Social risk mitigation taking mining’s centre stage

22 January 2010, Mining Weekly
URL: http://www.miningweekly.com/article/social-risk-mitigation-taking-minings-centre-stage-2010-01-22

Johannesburg:  There is growing pressure on mining companies from banks, governments and human rights watchers to optimise social opportunity and to minimise social risk in the areas where they mine.  It seems that, increasingly, the ability of a company to acquire a ‘social licence’ to mine is becoming very highly valued, in addition to the technical and financial ability to exploit the resources.

“Technically, this is a straightforward project,” the CEO of a mining company is quoted as saying about an impending $6-billion project in a difficult location. “The real challenges are the social issues.”

Another CEO expresses similar concerns: “What keeps me awake at night? . . . Not what’s under the ground; I’m most worried about what’s above the ground,” he says of the perceived social risks.

Mine-impacted communities are expected to be treated fairly and more than 60 financial institutions have adopted the Equator Principles, which stipulate this before granting loans.  There are also the Voluntary Principles on Security and Human Rights to guide mining companies in maintaining the safety and security of their operations within an operating framework that ensures respect for human rights and fundamental freedoms.

In addition, the World Bank’s International Finance Corporation (IFC) insists that borrowers follow a set of rules when managing social and environmental risk.  The IFC wants communities to have prior knowledge of what the companies are planning and many of the international watchdogs are wary of mining companies coming in with bulldozers ahead of fully informing communities of their plans.

What the IFC has come to realise is that communities that are ill informed present a long-term risk to mining investments.  “Uninformed communities don’t make good neighbours,” Paul Kapelus, the director of social opportunity and risk management company Synergy Global Consulting, tells Mining Weekly.  Based in Johannesburg, Oxford and Abu Dhabi, Synergy’s clients include the IFC, City Bank, Rio Tinto, Moto Gold, Xstrata, Kumba Iron Ore, Newmont, AngloGold Ashanti, Barrick, British Gas and Shell.

Among the services that firms like Synergy provide is to help mining companies to communicate and plan with local communities and to establish in advance the extent to which mining projects will benefit those communities and the extent to which the com- munities acknowledge their interest.  “We build local teams from the local communities. What’s amazing is that we have discovered that there are people in remote villages who are well educated and who have university degrees.  You go into the jungle and you think that you’re in the middle of nowhere, only to find that you’re in the middle of everywhere, because you see a satellite dish and the local people are watching Chelsea play football,” he adds.  In addition, these local communities often also have international nongovernmental organisations (NGOs) in their corners.

Genuine Benefit

First prize is for mining projects to uplift local economies and Anglo American CEO Cynthia Carroll is a firm believer that they should.  “I strongly believe that, when conducted responsibly, mining has the potential to act as a motor for wider development, including poverty alleviation,” Carroll says.  She describes Anglo’s new Social Way as the latest addition to the group’s suite of management standards, encompassing local employment, local procurement and the establishment of trust funds for near-mine communities.

To unleash full value, the natural competitive advantages of communities need to be discovered so that the mining project can be rolled out in a manner that underpins those competitive advantages, which include making optimum use of available infrastructure and trade opportunities and which embrace access to health and education.  “One of the failings of some companies is that they don’t spend enough time to understand and plan; they just want to get going,” says Kapelus.

Most mines attract an influx of people and create trading opportunities. The forging of linkages with other sectors of the economy is seen as an important part of benefit-agreement partnerships.

Currently, an agricultural initiative is under way in the Tete coal-project area of Mozambique.  Known as the Beira Agricultural Growth Corridor, the initiative covers a large area along the railway line from Beira, passing the Cahora Bassa hydroelectricity project, and extending into Zimbabwe and Malawi.  Brazilian mining company Vale and Australian company Riversdale are developing large coal projects in the area and being analysed currently are the water, land, community and infrastructure possibilities that could be shared by both agriculture and mining.

A brain-teaser for mining engineers is to design the mines and the waste dumps to accommodate agricultural activity, given that most of the watercourses needed for agriculture traverse the mining concessions.  Although the first reaction from mining companies was that accommodating agriculture would increase costs, a thorough analysis shows that collaboration could potentially cut costs.  In addition, agriculture will benefit from the market that the mining company creates and the mining company will, in turn, benefit from not having to bring in agricultural produce from 1 000 km away.

Problem Is Opportunity

While communities are often viewed as a problem, Kapelus advocates that they be seen as an opportunity.  In order to realise such opportunities, structures are created within which local people can be employed, local procurement can be initiated and possible future social unrest can be forestalled.

What is being acknowledged is that it is generally more cost effective to employ local people and that it enhances the local economy to optimise local procurement. The challenge is for mining companies to understand how they can work with communities to become more economically competitive. This requires working with local government, something that is still proving to be difficult for mining companies.  Adding to sustainability is figuring out how to provide health, water and education facilities in a way that does not rest on the mining company taking over the provision and maintenance of this social infrastructure.

