Communities and Sustainability: More Than Mitigation

September 30, 2014

Engineering and Mining Journal

Lorenzo Soto, the attorney who led the case against Barrick Gold Corp., before it mothballed its $8.5 billion Pascua-Lama project over Andean glacier impact concerns, recently cemented one of the mining industry’s greatest fears: He has more work than he can handle. “The question of big mining is just getting started,” Soto said in an interview at his Santiago office. “I can’t absorb all the requests I’m receiving-we haven’t reached the peak of the wave yet.”

Barrick suspended its construction-stage copper-gold-silver asset afterregulators cited the world’s biggestgold miner for pre-stripping preceding protective infrastructure installation.In Q4 2012 to the north, Newmont Gold Corp.’s $4.8 billion Peruvian Minas Conga project lost similar ground over community-related requests from Lima officials against a backdrop of an anti-mining campaign by incoming President Ollanta Humala, as Bank of America reported Peru’s mining investment falling 6% in 2012.

Other numbers are equally staggering. For projects valued between $3 and $5 billion, the toll can be $20 million weekly; exploration stage projects alone can tally $50,000 per week, according to Costs of Company-Community Conflict, by Harvard’s Kennedy School of Government. Lost opportunities, said this year’s groundbreaking report analyzing 50 projects, can eviscerate schedules and salaries for entry-level geophysicists, miners, engineers, senior managers and CEOs-while consuming future operations, sales and expansion plans alike.

Moreover, despite “a popular misperception communities are powerless in the face of large corporations and governments, our findings show community mobilization can be very effective at raising the costs to companies,” said Daniel Franks, deputy director of the University of Queensland’s Center for Social Responsibility in Mining (CSRM) and a co-author with The Shift Project, a business and human rights nonprofit.

As depleting reserves and declining ore grades push miners ever-deeper into unknown waters, many find themselves increasingly exposed to conflict, with those unprepared paying a steep price-especially those swatting “mosquito bites.” Pressure can mount over time, meanwhile, “as a project moves from one phase to another,” according to another survey by The Chatham House, a U.K.-based think tank.

Ernst & Young (E&Y), with its 2012-2013 mining executive survey revealing the “Social License to Operate” as mining’s No. 2 risk, boosted the consensus. Or as E&Y Asia Pacific Sustainability Leader Matthew Nelson noted, “it is an ongoing relationship that needs constant attention.” Employee turnover and an aging workforce aren’t helping: Canada’s Mining Industry Human Resources Council estimates 40% of workers are 50, with one-third pending 2022 retirement-a trend mirroring countries like Australia, where extractive industries will face an employee shortfall of 170,000 by 2016.

A “risk mitigation” mindset, meanwhile, often focuses on “communities that are most vocal,” added the Harvard report. But while these may have legitimate complaints, “the company risks ignoring other communities who also have real concerns;” the study also cited a 2012 Credit Suisse index ranking community-related risks across Australia’s stock market at $19.9 billion, of which resource projects represented $7.8 billion.

Some mining company setbacks, especially those with international profiles fueled by nongovernmental organization (NGO) activism and spotlighted by celebrities, can paint a David and Goliath portrait. One very notable example culminated in 2014’s defeat of Vedanta Resources plc’s plans for a bauxite project in India’s state of Orissa. After years of planning, the London-listed multinational company lost billions following mobilization for the Dongria Kondh indigenous people-a plight thinly veiled in the theme of the 2009 blockbuster Avatar.

On the Radar South of the Border

Indeed, even the slightest public perception of public community discontent can reverberate across an already-troubled industry-with politicization, costs, investor worries, and, of course, reputations, on the line. Before an Inter-American Commission on Human Rights (IAHCR) this year, six civil society organizations surveyed 22 large-scale projects condemning “the impact of Canadian mining in Latin America and Canada’s responsibility” with anti-mining activists subject to “sabotage,” “terrorism,” “rebellion” and “conspiracy;” since 2001, mining investment in the region has swelled more than 300%.

Yet just as every community enjoys distinctions, many share powerful commonalities and interwoven complexities within national borders. Still traumatized by a 20-year civil war, moreover, Peru and its indigenous groups in particular are emblematic in their marginalization by Lima’s pro-business agenda, creating nationwide uncertainty for extractives, wrote Rosemary Thorp, a fellow at Oxford University, in the Q4 2013 edition of Americas Quarterly.

