ARCHIVESHISTORIQUES
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DOCUMENTS "COM"
COM(79)130
Vol.1979/0066

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COMMISSION OFTHEEUROPEAN COMMUNITIES
COM(79)130 final
Strasbourg -14March1979
INSTRUMENTS OFMININGANDENERGYCOOPERATION
WITHTHEACPCOUNTRIES
(communication fromtheCommission totheCouncil)
Ά
i- .■:*~
Vl-Ar';i'> ■AV•N.'Y">"37
■J
C0MC79)130final

1.
INSTRUMENTS OFMININGANDENERGYCOOPERATION WITHTHEACPCOUNTRIES
TheproposalputforwardhererefertothecontextofEEC-ACPrelationsbecause
ofthealarmingmannerinwhichAfricainparticular haslaggedbehindinmineral
exploration overthepasttenyearsandalsobecauseoftheopportunity offered
bythecurrentnegotiations todefineonacontractual basisthedetailsofthe
actiontobetakeninanareaofmutualinterestandtodemonstrate thevalueof
suchaction.Theseproposalsare/however/partofapolicywhich/atourinitia­
tive-willultimately involveotherdeveloping countries.
*****
I.EXPLANATORY MEMORANDUM
A.Importancetothedeveloping countries/particularly theACP
-Clearlyitisintheinterestsofthosedeveloping countriesthatareinpartner­
shipwiththeCommunityforcooperation withthelattertocoverthedevelopment
oftheirenergyandminingpotential.
Agreatereffortinthisfield/whichhasbeenneglectedinrecentyears/would
*
favourablyaffect:
-thevolumeofexternalearnings/whichthedeveloping countries needtoachieve
theireconomicdevelopment ;
-theirlevelofemployment;
-theirtechnological andscientific development (giventheadvancedtechnology
generallyneededforprospecting andtheexploitation ofmineralresources);
-theireffectiveparticipation inthedevelopment ofcertaineconomicsectorswhich
areofglobalsignificance .
Inparticular/cooperation indeveloping energypotential should/byalleviating
balanceofpaymentsdeficitsandincreasingdisposable incomefornon-energy
consumption/tosomeextentrelievethenon-oildevelopingcountriesofthestrain
imposedontheirdevelopment byconventional energyimports.
1ThiswasthesubjectofCommunication C0M(78)355of31July1978.

2.
ThisanalysisisakintothatoftheWorldBank,whichrecentlydecidedtoplay
thepartofanactive"catalyst"asregardsminingandenergyinvestment inthe
developingcountries^.
B.Increasing theresourceflowstransferred tothedeveloping countries
Anincreasedcommitmentintheenergyandminingsectorofthedeveloping coun­
triesbytheindustrialized countries andtheCommunityinparticularisulti­
matelynecessaryinordertosustainworldeconomicgrowth.Theobjectiveproposed
inthisrespectbytheOECDistoincreaseconsiderably andrapidlythefinancial
flowsfromtheindustrialized andOPECcountriestotheThirdWorldinorderto
stimulateworlddemandandtherebyencouragetheraisingofproduction inthe
developedcountries.
Giventhelimitsonincreasesinofficialaidtransfersthedeveloping countries
mustaboveallbehelpedtoattractexternalfinanceundersatisfactory conditions
ofsecurity.
Energyandrawmaterialsaresuitableprioritysectorsforsuchintensification
ofinvestment providedthatsuchinvestmentisgearedinparticular tothe
long-termstructural requirements oftheworldeconomy
C.Community'sneeds
TheCommunity'sinterestinincreasedcooperation onenergyandminingmatters
withthedeveloping countries-particularly thosewhichhavecloseeconomic
relationswithit-isduetoitsdegreeofdependence onoutsidesupplies,
whichisfargreaterthanthatoftheUnitedStates.Japan,whichisalsotoa
largeextentdependent onothercountriesforitssupplies,hasputintoeffect
asupplypolicythatisperfectlycoordinated withtheprivateinitiatives of
itsindustry;thishasnotyetbeendonebytheCommunity.
SeeIBRD,AnnualReport1978,andMineralsandEnergyfttheDevelopingCountries,
ReportNo1588,May1977.
2OECD,Stepped-up Investment ProgrammeinDevelopingCountries,DAC/78/21
of20July1978.

