CHANGING EXPECTATIONS:

Future Social and Economic Realities for Mineral Exploration

Ian Thomson
 Consultant, Vancouver

Susan A. Joyce
Golder Associates, Calgary

INTRODUCTION

As we enter the 21^st century it can be truly said that we live in interesting times.  Change seems to be the constant and with it comes both new opportunity and also new challenges.  After the painful contraction that began in late 1997, the international mining industry now shows early signs of recovery and is once more looking around the world for properties that will become the next generation of mines.  However, most of the countries favored for exploration continue to undergo rapid change with attendant stress and internal disparities that need to be recognized by a company taking up temporary residence.  It is well understood that exploring in a foreign country requires learning new language and business skills.  To be fully effective in this globalized era, however, requires understanding the cultural norms and social realities within which business is conducted.

One global trend that has evolved rapidly over the last five years is the need for a new standard for the relationship between resource development and the populations directly impacted by the project.  This is particularly true for mining, which is widely regarded as an inherently destructive process leading to despoliation of land, air and water, the removal of wealth to a distant place, and a legacy of poverty and misery for the community left behind when the mine shuts down.  World wide, communities are challenging the right of the state and international mining companies to contemplate resource development "for the greater good of the nation" alone.  In developed countries, this manifests itself as the "not in my back yard" attitude. In developing countries, it is an increasingly powerful connection between grass roots movements, such as indigenous movements, and international organizations with sufficient influence to gain the attention of national governments, the international media and institutions such as the World Bank.  Today, the community has to see a clear net benefit or it may well fight against a project using tools that were unavailable to it even a decade ago.  In this context, a company achieves the confidence to proceed with a mining project by gaining the acceptance of the community.

Increasingly, this acceptance is measured by a process of inclusion: communities are demanding, and being supported, to participate not only in the benefits of a project, but in the planning, design and definition of what the benefits will look like.  Communities want a voice in their future, to participate from the earliest stages and, for a variety of reasons, feel empowered to demand performance from international companies.  Coupled with this is a growing awareness by major companies, banks, and the multilateral financing institutions, that social problems pose significant risks of project disruption and delay, and therefore financial risk. 

To many exploration personnel the situation is unfamiliar, confusing and potentially threatening.  The more so given the atmosphere of uncertainty, transience and time pressure that characterizes so much of exploration.  Historically, social and socioeconomic issues were only of consequence when a mine was going into production.  In the future, they will have to be dealt with routinely at the exploration stage, often well before the economic potential of a property is known.

THE REALITIES FOR EXPLORATIONS

It is a fundamental truth of mineral exploration that mines are where you find them.  A minority opinion would state that mines are made, rather than found, reflecting the extraordinary effort often required to take a property from discovery to production.  However, there is no disagreement that natural processes operating in particular geological circumstances formed ore bodies that are now hidden in the ground.  For that reason it is necessary to search large areas of land and visit many mineral showing in order to locate a potentially economic ore deposit.  This places mining in a very different position from most other industries in that it is not able to participate in a process of self-selection whereby the operation is set-up in a location that is chosen as most suitable from a logistical, environmental, social and economic point of view.

As a result, the explorer/developer, has to face the reality of working in someone else’s back yard.  It is their home territory and the company is an outsider, a visitor or perhaps even a guest.  From the point of view of the local people "you" are on "their" land. The presence of an exploration company is a signal to the local community that a mine could be on the way and landscape, lifestyle and the neighborhood changed irrevocably.  For most people any change to well established patterns is intimidating.  Furthermore it is wrong to assume that just because the company sees a mine as a positive economic opportunity with jobs and a better standard of living, that everyone else has the same image of good times.

An atmosphere of high uncertainty is a further reality of mineral exploration. The outcome of an exploration project is seldom, if ever, known at the beginning of the program.  There is no certainty of success, timetable or, indeed long term ownership of an exploration project.  Regardless of this reality, some degree of change is provoked in the nearby community which can be of significance to the community even if not evident to the exploration team.

GLOBALIZATION AND THE RISE OF SOCIAL RISK IN MINERAL RESOURCES DEVELOPMENT

None of this is new.  Agricola, writing more than 300 years ago, has an entire section in De Re Metallica devoted to discussions that would not be out of place on a modern report under the heading Environmental, Social and Economic Impacts of Exploration and Mining. What has changed for the mining industry is the new sense of urgency and pressure to deal with these issues in the exploration stage.  It is reasonable to ask why?