These have included 81 environmental conflicts between mining companies and communities, according to the national ombudsman-among them seven involving Antamina, a copper-gold joint venture between BHP Billiton plc, Swiss-based Glencore, Japan’s Mitsubishi and Canada’s Teck Resources Ltd., which booked $1.4 billion in profits in 2013. Locals have bitterly condemned dust pollution despite company assertions of “100%” compliance with standards; Peruvian regulators, however, have reportedly assessed nearly $487,000 in fines against the project.

Another possibly brighter spot is Glencore’s $5.8 billion Las Bambas project in southern Peru, which was lauded by Executive Briefing, a publication by advisory firm Critical Resource, as having “generous social benefits in a country where other miners have stumbled.” But its Q2 2014 sale to an MMG Ltd.-led consortium and subsidiary of state-controlled China Minmetals Corp. could still generate problems-Chinese miners have a reputation, and it’s not a pretty one.

Barrick Gold, for its part, made a stong commitment to Pascua-Lama, one of six mega-projects moving into a water-starved, fragile and suspicious alpine environment. Despite installing waste treatment infrastructure, long-haul roads, a cultural center, internet access, and creating scholarships for Valle de Huesco students, Barrick and its asset are equated with the other projects already pressuring water, food and electricity supplies-with crime and prostitution and a migrant worker inflow.

South Africa Goes South

In South Africa, rough legacies of historical repression and labor strife are so deeply ingrained they resonate across the borders of sub-Saharan Africa’s biggest mining economy, which hosts its No. 1 gold deposits and 70% of global platinum deposits. The 2012 killing of 34 striking miners by security forces at Lonmin plc’s Marikana, one of the country’s top platinum mines, provides a case study, wrote Phillip Frankel in Between Rainbows and the Rain: Marikana, Migration, Mining and the Crisis of Modern South Africa. (Agency for Social Reconstruction, 2013)

The worst state massacre since Apartheid’s 1994 end “could have occurred at any mine in South Africa because of workforce similarities, historical residues, similarities of geological conditions, industrial relations nationwide, safety in South Africa’s ‘hard rock’ mines, or because the industry has discomfort with demands made on it by a new regime,” Frankel wrote. “The massacre is a symbol, or outcome, of wider developments.”

Since then, despite a government-sponsored Farlam Commission and a wave of soul-searching, little has changed. “Marikana is more about a degenerative process in mining and in general,” he added. “This encompasses not only the Northwest province where poor governance, exploitation and atrocities are among the worst in South Africa, but all eight provinces make up the supposedly new democracy.”

One municipality in the “platinum belt” he documented is a “lethal, breathing health hazard, foul-smelling and fetid with transmittable disease” on “islands of unknown material is a sickening mixture of sewerage run-off, animal excrement and mounds of garbage.” People “otherwise unemployable in the most arduous underground conditions, are also migrants from Lesotho, Mozambique, the Eastern Cape and other nodes of poverty,” work for “survivalist reasons.”

Some are outright human trafficking victims “in a netherworld punctuated by breaks in appalling slums adjacent to mine property just beyond the line of vision from the shafts,” he added. Although Frankel noted CSR investments exist, “unfortunately, much of this for environmental assessments, feasibility studies, and the social and labor planning required by law has little impact-either on the ground or under it.”

‘Land Grabs’

First impressions can last a lifetime, especially when it comes to what are increasingly called “land grabs.” A 2013 land tenure report by the Munden Project Ltd., singles out “companies ignoring land rights in their acquisition experienced financial damage from operating costs increased by as much as 29% to outright abandonment.”

With mining representing 30% of foreign investment, Laos has been particularly hard-hit, said researchers at the University of Bern’s Center for Development and Environment (CDE) in Switzerland. “There are indications there is a new poverty happening in Laos with the landless poor,” said Andreas Heinimann, a senior lecturer at CDE, who co-authored a report with the Southeast Asian nation’s Ministry of Natural Resources and Environment.

Most rural ethnic groups, he added, practice shifting cultivation, requiring land plots allowing soil to lie fallow for regeneration as other sections are planted-a system “completely different” from the farming of the lowland areas where they are resettled. In Q2 2014, IRIN News also reported that of 1.1 million hectares of land, 5% of the country’s arable total, has been the subject of 2,600 land agreements since 2010-including hundreds of mining concessions.

In such places over the past half-decade, concession-oriented enterprises borrowed capital at rock-bottom rates for projects guaranteeing a booming demand in emerging economies where debt could be easily serviced. “Risk has not been much of a concern,” said Munden, an asset management-focused consultancy. “The policy has been to shoot first and ask questions later.”