Thedevelopingcountriesprovideasubstantial shareofEurope'ssupplies
and,giventhedistribution ofworldreserves,thissituationcouldnotchange
intheshortormediumterm,exceptattheenormouscostofanincreaseddepen­
denceofEuropeoncertainindustrialized countries(SouthAfrica,Australia,
Canadaforexample)and/oronglobalmultinational producers.
Increasingly largesumsofmoneywillhavetobeinvestedinthedeveloping
countriesinordertoimproveorevenmaintaintheCommunity'ssuppliesof
mostmajormetals
However,accordingtoavailableinformation theexploration andinvestment
policyfollowedbyEuropeanminingcompaniesdoesnotseemtobeconsistent
withtheCommunity'smediumorlong-termneeds.
Foranumberofyearsnowtheminingcompanieshavebeenreluctanttoinvest
indevelopingcountriesotherthanthoseregardedas"stable"andareswitching
theirexplorationefforttotheindustrialized countries.Thusthedeveloping
countriesshareofminingfirms'overallexploration expenditure,whichwas
around40%inthelatesixties,felltoanaverageof13%between1972and
1977.
ThecutbackinexplorationactivitiesirblackAfricaisparticularly signifi­
cant;ifuraniumisexcluded,itis;dramaticasexplorationexpenditures in
thatareahasaveragedonlyt2?0000(1976prices)overthelastfouryears
(Nilin1976)whileitwastwelvetimesashighthroughouttheperiode1966-73.
(1)Cobalt:92%;tin:85%;phosphates :68%;tungsten:58%;copper:57%;
manganese:42%;chromium:38%,etc.
(2)Theamountofinvestmentneededforthemainmineralproducts(notincluding
oil)fortheperiod1977-90isestimatedatt158000million(1975prices),
aboutathirdofwhichwillbespentinthedevelopingcountries(which
meansmorethant4000millionperyearforthosecountries)-Seetables
inannex.

4.
Europeancapitalexpenditure intheminingsectorinthedeveloping
countries-whoseslowdownwilltakeanumberofyearsbefore
itbecomesevident-hassince1970represented onlyhalftheAmerican
flows;thelatterhavethusensuredthatsourcesofsupplywillbe
renewedwellbeyondtheUnitedStates1requirements,inparticular
forthebenefitofEurope.
AsforJapan,itsparticipation inforeignminingdevelopments hasincreased
rapidlysincetheearlyseventies;ittakeslargelytheformofloans
guaranteed bylong-termoutputratherthandirectinvestment.
II.PROPOSALS
A.Exploration andprospecting
Ithasbeenfoundthatamajorobstacletothedevelopment ofthemineral
resourcesofcertaindevelopingcountriesistheinadequateinvestmentin
(1)prospecting andexploration .Thisisthecaseinparticularwiththe
Africancountries,whichtherebyrisknotbeingabletoattractasuitable
proportionofthemininginvestmentflowswhentheywillbeneededonce
worldindustrialdemandimproves.
ItispossibletohelptheACPcountriestoremedy,atleastpartially,their
inadequacyregardsprospecting byprovidingthemwiththetechnical
assistance needed:
toreinforcetheadministrative capacityofgeologicalandmining
departments;
toenablethemtoexploitproperlythegeologicalandminingdatabase
availablepresentlyandgearadditionalworkthatneedstobedone
accordingly.
ThistypeofactivitycanandshouldbefinancedbytheEDF,andby
bilateralaidundernationalorregionalprogrammes.
(1)Prospecting andexplorationexpenditure inAfricaisalmostml,
exceptinthecaseofuraniumandoil.

5.
Thisisonlyafirststep,however.Themaingaptobefilled,atleastin
Africa,isnotatthelevelofidentifyingpotentialprojects,since anumberof
thesearealreadyknownand^pearpromising.Theprincipaldifficultyisatthe
leveloftheintensiveexplorationneededtobringapotentialprojecttothe
technicalstageofa"bankable"project,providedofcoursethattheothercondi­
tionsrelatingtotheproject'sprofitability aresatisfied(particularly from
theaspectofforeseeable demand).
Explorationinvestmentdefinedinthiswayisrelativelycostlycomparedwith
thegeologicalinventorywhichmakessuchinvestmentpossibleanditentails
considerable risks.
Traditionnally,thisexploration investmenthasbeenself-financed bythemining
companiesfromthe"rent"accumulated whilepricesarehigh.
Atpresent,followingalongperiodofdepressedprices,thechancesofforeignfirms
restoringtheirmining"rent"aresliminmostdevelopingcountriesbecauseofthe
widespreadtendencyoftheproducercountriestocreamoffthetemporarysuper­
normalprofitsinvariousways(progressive exportcharges,participation without
financialreciprocityinthecompany'-apital,etc).Atanyrate,thelackofeffectiveprotec­
tionagainstpoliticalrisksandtheresultinginsecurityareenoughtoparalyse
investmentinthisfield.
Sinceafreshimpetusmustbegiventoexploration investmentbothinorderto
ensurethesecurityoftheCommunity'smedium-termsuppliesandtodevelopthe
ACP'sminingpotential,newwaysmustbefoundofreactivating Europeanfirms'
technological capacitiesinthefieldwhilesafeguarding thehostcountries'
sovereigntyovertheirnaturalresources.