The answers can be found within the complex processes that collectively have become known as globalization.  Certain driving forces are particularly important.

The strongest driver has been the internationalization of environmental and social issues.  As countries have changed their rules for doing business and opened their borders to foreign investment, international standards based on Treaties, Conventions and the policies of transnational organizations such as the World Bank have become increasingly influential.  In some cases these are incorporated into national legislation.  More often they are used as baselines for operating.  For example, International Labour Organization Convention 169 is a particularly influential document to which a number of Latin American countries have signed on.  It has also formed the basis for World Bank policy and operational manuals.  Article 15 is very important because it recognizes that mineral title may be retained by the state and thus severed from surface title and specifically mentions exploration.  The key wording is that:

"governments shall establish or maintain procedures through which they shall consult peoples, with a view to ascertaining whether and to what degree their interests would be prejudiced, before undertaking any program for the exploration or exploitation of resources pertaining to their lands.  The people concerned shall wherever possible participate in the benefits of such activities, and shall receive fair compensation for any damages that they may sustain as a result of such activities".

It is important to note that ILO 169 was written to protect the interests of Indigenous and Tribal Peoples.  However, the language has rapidly become more broadly applied to the point that current World Bank policy runs close to this wording and is relevant to all communities with a demonstrated attachment to a specific area of land. 

A second driver has been the rise of international civil society to act as watch dogs and monitor the activities of companies, holding them accountable to international standards such as ILO 169.  For the most part these are Non Governmental Organizations (NGO’s), often based in North America and Europe, with specific agendas for social equity and environmental issues.  Also of consequence is the Church, which has a tradition of involvement in social issues.  These groups have good communications, savvy use of the media, influence international public opinion and have gained the ear of transnational institutions such as the World Bank and the UN. 

A third driver is communications.  The Internet and World Wide Web provide a speed and capacity for information transfer previously unknown.  Remember that the Internet, as we know it, came into being in 1989 and the World Wide Web arrived in 1992.  Today nomadic tribesmen in eastern Bolivia have satellite phones, and around the world small rural communities are plugged into the Net with access to unlimited information on social issues, human rights etc.  No longer can governments control the flow of information across and within their borders.

The net result is that communities feel empowered to challenge mining companies and have access to a support and information network of NGO’s that can and will assist them in this challenge.  In the very near future, all communities will come to expect that mineral resource companies will be responsive to their concerns and needs

A further driver has been the changing role of the State.  This is most marked in the emerging democracies of Latin America and elsewhere where governments are in transition from being the owner/facilitator or operator of resource projects to being owner/regulator.  This is particularly evident in countries where an active program of privatization has taken place.  Along with democratization has come restructuring which has tended to see a downsizing of central bureaucracies and some form of decentralization.  Generally lacking, however, has been any parallel change to ensure that wealth generated from mining returns to the district of origin.

It is worth considering in more detail how the relationship between mining projects and communities, governments and other stakeholders have been changing in recent years.

In mature liberal democracies, such as our own here in Canada, the role of government has for more than a hundred years been to provide good governance and protect the interests of all citizens.  We have full suffrage, comprehensive legislation, a dynamic system of government and opposition representative of the population and an independent judiciary accessible to all.  Under these circumstances the relationship between company and community in resource issues is mediated by the state which issues a licence to operate to the company.  Mining is legitimized within society at large by providing wealth, resources and contributing to general well being subject to the project meeting performance criteria.  Initially it was a single Ministry of government that handled all aspects of licencing.  This simple model held through into the 1970's when, in response to increasing knowledge and public concern for the environment additional provisions were introduced, such as the Environmental Impact Statement.  The mining industry found itself involved with a new group of stakeholders, the environmental movement, and dealing with a Ministry of Environment.  Through the 80’s, public opinion, and government policy supported greater protection of the environment and the mining industry lost legitimacy in the public eye.  The late 80's and early 90's saw a linkage develop between environmental groups and First Nations, who used the environmental legislation to get the issues of rights and land claims onto the political agenda.  Mining and forestry projects have been particular targets with the lengthy confrontations with MacMillan-Blodel over tree harvesting practices around Claoquot Sound on Vancouver Island perhaps the highest profile example in Canada.  Now we see direct involvement with First Nations on mining projects in the form of impact benefits agreements.  The signing of these agreements, as at the BHP Lac de Gras diamond mine, has been directly linked to issue of environmental permits.