This includes local-level bribery. “There are very few communities where not everything is known, so the moment you buy off the local politicians, the whole world knows about it,” according to a subject of the Harvard study.

The Great Land Heist, a report by NGO ActionAid, speaks of a “global land rush” leading to “a massive rise in the number of people in developing countries evicted or denied access to their own land-sometimes in violent confrontation with the authorities;” among humanitarian violations and investment incentives, the Johannesburg nonprofit also criticized the G8’s “New Alliance for Food Security and Nutrition,” with an emphasis on mobilizing capital and innovation over minimizing risk.

Extractive sector companies are also straying into “customary tenure” systems-unofficial borders pre-dating those of modern nation states. Traversing a developing world long at the mercy of colonial powers, and the crumbling institutions and corrupt dictatorships they left behind, these can pose a far greater nightmare than many commodity and currency shifts.

In extreme environments in Southeast Asia where investors from China converge, farmers are left with nothing, and word can spread fast. “The legal framework is good, but enforcementis the issue,” said CDE researcher Schoenweger. “Most of the time, no compensation is provided to individuals;” Akhom Tuonalom, a vice minister ofthe nation’s Ministry of Natural Resources, conceded: “Weakness is in national land planning and enforcement of investment regulations.”

Free Prior and Informed Consent

Guatemala’s indigenous groups have been acutely sensitive to this aftermining concessions soared 1,000% since 1997 peace accords capped 36 years of Central America’s longest, most genocidal civil conflict. These include “institutional” and “relational” types of trust “laden with emotion,” when engaging with outsiders regarding large mining projects, noted sociological and legal experts like Michael Dougherty of Illinois State University and Tricia Olsen of the University of Denver’s Daniels College of Business. Both are “instrumental in understanding how individuals in agrarian host communities form preferences about mining,” the two wrote in a recent white paper.

Moreover, “self-efficacy makes the difference,” in stakeholder relations, when individuals “believe in their own capacity they tend to grapple, and those who grapple are more likely to critique mining; alternately, those who lack self-efficacy tend to support and trust mining,” Dougherty and Olsen added.

Essential is Free Prior and Informed Consent (FPIC), however, wherein residents agree to a project after initialconsultation. But it’s a crisis in Guatemala, wrote Silvel Elias, a director at the Agronomy School of Guatemala’s University of San Carlos, this year in Americas Quarterly. FPIC “requires trust and respect among the government, companies, social organizations and indigenous groups,” Elias said, “conditions that do not currently exist in Guatemala.”

Having withered under their own cocaine-fueled, Marxist-oriented drug civil unrest, Colombian rural and indigenous communities are similarly marginalized in another of Latin America’s most mineralized jurisdictions. In Q1 2014, for instance, Claudia Jimenez, a Mining Ministry official, told El Colombiano that some $7.3 billion in investment had been stalled over FPIC issues concerning both environmental licenses amid a dip in international commodity prices.

Brazil to the south also hosts FPIC issues-in particular, Maranhao, the poorest state in Latin America’s biggest country-where rail infrastructure tying Vale S.A.’s Carajas iron ore mine with Sao Marcos bay is being expanded across 23 municipalities. “We have money in our pockets, but no water to drink, the rivers are polluted,” George Pereira, secretary of the Community Association of Itaqui-Bacanga, near the port, told the Inter Press Service news agency.

Currently, the Carajas project, oneof the biggest of its kind, already exports 110 million tons of ore daily via a 556-mile railway to the Ponta da Madeira port. Vale, the No. 3 Rio de Janeiro-based miner, “does good work, but in isolation,” Pereira said, “without transformative programs to develop the entire area.”

Burma, highly anticipated as a mineral-rich nation opening up in 2011 after decades of brutal military rule, has seen violence of late-even after Nobel Peace Prize winner and opposition leader Aung San Suu Kyi went to calm protestors outside a Chinese copper mine. Despite sharing the remote villagers’ ethnicity, they chased her off in fury over losing their land (prior to her visit, Suu Kyi’s parliamentary inquiry revealed security forces deployed white phosphorous, a gruesome chemical agent banned by the Geneva Conventions as a war weapon, against the same protestors).

For better or worse, the frailty of nations like Burma also leaves room for outside NGO intervention preceding a company’s presence. U.S.-based Earthworks, for instance, has already teamed up with Myaung Po villagers in court over pollution charges by a Thai miner; Indonesia’s state-owned PT Timah, one of the world’s biggest tin miners, meanwhile, has also announced plans to begin 2015 operations nearby.