Inthisrespect,twocomplementary ideasdeservetobeconsidered :
(a)ThefirstissuggestedbytheIBRD'sexperienceinBolivia,whereitnoted
thattheriskinherentinfinancingexploration investmentissignificantly
reducedifitsparticipation ischanneledviaawell-conceived "national
miningexploration fund"insteadofoperating onacase-by-casebasisin
*•. •*1particular projects
TotranslatethisideaintopracticaltermsintheEEC-ACPcontextwould
involveCommunityassistanceforthesettingupofsuchnationalfunds(in
countrieswhicharebigenoughandhaveaminingpotentialthatissufficient
towarrantsuchaction)orregionalfundsintheACPandtheparticipation of
Communityinstruments (seebelow)inthefinancingoftheiroperationsin
conjunction withotherpossibleprovidersoffunds(IBRD,ADB,ABEDIA,etc).
(b)Thesecondideaenlargesupontheexperience gainedundertheLomeConvention
asregardstheuseofCommunityassistanceintheformofriskcapital.
Inthiscase,assistanceintheformofriskcapitalwhichwillbeprovided
underthenextEEC-ACPConventiontohelpintheexecutionofprojects,parti­
cularlyintheminingandenergysectors,willallowthefinancingofexplora­
tionandprospecting investment .
Wheresuchassistance therebyservestofinanceinvestmentpreparatory
tothebringingonstreamofaminingorenergyprojectitmaybeincorporated
inthecapitalaidwhichthepromoting companycouldreceiveiftheproject
inquestioniscarriedout.
1
IBRD,5January1979,WorldBankRoleinNon-FuelMineralDevelopment in
Developing Countries-1978ProgressReport,p.7,paragraphs 3.14to3.17.

7,
Thefinancing resources thus mobilized could becombined with national orn<
I
Community resources ,particularly those ofthenational mining exploration
funds referred tounder (a)above . !
8.Production investment
■ 1/
Theproposals below areessentially aimed atbringing public financing bodies ,
particularly those belonging totheCommunity ,toactascatalysts inattracting
direct investment fromEuropean mining firms initially intheACPcountries and
where appropriate ,inother developing countries later on.
ι ·
TheCommunity mayalready actinthis wayparticularly viatheEIB,within the
limits specified intheLome Convention andmore generally under Article 18of
theBank 'sStatute .
/-
Three conditions must besatisfied before these resources may beplaced atthe
service ofaCommunity supply andmining andenergy cooperation policy with the
developing countries more systematically than they have been todate .
1.TheCouncil must acknowledge theprinciple that itisintheCommunity' inten
toachieve greater diversification ofitssources ofsupply ,particularly in
EEC-ACP cooperation ,asregards certain mineral substances (the list ofwhich
would bedetermined bytheCouncil )andthat theCommunity financing bodies shoul
actaccordingly .

8
Itwouldthereforebepresumed(atleastforthosesubstances andthedesigna­
tednon-membercountries)thatprojectspresentedbytheCommission(would
/receivesympathetic consideration (1).
?
TheEIBinparticular wouldbecalledupontoplayamoreactivepartinthe
financingofenergyandminingprojectsIntheACPcountriesandtoactas•
J
catalystinattracting Europeancapitalinthissector.Thiscouldbeachieved
if:
<i)theEIBispermittedinthenewConventiontocommititsownresources
beyondtheamountcontractually laiddownbythatConventiontomining
investmentintheACPcountries,providedthatthisisinkeepingwith
itsstatuteandwithinthelimitofaceilingdetermined annuallybythe
Bankinaproportionofitstotalcommitments;thisceilingshouldbe
agreedbytheCouncilandtheBankbeforetheconclusion oftheEEC-ACP
negotiations toindicatetheCommunity'swillingness toplaceatthedisposal
ofitspartnersfinancialflowswhichwouldgobeyondtheofficialdevelcpment
assistance (ODA)fromtheEDF,andthe-contractualfacilitiesofferedbythe
EIB;
(ii)therestrictions imposedunderArticle5(3)ofProtocal No2totheLom*
Convention onthegrantingofinterest-rate subsidies onEIBloansare
dropped.
Neutralizing thenon-economic risk
Thenon-economic risksgenerallyinvolvedinInvestmentinthedeveloping coun­
triesareparticularly pronouncedinthecaseofenergyandmininginvestment
forsuchinvestmentisusuallyonalargescale,hasaverylonggestationand
amortization periodandrelatestosectorswhich,morethananyother,are
politically sensitive.Often,therisksalsorelatetoanumberofcountries
(inthecaseoflandlocked resources);theyarethereforeparticularly signi­
ficant.
Article18oftheEIB'sStatute,requiringtheunanimousagreementofthe
BoardofGovernorsforanexternalinvestment .

9.
Thesettingupofanagreementbetweenhostcountryandforeignminingfirms
alwaysprovestobeadelicateoperation.Theprecariousness which,rightlyor
wrongly,seemstoattachtheretounfortunately increasethereluctanceof
firmstoinvestinenergyandmininginthedeveloping countries.TheACPcannot
escaptethisfact,howeveropen-minded theirpolicyistowardsinvestment from
outside(apolicyindependently established byeachofthem).
Twofactorsarelikelytoencouragetheestablishment ofrelationsbetween
hostcountries andfirmsonamorestablebasis:
-effectiveparticipation byhostcountrieswhichsowishinthecapital
ofthefirmsinvolvedindevelopingthesubsoilresourcesofthosecountries;
-theexistenceofstandardrulesofconductagreedbetweenthepublicautho­
ritiesconcerned .
(a)Effectiveparticipation bythehostcountryinacompany's capital
Thefundingoflarge-scale miningorenergycapitalprojectswouldbegreatly
facilitated,andrelationsbetweenhostcountriesandforeignfirmswouldbe
placedonabetterfootingofmutualinterest,ifthehostcountrywhichwishes
toacquireashare(whetheramajorityoneornot)ofthecapitalofthefirm
tobesetupwereabletocountonCommunityaidtopartiallycoverthefinan­
cingofitsshareofthecapital.
Tothisend,itmustbestipulatedinthenewEEC-ACPConventionthatCommunity
assistanceintheformofriskcapitalmaybeusedforgrantingquasi-capital
1aidtopublicorsemipublicfirms
(b)Standardrules_gf_conduct agreed.uponcontractually_
Inordertoencouragetheconclusionofagreements betweenhostcountries and
firms,andguaranteethatsuchagreementsaresound,ithasbecomevitalfor
rulestobeagreeduponbetweenthepublicauthorities concerned.
Thisquasi-capital aidwilltaketheformofconditional loans,therepayment
anddurationofwhichdependuponcertainconditionsbeingfulfilledwhich
havebeenlaiddownwhentheloanismade.