In Latin America, by way of contrast, many governments have only recently returned to formal democracy.  They are in transition, without strongly developed democratic cultures.  In these countries, recent reforms give a legal framework that looks remarkably familiar to North Americans.  Mining codes and environmental laws are based on North American and European models, but are not backed by a skilled experienced bureaucracy or impartial judiciary.  Away from the centers of commerce, in the countryside where most exploration takes place, government may not be trusted, the new laws are unknown to the local people and government may have a limited presence.  In fact the laws of the national government may not bear any relevance to the way people live, relate to the land or to each other.

In many countries, the issues of indigenous rights and land entitlement, whether indigenous or otherwise, have a long history of repression, frustration and confrontation.  These issues have moved forward strongly over the last few years, partially linked to environmental issues, as in North America, but also alone.  This has been facilitated by the decoupling of social rights and justice issues from the rhetoric of communism and hence legitimizing their discussion.  The collapse of the Soviet Union had a profound impact on the political process world wide.

As a consequence, mineral exploration projects are commonly positioned in a complex set of relationships.  A natural alliance, real and perceived exists between the foreign company and government which issues the licence to explore or mine and is also promoting foreign investment.  This alliance may be seen by the community as being backed by the military and international capitalism.   The community may feel threatened by the presence of the company and seek assistance from groups supporting its interests.  Typically these are non-governmental organizations with international connections.

There is ample real experience to validate the model:

For example, an Australian company working in Turkey spent 18 months negotiating an agreement for mining with the central government while evaluating an old mine near an established community.  On reaching an agreement in Ankara, the company turned its attention to developing the mine only to find that the local community had organized themselves to reject the project.

In Ecuador, after five years of exploration a company signed a joint venture for development of a copper-gold property.  During exploration, contact with the local community had been restricted to the hire of laborers.  The joint venture was announced in the international press along with details of the ore body, proposed development plans, costs and schedules.  This information found it’s way to the local people who were shocked at the size of the project and the speed of development. With the help of local, national and international NGO’s, including environmental and rights groups, the community demanded full disclosure of information and to be included in discussions over the development project.  Note that they were not actually opposed to mining.  When their demand went unanswered, an international campaign was launched against the project using the Internet.  The project stalled and the company was run off the property.  The agenda is now being driven by the environmental groups.  Both community and company have lost control of the situation.

Problems and not restricted to the late stage projects.  A Canadian junior company ran into difficulties after completing a short first drill program on a property in the central Andes.  Local people were concerned about possible contamination of farmland if a mine eventuated and called for a halt to all further work, pending consultation and assurances over how the company would proceed.  A public meeting was arranged which rapidly deteriorated into disorder and a riot ensued.  The company was driven off the property for eighteen months.  Subsequently, it was realized that, although the company had told local groups that it would halt all activities until local agreements could be reached, a press release had been issued in Canada just prior to the meeting.  The press release, which was intended for investors, described positive results from the drill program and announced the intention to restart drilling as soon as possible. The press release had been monitored in Canada by the Oblate Order, which had forwarded the information to South America where it was broadcast over a local radio station.  The community believed the company entered the meeting to negotiate in bad faith.  The subsequent confrontation was inevitable.

In other cases problems have arisen when companies have failed to respect local custom over land use, religious sites, give notice of actions, pay fair market compensation and so on.

The general situation and the case histories point to a very solid reality.  The risk of disruption and social conflict has increased substantially in recent years, and local issues can rapidly become national and international in scope.  It is not realistic to think that because a company has legal title and a licence to explore or mine issued by the state, that it has obtained all necessary permission to proceed with a project.  Various other parties may now have direct and indirect interests in the progress of a project.  It is possible, however, to reduce the risk of conflict by establishing positive relations with the community, addressing their concerns, thus minimizing the influence of third parties.

CURRENT TRENDS AND INFLUENCES

A more complete description of the current situation is that companies are now faced with the challenge of managing multiple, unequal potential relationships with a variety of stakeholders that include the local community, government and financial institutions.  Whereas the quality of the orebody used to be the major consideration for establishing viability, today social relations and environmental liabilities are the issues which pose significant risk and cause decision makers to loose sleep.  Banks, both private sector, development and multilateral institutions, and the underwriting agencies such as OPIC and MIGA, are increasingly linking loans to performance on social issues and compliance with international standards on consultation.