Experience shows that good community relationships can be forged through initial investigations, followed by the establishment of management systems and the introduction of performance targets.  Much of the work that social risk firms do is to find common ground with NGOs and other organisations that display a strong interest in mining communities, but which have the potential to be adversarial.

Kapelus believes that mining activities need to be sufficiently transparent to allow communities to see what is happening on the ground where they live and often where their forebears have been living for generations.  In cases where there is little prospect of ongoing economic sustainability after mine closure, communication of that at the outset is seen as being crucial, so that all pertinent aspects, like employment contracts and social engagement programmes, can be made to dovetail with mine closure. Increasingly, human resources and community relationships are interrelated.

But such finite horizons are more prevalent in icy wastes than in Africa, where early-stage development, agricultural potential and ultimately also commercial and industrial potential exist. Cessation of mining activity in Africa should result in local communities moving from subsistence farming to being linked in with agricultural markets rather than simply returning to peasant status.  Currently, many African governments expect new mining activity to kick-start broad, ongoing economic opportunities.

Some mining companies are also engaged in dealing with legacies of poor past performance. Recent mergers and acquisitions have put various companies at risk by taking on social legacies. It has highlighted the need for effective social due diligence.

Human Rights

The United Nations special human rights representative, John Ruggie, has stated that mining companies have a duty to respect human rights, which analysts feel can be a tall order, requiring not only the upholding of more-obvious land, health, water and environmental rights, but also recognition of the rights of opposing factions in hostile environments.  But, with intensive engagement, some mining companies are able to go ahead even in troubled areas.

Randgold Resources has managed to forge ahead with its Tongon gold project in Côte d’Ivoire despite the hostilities there and a project undertaken in the troubled north-east of the Democratic Republic of Congo by another gold company established such good relationships that the community itself became the company’s first line of defence.  “Even the more jacked-up security consultants are realising that it’s not about higher walls and bigger guns, but it’s about the relationships that you have with the people you are living among and operating with that are going to really protect you,” Kapelus tells Mining Weekly.

Communicating has to be across a broad front and mining companies are no longer getting away with selective communication.  Fundamentally difficult aspects include constructing conflict-free mines and, if conflict does occur, being able to show that the conflict was managed and quickly resolved. For exploration companies and juniors, this adds value to projects when it comes to selling them.

US gold-mining company Newmont had to go through an intensive investigation of community relationships after the shareholders resolved at an annual general meeting that its community relations were a risk at various operations.  Included on the investigating panel were the likes of Oxfam USA and socially responsible investment companies, in an initiative that took three years to complete.   Newmont is now seen to have taken the required time to set up structures for ongoing engagement with the community at its Ahafo gold mine.

Relocation

“When it comes to the relocation of communities, you have to check, check and check again, and never stop checking how the long-term impacts and risks are managed.  We have a project in Congo Brazzaville where we are working among the indigenous population who are still using flintstone, and the company is required to ascertain how they are going to build the mine and ensure their human rights are not compromised.  The dynamic of relocation has to be negotiated and the process of resettlement has to be run in good faith, bearing in mind that the power differential between a major multinational mining company and a minority indigenous population is massive,” says Kapelus.

Important is the establishment of committees represented by members who have the interests of the community at heart.  An ongoing risk is that a slum will eventuate in the area of relocation and the other is that the mining company may end up being a perpetual Father Christmas.  In the past, mines were quite content to take on the developmental role that governments should play because they saw doing so as a means of maintaining control, but with the new wave of democracy and decentralisation in Africa, governments are emphasising their role as the developmental authority.

In reality, however, many governments do not have the required capacity to be successful developmental authorities, which results in community-relations managers having to contend with processes that are inherently messy.

Ownership Model

Even though South Africa’s Mining Charter has fostered black ownership and the South African government is enforcing the implementation of its broad-based black economic-empowerment (BBBEE) codes of practice, these do not insulate even fully compliant mining companies from near-mine community pressure.  Local community unrest continues to rear its head even for mining companies that have earned points on the BBBEE scorecard. “It is feasible that a community-owned mine can lose its social licence to operate,” argues Kapelus.

In one local protest, a community first set fire to mine equipment and only later went on to confront the local authority about its lack of service delivery.  A South African mine manager recalls that protesting communities invariably handed the mine a memorandum before marching on the town hall and expects this to continue for as long as government service delivery is poor and the community expects mines to provide social development.

Simultaneously, shareholders do not want their mining companies to be doing the work of government and the risk to mines is likely to continue for as long as this vacuum exists.

Mining companies have to take into account wider regional and national issues and history, and they are, in many instances, becoming legally liable for legacies.  Increasingly, mining companies are required to disclose contracts with governments in Africa and to engage in continuing contract reviews.  Agreements clinched with communities are also, in the main, becoming legally binding deals.

Then, finally, the big challenge is for mining companies to ensure that they do not have any social liability on their books for closure, with planning beginning right from the beginning of the project.

*  By Martin Creamer