10.
TheCommission hasproposedthatthesestandardrulesbefixedwithreference
tothosegenerallyacceptedbycountrieswhichconcludebilateralinvestment
protection agreements amongthemselves butwiththestipulation inthespecific
caseofinvestments concerningmineralsthatthereciprocal advantages accorded
byeachofthepartiesshouldbedefinedonanequitablebasis(e.g.transfers
oftechnology,stabilityoftheestablishment agreements,stabilityofsupply,
sharingcontrol .ofthecompanyandofprofits).
Theexistenceofsuchstandardrulesofconductwouldbelikelytopromotean
easingofrelationsbetweenhostStatesandminingfiriraand,inthelatters 1
view,toneutralize themagnitudeofthenon-economic riskstowhichitis
exposed.
Inpractice,theCommission proposalinthismatterwouldbetoincludethese
rulesinastandardtypeofagreement,thedetailsofwhichwouldbeestablished
onacase-by-casebasiswiththehostcountryinthelightofthespecific
characteristics oftheprojectinquestion.
TheCommission proposesthatsuchspecificprotection agreements mightbe
concludedbetweentheCommunity andthehostcountriesinadditiontoany
bilateral agreements thatmaybeinforcewheneverinvestors ofa
numberofMemberStatesoftheCommunity takepartinamining
projectrelatingtoamineralproductrecognized bytheCouncilasbeingin
theCommunity'sinterestbecause,forinstance,ofthefavourable impactit
willhaveontheCommunity'ssupplies,particularly inthecaseofsubstances
coveredbystockpiling policies,whethernationalorcoordinated atCommunity
level.ThisframeworkwouldpermittheEIBtoparticipate financially (viz.
above^sincecriteriaforbringingintoeffectofArt.18ofitsstatutes
wouldbeacknowledged .

3.Theexistenceoffinancial guarantees againstcertainnon-economic risks
.Explanatory memorandum .»
Onthebasisoftheprecedentsinthisfield,itcanbetakenforgrantedthat
itwillbepossibletoguarantee,throughtheCommunitybudget,operations
intheACPcountriesfinancedwiththeEIB'sownresources,withoutthis
guaranteebeinglimitedtonon-economic risks.
However,privateinvestorsofEuropeanoriginwhichcofinancewiththeEIB
aminingorenergyprojectintheACPcountriesareatpresentcoveredvery
unevenly,andinmostcasesveryinadequately,bythenationalsystemsthat
provideguarantees againstnon-economic risks(1).
r
FortheCommunity'sfinancialinstruments tobeabletoactasacatalyst
inattracting Europeancapitalinthesesectorsandthesecountries,thisgap
toomustbefilled.
Theexistenceofstandardrulesofconductagreedcontractually withthehost
countrywouldnot,however,completely exonerateforeignfirmsfromcertain
non-economic riskswhichmayresultfrom,factorsbeyondthecontrolofthe
hostcountries' governments and/orcountriesusedfortransitpurposes.
.Commission proposal
TheCommission proposesthatthisdeficiencyintheCommunity andnational
mechanismsforpromotingexternalinvestment beremediedasdescribedbelow.
(1)Forinstance,theFrenchinvestment guaranteesystemdotsnotcoverinvest­
mentinoil.Noneofthenationalguaranteesystemscoversprospecting
operations .
Furthermore,thecommitmentceilingsexistingformostofthesystems
(UK:t250million;DK:500millionDkr;NL:ceilingbyhostcountry,etc.)
areanobstacletoasatisfactory coveringoflarge-scale projectsona
nationalbasis.