A few of the major companies have recognized the need to respond to this challenge and develop policies and procedures that answer the concerns of the communities and the other interest groups.  The Rio Tinto Group, WMC, Newmont Mining and Placer Dome Limited are among the leaders in this area.  Rio Tinto has developed policy on working with communities, linked to policies on environment and health and safety, that are intended to make the corporation the partner of choice for future mine development projects.  The policy on Sustainability introduced in 1998 by Placer Dome has much the same objective while Newmont are committed to building "Reputation Capital" that will facilitate all aspects of business.  These companies want to show that they are responsible corporate citizens and demonstrate that their activities are legitimate in term of relevant social, environmental and cultural norms and expectations.  Moreover, that they are transparent in their dealings and accountable for their actions to the community at large through both government and Civil Society.  They are prepared to earn a social licence to operate.

This is relatively straightforward around the stable reality of a mine, either a mine in production or from feasibility onwards.  Issues of equity, wealth distribution, jobs and benefits versus impacts etc. can be related to mine life, profitability and the social profile of the community.  Furthermore there is now practical evidence that successful relationships can be formalized around a series of guidelines such as those provided by the World Bank.  World Bank standards require consultation with the impacted community and formulation of a development plan, which ensures that the people benefit from the mine project through creation of a new local economy.  Governments in a number of independent nations have recently introduced their own policy on community relations/community development.  For example, in Indonesia the latest Contracts of Work include language that obligates the licence holder to put in place a community development plan should a mine eventuate.  In Bolivia and Honduras, the mining tax has been restructured to encourage investment in the local community.  The governments of Peru, Argentina, Columbia and the Philippines are all addressing the social impacts of mining, either through legislation or regulation.

FUTURE REALITIES FOR EXPLORATION

For exploration, direct involvement with the local community has often been regarded as a little more problematic.  Several issues come forward immediately.  The inherent uncertainty of exploration projects: - we can’t promise anything.  Exploration produces no wealth: - we can’t afford to run social programs.  Exploration is competitive and necessarily low profile: - we can’t just tell everybody what we are doing.  We are giving them jobs: - they should be pleased to have some hard cash in their pockets. 

Increasingly, however, these responses are seen as lame excuses for avoiding substantive interaction with local communities.  The issues of "exploration uncertainty" and company secrecy are attitudes which are patently wrong and counter to the interests of the company itself.  Reliable information from the company is exactly what the community must know to ensure expectations are properly managed.  If the company does not tell them what is going on, the community will rapidly come to believe a worst case situation with a consequent risk of conflict.  As to wealth, communities (and governments) have become quite cynical that they are being lied to as to how much money is really available.  They take as evidence the manner in which companies can push up their stock values with good news or sell out successful projects for very large sums of money that enriches a few distant individuals.  The money made in the market by the backers of Arequipa Resources is one example, and the mind numbing sums involved with the BreX fiasco can only be considered an embarrassment when compared against the living standards of local people near the project site in Kalimantan.  How, then, does an exploration group earn the local trust required to work there, and develop it’s "social licence to operate"?

First let us be clear that a social licence does not conflict with the right to explore or the right to mine granted by the state, the legal licence.  It does, however, require the company to engage with the various stakeholders and develop positive relationships starting with the most important group: the community. 

At this point, we wish to emphasize that community relations do not have to be expensive.  Nor do they mean providing gifts, offering trinkets and beads.  That represents a paternalistic, colonialist approach that is increasingly inappropriate.  For exploration, good community relations are based on providing the community with what it needs most: information.  It begins with who you are and continues with what are you doing.  It involves an exchange of information; what is the community, what are its hopes and fears.  Establishing communications requires accepting the community and recognizing the legitimacy of its enquiry and it’s cultural perspective.  The most powerful tool for community relations comes without cost and is called respect for the community.

Along side of respect must come recognition that the company is involved in an exercise in cross-cultural communications.  Almost without exception, and that means here in North America as well as overseas, we are dealing with a case of a specialized business culture, that of mineral exploration, meeting a community with it’s own distinct culture.  The company must deal with this and receive the community way of seeing the world with open mindedness and not through the cultural filters of first world values or stereotypes.

Details of process and mechanism will vary from community to community.  What works in Burkina Faso may not be appropriate in central Peru.  However, once a positive dialog has been established, company and community can work together to overcome difficulties.  The community may even become vested in the outcome of the project and support company activities.

To achieve this, the company needs to know and understand the cultural and social frame of reference of the community.  Learn the dynamics, politics and personalities involved, adapt to the local situation and develop a relationship based on mutual understanding that can build towards trust.  A key element for both company and community is to ensure that expectations do not become mismatched with the status of the project.  The onus is clearly on the company to make certain that this happens.  The company controls the project, understands the opportunities and the risks involved and must be prepared to educate the community throughout the life of a project.  An all too common experience is for the community to watch a company spend, what is to them, vast sums of money on road building, drilling and excavating and be incredulous when told that the mine is still not a certainty.

