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GMI Ratings Governance Issue | Zijin Mining Group

May 21, 2012 | About:
GMI Ratings

GMI Ratings

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The China Securities Regulatory Commission (CSRC) recently fined and warned Zijin Mining Group for failing to disclose properly a toxic waste leak which occurred in July 2010. The toxic waste leak at the Zijinshan Copper Mine killed 1,890 tons of fish in the Ting River and caused RMB32 million in economic damage. The leak occurred on July 3, 2010, but the company did not report it until nine days later on July 12, 2010. The CSRC issued warnings to five directors, including the chairman, and three directors were fined.

The Ministry of Environmental Protection's investigation of the July 2010 toxic waste leak concluded that Zijin Mining disregarded official warnings from as long ago as September 2009, which indicated that the volume of waste water entering the Ting River was too high. The company also received a notice to repair a water quality monitoring system which would detect the increase in waste water flowing into the river.

To make matters worse, after the toxic waste leak was disclosed, there were reports that Zijin Mining attempted to cover it up by trying to bribe reporters. These reports turned out to be true as China's General Administration of Press and Publication conducted an investigation and confirmed that Zijin Mining and local government officials offered bribes to reporters.

Just three months later, in September 2010, a tailing pool dam in Maoming City in Guangdong Province owned by Xinyi Zijin Mining Company collapsed. The consequent flood of water killed 22 people and destroyed 523 homes. Xinyi Zijin Mining is a subsidiary of Zijin Mining. Authorities from the Guangdong Provincial government investigated the incident and found that non-compliance with regulations by Xinyi Zijin Mining directly contributed to the dam's collapse.

Zijin Mining does not have either a risk management committee of the board or a committee responsible for environmental, health, and safety issues, and despite these disasters, the board has made no effort to establish such committees.

In case there is an impression that such occurrences are par for the course for a mining company, these disasters have had a significant adverse effect on the company's stock price. Zijin Mining's share price was HKD3.93 in June 2010, prior to the toxic waste leak. On May 11, 2012, the shares traded at HKD2.30, a 41percent decline.

Zijin Mining is currently rated as having a Very Aggressive AGR score of 7, indicating higher accounting and governance risk than 93 percent of companies in the Asia-Pacific. The company has an equity performance ranking of 2, indicating that it has underperformed the market.

GMI Ratings gives Zijin Mining an ESG rating of F.

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Region: Asia-Pacific

Industry: Basic Materials

Sector: Precious Metals / Minerals

Market Cap: HKD 15,200.6mm (Mid Cap)

ESG Rating: F

AGR: Very Aggressive (7)



Rating: 3.0/5 (4 votes)

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