12.
Inthecaseofexploration orproductionprojectsintheminingorenergy
sectorontheterritoryofanACPcountrywhicharerecognised bythe
CouncilasbeingintheinterestoftheCommunityandasthereforeeligible
tobecoveredbyaspecificprotection agreementbetweentheCommunityand
thehostcountry,theCommunity mayprovideEuropeanfirms,ifneeded,with
aguaranteesupplementing thatprovided,whereappropriate,bythenational
bodies.
Thissupplementary guaranteewouldcovernon-economic risksnotalready
coveredbynationalsystems.Onthebasisoftheguidelinesrecentlylaid
downbyOPIC(AmericanOverseasPrivateInvestment Corporation )whenit
concludeditsfirstcontractforinsurancecoveragainstpoliticalrisks
(1)inconnectionwithanoilproject,thefollowingarrangements couldbe
made:
-aceilingcouldbeimposedbyprojectandbycountryontheCommunity
guaranteecommitments andtheguarantee (whichcouldnotbeafull
one)couldcoveronlynetnon-recuperable expenditure bytheinsured
firms;
-theguaranteecouldgivecomprehensive coverforthefollowingpolitical
risksinhostcountries,andwherenecessary,incountriesusedfortransit
purposes :
.violationofthestipulations ofthespecificprotection agreement
.war,revolution,insurrection .
.monetaryinconvertibility
.Organization
Iftheaboveproposalwereadoptedforexamination bytheCouncilthe
Commission wouldthenmakethenecessaryimplementing proposals .Atthis
(2)stageitissufficienttopointtothefollowingguidelines :
(1)OPICCommuniqué of8/2/77-RJ/379
(2)SeeC0M(78)23of26January1978.

-TheCommunityguaranteewillmakeitpecessarytosetupaGuarantee
CommitteeconsistingofRepresentatives pitheCommission,EIBandcompetent
authoritiesfromtheMemberStates,tjDensurecoordinationofnational
vguaranteesforspecificcasesandexaminerequestsforadditionalcoverby
theCommunityguarantee.
-AguaranteefundwillbesetupatCommunitylevelandfinancedbythe
premiumspaidbytheinsuredfirms;operations underthisfundbeing
themselves coveredbytheguaranteeprovidedbytheCommunitybudget.
Theservicesofthecompetentnationalagenciesshallberesponsible forits*
implementation .(1)
/
Inthisway,withoutitbeingnecessarytoconsidersettingupanew
Communityinstitutionitwouldbepossibletoguaranteeexternalinvestment
projectsagainstpoliticalrisksonacase-by-casebasis,providedthat
suchprojectsareconsistentwiththeCommunitypoliciesofdiversifying
sourcesofsupplyandofdeveloping theminingandenergypotentialofits
ACPpartners,andprovidedthattheyare.recognized assuchbytheCouncil
oftheEuropeanCommunities andthehostcountrybytheconclusionofspecific
protection agreements,coveringspecificprojectsandagreedattheini­
tiativeofhostcountries.1
C1)ItisunderstoodthatrecoursetotheguaranteeoftheCommunity
budgetwilltakeplaceonlywhentheresourcesoftheGuarantee Fund
'areinadequate,asindicatedindocumentC0M(78)23finalp.10.

14
III.CONCLUSIONS
ThpCommissionproposalssetoutabovearenotentirelynew.Theyhavebeen
putforwardonanumberofoccasionsinthecontextofEEC-ACPrelationsor
s
inamoregénéralcontext.
.:.'.ii
TheCommission hasbroughttheseideastogetherhereintheframeworkofthe
currentrenegotiation ofEEC-ACPConvention andwithaspecificfieldof
application inmind:thedevelopment oftheACPcountries *miningandenergy
potential anddiversification oftheCommunity'ssourcesofsupplyformineral
andenergysubstances.OnbothcountsthetrendofEuropeaninvestment inthese
sectorsandthesecountriesoverthepasfewyearsgivescauseforconcern.
TheCommissionthereforeconsidersitessentialthattheCouncilrapidly
expresses afavourableopinionontheseproposalswhich,itisconvinced,must
beimplemented tobringaboutareversalofthetrend,whilesubstantially
increasing theresourcesavailableforthedevelopment oftheACPcountries.
Moreover,itcanbeobservedthatthesefacilities wouldusefullybecombined
withthoseofthesamenaturefromotherinternational financialinstitutions
(IBRDandregionalbanks);theguarantees couldequallybecombinedwith
thoseofothernationalagencies(theUSTreasuryhasinprinciplealready
expresseditsinterestinjointoperationswithOPIC).
Fromtheaspectoftheirsectoralscope(mines/energy)andgeographical scope
(ACPcountries)theseproposalsformsacoherentwholeevenifthevarious
aspectsmayeachbeconsidered ontheirindividualmerits.
Theeffectiveness ofmeasurestopromoteexternalinvestment
/dependsupontheCommunityinterest
asreflectedintheconclusionofaspecificprotection agreement.Similarly,
theEIB'seffectiveness asacatalystinattracting Europeancapitalinsector's
withahighriskcoefficient,thoughimportantfortheindustrialfutureofthe
Communityandthedevelopment oftheACP,wouldbesignificantly reducedif
therewerenoseriousfinancialguaranteeagainstnon-economic risks.

