Jennifer Prillaman | Palladium - Oct 15 2019
How Mining Companies Can Mitigate Their Biggest Risk

Credit: Tom Fisk

For the second year in a row, “license to operate” is the number one risk facing mining companies. Governments, consumers, and even shareholders are pressuring these companies to be more innovative in their environmental, social, and governance (ESG) efforts, to engage meaningfully in the communities where they operate, and to create opportunities for social and economic development.

“The operating environment is complex, and mining companies have made efforts and progress over the past 20 years to improve,” says Tony Andrews, Principal at the Centre for Responsible Mineral Development and Palladium Advisor. But despite these efforts, the SLO landscape (shorthand for Social License to Operate) is evolving.

“Mining companies need to continue to adapt and innovate to meet the evolving needs of their host communities and society as a whole,” Andrews explains.

According to Cornelio Delgado, Palladium’s Director of Mining and Sustainability, many leading mining companies are already innovating in this space. “They want to open doors for partnerships in deeper ways,” he says. “But more impact is needed.”

This means collaboration at the business level, including market-oriented partnerships that create both social outcomes and financial returns. Here are three ways that mining companies can reimagine social and economic development at the local and regional levels.

1. Create Equity; Not Handouts

Companies are pouring hundreds of millions of dollars into health, education, infrastructure, and other sustainable development initiatives. But communities are now asking for a different kind of relationship, with needs and ideas not found in traditional CSR programs. They want royalties, business partnerships, and skin in the game.

“There’s a great example in Canada where a coalition of indigenous interests wants to buy one of the pipelines coming in with construction,” describes Delgado. “They’re saying, ‘We don’t want CSR money or philanthropy; we want to be owners of the business. We want equity, not handouts.’”

Conflicts with host communities are common during the life of a mine, and can lead to strikes, blockades, and sabotage. For a variety of reasons, including government inefficiency, lack of capacity and often corruption, the communities aren’t seeing revenues or long-term benefits coming back to them.

“Community engagement is essential,” says Andrews. “But it’s just the first step in an evolving relationship that continues for the life of the mine. We need to be talking about community development – building a relationship with the community based on shared objectives and a true understanding of their perspective.”

“Communities are asking for a different kind of relationship. They want royalties, business partnerships, and skin in the game.”

2. Don’t Go it Alone

Job creation is often cited as a benefit to communities, but community members don’t always have the necessary skills for the jobs available. In fact, “future workforce” is cited as the second greatest risk mining companies are faced with.

In order to mitigate this risk and at the same time optimize capacity-building and skills development in local communities, mining companies can find local partners with which to collaborate – educational institutions, vocational training groups, financial institutions, or even companies in different sectors like agriculture. This way, a company is investing in what is locally available, meeting community needs, and still meeting their own need for a more skilled workforce.

“It’s about inviting others to bring their skills and contributions to create scalable and better solutions,” says Delgado. “Just as mining companies attract investors for the core of their business, they can help communities attract other investors, entrepreneurs, and industry partners to develop new economic engines that benefit all.”

3. Collaborate with Unlikely Partners

Artisanal miners present the quintessential lose-lose situation in the mining sector.

These are small-scale or subsistence miners who work independently panning for gold, digging small mines, or working in closed or abandoned mines. Because they are often unregulated or mining illegally, artisanal minors often face great personal danger, have terrible working conditions, and destroy their local environments. The UN reported that small-scale mining is the world’s largest source of mercury emissions, making up 40% of the world’s total.

Meanwhile, governments are missing out on tax revenues and mining companies risk conflict when artisanal miners encroach on their concessions to conduct illegal mining.

Despite these risks, collaborating with artisanal miners presents a huge opportunity for companies to gain a new social license to operate and turn this situation into a win-win.

“Companies can work with small-scale miners to upgrade, train, and give them better market access, raising their incomes,” explains Eduardo Tugendhat, Director of Thought Leadership at Palladium. “They can even add conditions to their training and access, putting labour and environmental requirements in place. This improves the entire system in a way that’s collaborative.”

Andrews agrees, adding that “collaborating with partners such as developmental institutions and host country governments can also leverage the scope of these initiatives from local communities to regions at scale.”

Expectations of the mining industry continue to grow, and innovative solutions lie beyond the mining companies themselves. Finding new partners, and new ways to partner, can help mining companies secure their license to operate. But it can also transform their operating environment away from community dependency to a model built on inclusive growth, diversity, and the potential for real impact at scale.