring a percentage of the profits in addition to
taxes and fees. As the equity partner is normally the national government or its agent, the
majority of revenues from profit sharing accrue to the national government, which may
affect revenue sharing with local governments.
As a general rule, albeit with some major exceptions, the majority of direct taxes accrues
to the national treasury, while the majority of the fees, and often a portion of royalties,
accrue to the local government. These results in a major disparity in revenue distribution,
since taxes which accrue to the national government, normally constitute 90 percent or
more of all revenues derived from a mining project. Hence the call by local governments in

The majority of direct taxes
accrues to the national treasury,
while the majority of the fees,
and often a portion of royalties,
accrue to the local government.