III/G/2 ANNEX
Extractof"Perspectives d'évolutionstructurelle d'ici1990
Introduction
Itisnotthepurposeofthisdocumenttoengageintheuncertainbusinessof
forecasting inordertoreachconclusions whichwouldatanyratebespeculative .
Therearehundredsofrawmaterialsthataresubjecttodifferenttrendsand
developments .Suchanexercisewouldmakeitdifficulttoseethewoodforthe
trees.
Theaimofthisstudyisinfacttooutlineafewofthemainpredictable
trendsthatarelikelytotakeshapeoverthenexttenyearsandtopropose
guidelinesofageneralnaturethatmightchannelthosedevelopments .This
analysisisbynomeansexhaustive/firstofallbecausecertaindevelopments
cannotbeforeseen,butalsobecauseameticulous examination ofallthepossible
problemsinasvariedafieldasthiswouldbecounterproductive .Theaimof
thestudyistounderscore themainideasthatmighthelpintheframingofa
guaranteed supplypolicy,onwhichthesurvivalofourindustrialactivities
depends.
A.Thephysicalavailability ofrawmaterials
1.Acomparison betweenknownresources andreservesandtotalrequirements
forthenexttwodecadesleadstotheconclusionthatageneralphysical
shortageofindustrial rawmaterials asaresultofexhaustion ofreserves
andresourcesisnotveryprobable.Thisconclusion wasreachedinteralia
bytheOECD"Interfutures"Group.Table1intheannexcomparesknown
reserveswithtotaldemandasfarastheyear2000.
Somefiguresmayappearlowwhentheratioofreservestodemandapproaches
ordropsbelow1,i.e.whenreservesdonotcovertheneedsofthenext
twentyyears.
However,knownresourcesareonaveragetwotothreetimesgreaterthan
reserves.Thereservesfigureinevitablyreflectstheprospection policy
oftheminingcompanieswhichareunderstandables contentwithhaving
potentialexploitable resourcesthatwillensureacontinuation oftheir
activities overthenexttwentytothirtyyears.

2.-
Inaddition,chancehasitthattherearepossiblesubstitutes forsomeof
therarestmaterials (silver,bismuth)andtherearegrowingobstaclesto
theuseofothersforecologicalreasons(mercury,asbestos).
2.Thegeographical distribution ofknownreservesacrosstheworldcould
raiseproblems.
Atfirstsight,thedistribution amongthevariousgroupsofcountriesis
fairlybalanced:
44%ofthereservesareheldbythedevelopedcountries,
33%bydevelopingcountriesand
23%bystate-trading countries.
However,withineachgroupthereservesareheavilyconcentrated inavery
smallnumberofcountries :
-90Zoftheindustrialized countries' reservesaretobefoundinthe
UnitedStates,Canada,AustraliaandSouthAfrica;
-theSovietUnionpossesses82%ofthereservesinthestate-trading
countries (1);
-sevendevelopingcountrieshold77%ofthereservesinthisgroup
(Brazil25%,Chile19%,NewCaledonia8%,Indonesia7%,Zaire,Guinea
andIndia6%each).
Table2intheannexshowsthat75%to100%ofthereservesofsevenraw
materials (chrominon,columbium,manganese,molybdenum,vanadium,platinum
andasbestos)areconcentrated inonlythreecountries.
Between75%and100%ofthereservesoffifteenproductsoutofatotal
oftwentyarelocatedinonlyfivecountries.Thereareonlyfourproducts
(copper,lead,zincandbismuth)inwhichthefirstfivecountrieshold
lessthan65%.
Thisgeographical distribution ofreservesmeansthattheindustrialized
countriesotherthantheUnitedStates,Canada,AustraliaandSouthAfrica
areheavilydependentonoutsidesourcesfortheirsuppliesofindustrial
rawmaterials.
(1)However,itshouldbenotedthatprospecting workonChineseterritory
hasonlyjustbegun.

3.TheCommunity'sdegreeofexternaldependencefortissuppliesofraw
materials hasbeenestimated (1)at75%overallasagainst90%forJapan
and15%onlyfortheUnitedStates.Table3intheannexcomparesthedegree
ofdependenceofthethreegroupsforanumberofrawmaterials.
Ahighdegreeofdependenceisnotnecessarily asourceofconcernwhenthe
sourcesofsupplyaresufficiently variedandwhentheyofferlasting
guarantees ofaccesstotheresources.
However,thefactoftheCommunity'shighdegreeofdependenceformostof
itsrawmaterialscoupledwiththeconcentration ofreservesinaverysmall
numberofthirdcountriesshouldoccupyourattention.
Inparticular,averyhighdegreeofdependence onaverysmallnumberof
sourcesrepresents arealunderlying dangerwhenthosesourcesarefor
examplestate-trading countriesthatareliabletochangetheirpolicies
atshortnoticeonthebasisofnon-commercial criteria,competingindustrial­
izedcountriesorregionswhichmightbehitbydomestictroublesorconflicts.
Thefollowingshortlisthasbeendrawnupbywayofexample:
Manganese
Chrommon
Cobalt
Platinum
Tungsten
VanadiumCommunity'sdegreeof
dependenceDistribution ofknownreserves
100%
100%
100%
100%
99%RepublicofSouthAfrica(RSA)
45%,SovietUnion38%
RSAandRhodesia 96%
ZaireandZambia38%,Soviet
UnionandCuba21%
RSA82%,SovietUnion16%
China47A,SovietUnion11%,
NorthKorea6%
99% SovietUnion75%-RSA19%.
(1)CouncilonInternational EconomicPolicyinaspecialreportentitled
"CriticalImportedMaterials"-December1974.