Building a positive relationship with a community during exploration requires care, patience and attention.  It will be subject to constant change as a project either advances or fails to meet expectations. It will have to be maintained through episodes of intense activity and inactivity when the company may actually leave the area.  As a project advances, as the prospect of a mine become more real, the stakes are raised and the risks increase.

Community relations should be based on a real understanding of the community.  A social profile, risk assessment or similar evaluation may be needed to ensure that all sensitivities are identified.  A community relations strategy is required that is matched to the stage of exploration and should be considered essential before any substantial work, such as trenching or drilling, is initiated.  Community relations should also include an exit strategy that allows the company to terminate exploration and leave the property in social good standing so that another group can take up the project without fear of animosity from the community created by the previous operator.

The most successful way of advancing relationships is by working together. Positive outcomes from shared experience builds confidence, which has the potential of creating real trust.  Exploration teams can do much to assist the long-term strength of the communities and the stability of their relationships by including community needs into project planning.  In doing so, the company must avoid paternalism or creating dependency by engaging in extensive consultation and employing some form of joint venture solution to agreed projects.  Bringing in skills and experience relevant to the task further enhances the chance of success and these are often readily available through non-governmental organizations dedicated to rural development and assistance to families.

Three examples from different stages of the exploration cycle are informative.  None could be considered expensive.

1. Land is always a major issue and land ownership is a matter of particular concern for both the company and the community.  World Bank guidelines for development projects require the proponent to recognize the rights of people using or living on the land, as does ILO 169.  WMC, working in the Philippines in mid 1990’s, found that their exploration concession covered the untitled tribal lands of an indigenous group.  The company deferred exploration while it negotiated with the tribe and government for access to the ground, and then provided legal and financial support for the tribe to gain legal title to their lands.  Costs were insignificant in terms of the confidence created that the company was honorable and transparent in its business dealings.
   
   
2. In Bolivia, a rural community approached an exploration company (now defunct) with requests for help with infrastructure and business development.  In response, and following extensive consultation, the company arranged for a non-governmental organization to work directly with the local people to write a formal development plan, which was then used to access central government funding for the desired infrastructure projects.  Costs were minimal since the NGO had its own resources for assisting communities.  The company gained the confidence of the community that it could be a reliable operator in their territory and assurances that the community would support any initiative by the company to develop a mine.
   
   
3. In Mali, Placer Dome terminated a project after feasibility and could have walked from the site as no formal regulations for decommissioning existed in the country.  The company, however, applied its sustainability policy and used local people and in-country knowledge for a manual intensive program to reclaim the drill sites, roads, trenches and campsite.  A local non-governmental organization provided co-ordination and training, which further enabled the local people to gain improved skills in land and water management that will enhance agricultural production into the future.  Costs were essentially the same as for a conventional mechanized reclamation program. The company gained national and international recognition for its efforts and would be welcomed back to Mali should there be another opportunity in the future.

The success of these and other experiences, and the marked contrast to conflicts encountered elsewhere, has prompted discussion in a number of countries on the need for regulations to control social impacts around exploration activities.  As yet there is little in the way of formal requirements for the management of social issues in place anywhere, until the very advanced stages of exploration and permitting.  Nevertheless, the situation is evolving rapidly with governments in a number of jurisdictions, Nunavut for example, expecting explorers to be more proactive in establishing contacts with communities.  Peru is one country with published guidelines on community relations for mining projects, which include specific reference to aspects of the exploration phase.  Industry should anticipate the continuation of this trend and move to develop standards that can be offered to governments which reflect the needs of exploration before rules are applied from outside.   

It is very much in the interests of the industry to meet the growing expectations regarding social responsibility.  Beginning immediately, all exploration projects should include a plan and budget to manage social issues constructively.  Failure to do so risks conflictive situations over social, economic, cultural and environmental issues. Companies that fail to gain a social licence affect not only their own credibility but also the credibility of the industry as a whole.

Key to successful management of social issues will be a change of attitude and expectations.  Exploration can no longer think of itself as a low impact, transitory activity, free to pursue its own interests without reference to others and operating in isolation from the socioeconomic realities of mining until the ore body is proven.  Exploration personnel are the front runners, the ambassadors, for the entire mining industry.  Social responsibility begins the day a geologist arrives on the ground: first impressions are long lasting.