Thisdegreeofdependenceisnotnecessarily attheleveloftheunrefined
product.Thus,inthecaseoftitanium,thediversity andscaleofknown
reservesofilmeniteandrutileallowsforconsiderable diversification .
However,asitlacksproductioncapacityfortitaniumsponge,theCommunity
willhavetodependalmostexclusively onJapaneseproducersforitssupplies
astheSovietUnionhaswithdrawnfromthemarket.However,Japanesesuppliers
areitsmaincompetitors inthefieldoftitaniumstripandtubesusedin
theconstruction ofnuclearpowerstationsanddesalination plants,both
ofwhichproductshaveaverylargepotentialmarket.
4.TheprospectsforimprovingtheCommunity'sself-supply rateinorderto
reducetherisksoutlinedabovearelimited.
Therearedefinitepossibilities ofimprovement forleadandzincinIreland
andGreenland.Enlargement oftheCommunity mayimprovethesituation,toa
substantial degreeinsomecases(e.g.Spanishmercury).Animprovement in
prospection methodsandrecycling andmoreeconomicuse,whichoftendepend
onresearch,arelikelytoproducesufficiently tangibleresultstojustify
operations inthisdirection.Butitisclearthattheseresultswillnot
bringaboutanyfundamental changeintheCommunity'sheavydependence on
externalsuppliesofrawmaterials.TheCommunity,whichisalargeconsumer
andanimportantprocessorforothercountries,hasalmostexhaustedits
ownsubsoil.
Ontheotherhand,bottlenecks atthefirst-stage processing level(e.g.
titanium)couldbeclearedbycoordinated actionbetweentheprivateand
publicsectors.
Thebalancebetweensupplyanddemandinthe1980s
1.Thevolumeofinvestment neededtoguarantee abalancebetweensupply
anddemandinrawmaterials betweennowand1990hasbeenthesubjectof
anumberofstudiesbytheWorldBankandtheUnitedNationsCentrefor
NaturalResources .

5.
Forsixmetalsonly(ironore,copper,aluminium,zinc,nickelandlead),
theannualinvestmentthatwouldbenecessaryintheworld,outsidethe
state-trading countries,isestimatedatUS&12000million(1975prices)
perannum.Table2intheAnnexgivesthefiguresforeachmetalassuming
alowaverageandhighlevelofeconomicactivity.
Thesesixmetalsrepresented morethan95%ofthevalueofminingproduc­
tionin1974andaccountforabout80%ofthetotalvalueofthedeve­
lopingcountries'exportsofmineralsnotlinkedtotheproductionof
energy.
2.Theinadequate volumeofinvestmentresourcescommittedoverrecent
yearshasbeenasourceofconcerntovariousinternational institutions
andanumberofgovernments .
In1976,theUnitedStatesGovernmentproposedthesettingupofan
International ResourcesBankinordertoremedythissituation.More
recently,ChancellorSchmidthas,invariousspeeches,expressedhis
deepconcernoverthisproblem.TheWorldBankGrouphasdecidedtodevote
amuchgreaterpartofitsoperationsthaninthepasttominingprojects.
TheOECDhassetupasub-committee withthejobofcollectingthedata
neededforaclearerideaoftheseproblems.However,statisticsinthis
particularfieldarealmostnon-existent .Thesub-committee hastherefore
beenunabletocarryoutitstaskssatisfactorily uptonow.
However,theEngineering andMiningJournalconductsanannuelsurveyon
proposedmininginvestmentsforthefollowingfiveyears.Totalinvestments
plannedinrespectofthesixmetalsmentionedinsection1aboveis
USt49900millionoverthefiveyearperiod1979to1983,i.e.about
210000millionperannum.TheUnitedNationsestimatedthatt12000
millionwasrequired.Inviewofthefactthatthepriceofcommoditiesis
extremelyvolatile,itisnotdifficulttoimaginetheimpactonprice
levelsofa17%gapbetweensupplyanddemandnorisitdifficulttoima­
ginetheconsequences asregardsthetrendtowardscartelformationinthe
producercountries.

6.
Thesurveyarrivedatatotalfigureof£68000millionforallmineral
rawmaterials (seeTable4intheannex).
Thesurveyalsorevealsthatsincelastyearthevolumeofplannedinvestmenthas
declinedby£4000milliondespitethefactthattherehavebeenrecord
investments inrespectofuranium.
Overthelasttenyearsor20thecostofmininginvestments hasincreased
considerably asaresultoftheneedtobeginexploiting moreremoteor
poorergradedepositsandthefactthatthecostofcapitalgoodshasincreased
considerably .
Inaddition,theEngineering andMiningJournalfiguresareexpressedincurrent
dollars.
Takingthesefactorsintoaccount,thedeclineinabsolutefiguresobservedover
thelastfewyearsgivecauseforconcern.
AgroupofthemainminingcompagniesintheCommunityhasestablished investment
statisticsfortheyears1966to1977inclusive (seeTable5intheAnnex).
Theirannuelinvestmentvariesbetween£400and500million.Ifthisfigure
isrelatedtothe£12000millionrequiredfortheworldasawhole,excluding
thestate-trading countries,andinviewofthefactthattheCommunityisthe
largestworldconsumerofimportedrawmaterialsandthatsomeoftheinvestment
projectsofourminingcompaniesarenotdesignedtoensureCommunitysupplies
butratherthesuppliesofotherconsumerssuchasJapan,itwouldnotappearout
ofplacetoaskquestionsaboutthesecurityofourfuturesupplies.
3.Thedeclineintheminingcompanieswealthiscurrentlythemainreason
behindthelackofmininginvestments .Despiteafewsharpincreases,the
pricesofmostrawmaterialshavestagnatedsincetheKoreanwar.Investment
costshaveshotupandnon-commercial riskshavebecomeprohibitive inboth
theindustrialized andthedevelopingcountries.

■7.
Forsomeyearsnowtheminingcompanieshavebeensufferingconsiderable
Losses.Tomentionbuttwoexamplesthathaveappearedinthepress,
IncoandKennecott havehadtomakedrasticcutsintheirbudgets.
In1978,theturnoverfromnickeldroppedbytwo-thirds andthe
Community'szincindustrylostaboutone-thirdofitsownfundsin
thesameyear.CopperproducersinZaireandZambianolongerhavethe
meansofmaintaining theirmachinery .
4.Theroleofinternational financingbodiesislimitedofnecessity
bytheavailability ofworthwhileprojects.TheUNDP,forexample,
hasdoneexcellent workonitslimitedbudget,butcannothopeatpresent
tofillthevacuuminprojectformulationleftbytheminingcompanies,with
theresultthattheeffortsoftheinternational financingbodieshavebecome
allthemoreineffective .Thegoodwillofthosebodiescannotfillthevaccum
createdbytheinactivityofprivatecircleseitherintheformulation of
projectsorintheraisingofthevolumeofthefinancetoensureabalance
betweenworldsupplyanddemand.
C.Thegeographical imbalanceininvestment andprospection expenditure
1.Thegeographical distribution ofworldmininginvestment requirements ,
excludingthestate-trading countriesfortheperiod1977to1990isestimated
bytheUnitedNationsCentreforNaturalResourcesatalitteover2100000
millionintheindustrialized countries andataboutt50000millioninthe
developingcountries.Thisreflectsannualinvestment requirements amounting
to&8000milliondollarsintheindustrialized countries and£4000million
inthedevelopingcountries (seeTable3).
2.Thegeographical distribution ofmininginvestmentprojectsis,according
totheEngineering andMiningJournal,40%inNorthAmerica,Europe,
Australia andOceania,asagainst60%inAfrica,LatinAmericaandAsia.
Thesepercentages obviouslydonotcorrectlyreflectthedisparitybetween
industrialized anddevelopingcountriessinceSouthernAfrica,Australia
andJapanwouldhavetobetransferred fromonegrouptotheother.
TheCommunityminingcompanies'investmentstatistics aremoreexplicit
inthisrespect.Investments overthelastfewyearsarebrokendownas
follows:about75%inindustrialized countriesasagainst25%inthe
developing countries (seeTable5intheannex).

8.
Thegestationperiodformininginvestmentsiseightormoreyearssothatthe
flowofinvestmentfundsoftenreflectsthecompletionofprojectsdecided
onpreviouslyratherthanfutureintentions.
3.Thegeographical distribution ofprospectionexpenditureistherefore
muchmorerevealing.TheUnitedNationsCentreforNaturalResources
estimatesthatmorethan90%oftheminingcompanies'prospection expendi­
turehasbeenconcentrated overthelastfewyearsintheindustrialized
countriesalmostexclusively intheUnitedStates,SouthAfrica,Australia
andCanada.
Theremaining10%investedinthedevelopingcountriesrelatesmainlyto
Brazil,Chile,IndonesiaandthePhilippines .
In1966-67,Communityminingcompanies'prospectionexpenditure wasbroken
downasfollows:60%intheindustrialized countriesasagainst40%in
thedevelopingcountries.In1976-77,thebreakdownwas85%and15%.
Tables6and7intheAnnexshowthatprospection expenditure inthedeve­
lopingcountriesinAfricafellsharplyfrom1973onwardsanddroppedto
zeroin1976ofuraniumisexcluded.
Thegeographical distribution isroughlyasfollows:
Industrialized
countries' shareDeveloping
countries'share
Knownreserves 60% 40%
Investmentrequirements 66% 33%
Expenditure onprospecting 90% 10%

9.
4.Thecausesofthegeographical imbalancethatcanbeexpectedinthe
futurearefairlyclear.Overthelastdecade,thenon-commercial risks
havebecomeprohibitive inmanydevelopingcountries.Nationalizations ,
rejectionofinstallation agreements,politicalorfinancialinstability
andaclimateofantagonismtowardsthebigwesterncompanieshaveinevitably
promptedthosecompaniestoseekmorecondusivelocationsfortheiroperations.
Inaddition,thecompanieswerenolongerabletofindthebankfinancing
neededforlargemininginvestmentsoperations whenthoseoperations were..
locatedincountrieswhichwerenoteveninapositiontoservicetheir
foreigndebt.

Γ»··,*~··»»
»1
SUrcedevj.adosrc-scrvesetraprortc.itrelesréservesetladeranigcu-.aTée
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