SANTIAGO, CHILE–With alliances of communities and non-government organizations across Latin America putting the mining industry under increased scrutiny, and occasionally blocking new projects reaching production, mining firms are putting ever greater emphasis on achieving good relations with stakeholders.
And as companies race to open a large number of new mines in the coming years, the ability to build relationships with their neighbours is becoming a competitive advantage that it would be foolish to neglect.
In community relations, when things go wrong, they can go very wrong.
In March 2003, residents of Esquel in southern Argentina voted overwhelmingly against plans by Meridian Gold, acquired last year by Yamana Gold (YRI-T, AUY-N, YAU-L), to develop a mine on the outskirts of the town.
After some soul-searching, executives admitted that they had failed to engage properly with townspeople or understand their concerns. They promised to do better in the future but five years on, the project, which would have produced up to 500,000 oz. gold per year, remains shelved with little sign of opposition to the mine thawing.
At Tambogrande in northern Peru, Vancouver-based Manhattan Minerals [since renamed Mediterranean Resources (MNR-T, MNRUFO)] faced a prolonged and sometimes violent campaign by local fruit farmers concerned that its project to build a mine would poison the land and force them out of their homes, which lie atop the gold and copper deposit. After clashes that left protesters dead and buildings torched, the Peruvian government terminated the company’s option on the concession in late 2003.
Such investment disasters highlight the significant political changes that have occurred in South America since the continent began to attract mining investment again in the early 1990s.
Since then, with democracy firmly entrenched across the region, the relationship between a central government and its citizens in outlying regions has changed significantly, with local communities gaining the upper hand, says Eduardo Chaparro, a mining expert at the Santiago-based UN Economic Commission for Latin America and the Caribbean (ECLAC).
Add the rapid flow of information thanks to the spread of the Internet, and mining companies are now facing a very different scenario than just a decade ago.
“The appearance of different expressions of social organization have permitted various problems to come out into the light — be they environmental, economic or fiscal,” Chaparro explains.
To be able to develop mining projects successfully, companies need to build more direct and transparent relations with the wide range of groups that make up their communities, and put the image of the closed mining enclave behind them forever.
This presents a significant challenge for ambitious companies like Switzerland-based Xstrata (XSRAF-O, XTA-L) and its copper division Xstrata Copper.
One of the world’s largest copper producers, Xstrata is now looking to organically double its production to around 2 million tonnes copper per year by the middle of the next decade, largely through the development of five new mines spread across South America and Southeast Asia, each with its own particular social landscapes.
Xstrata Copper’s strategy is to develop extensive community relations programs early on in a project’s life, building up trust with locals and nipping potential problems in the bud.
El Morro
At El Morro in northern Chile, Xstrata Copper and partner Metallica Resources (MR-T, MRB-X) are looking to develop a major copper-gold deposit.
Although close to some of Chile’s major mining districts, the project’s location in the upper Huasco valley is better known for growing the grapes that are used in pisco, the country’s fruity grape brandy.
It is also the same valley where Barrick Gold (ABX-T, ABX-N) is planning to develop its cross-border Pascua-Lama gold mine, which was the focus of protests from locals and other Chileans a couple of years back.
Central to Xstrata Copper and Metallica’s community relations strategy, therefore, has been to inform local communities about the project and discuss its possible implications, says El Morro’s community relations manager, Alejandro Escudero.
Xstrata Copper has even begun to publish sustainability reports and maintain websites for individual mine projects from the exploration stage onwards so all interested parties can keep abreast of progress.
The dialogue at El Morro has been ongoing since 2005, when the project (then controlled by Canada’s Noranda) was still just at a preliminary stage. The process has allowed local people to become familiar with the project long before any construction begins and led to modifications to the final design to take their concerns into account, Escudero explains.
With access to water a primary concern among locals, the companies have decided to build a desalination plant at no small cost to ensure their own supply of water for mineral processing and other uses.
A new road will also be built so the huge vehicles needed during the construction and operation of the mine need not pass through local villages.
Such gestures are greatly appreciated by communities, and show that companies are genuine when they talk loftily of respect and concern for their new neighbours, says Chaparro at ECLAC.
He points to Chile’s Los Pelambres, controlled by Antofagasta (ANTO-L), where drivers employed by the mine are ordered to slow down as they pass through local communities or face dismissal.
But community relations programs are not just about keeping communities up to date on project development.
“This aim of being a good neighbour is not only about informing, but also how we can contribute to the development of the local economy,” Escudero says.
With this in mind, the company is supporting a range of initiatives, including educational trips for local students and potable water projects that benefit the region beyond the life of the mine.
“Large mining operations generally operate to twenty or thirty years and then they go, so the idea today in the industry is to develop a sustainable project so that the community can continue its economic development beyond the closure of the mine,” says Emily Russell, communications manager at Xstrata Copper.
At El Morro, Xstrata hopes to make incremental improvements in local communities, however, as it ventures to more remote regions, the company has found itself facing more fundamental tasks.
Las Bambas
At Las Bambas, a Peruvian exploration concession won in a government tender four years ago, Xstrata is operating in a very isolated, mountainous area with high levels of illiteracy and malnutrition, and mostly a barter economy.
Several months before beginning drilling in the region, the company sent in a team of sociologists and community relations experts to assess the needs and concerns of local people. These have formed
the basis for a multifaceted social program, unprecedented in its scale for a mining project.
With Las Bambas only now beginning the feasibility stage and production at least five years away, the company is spending an average of US$5 million per year.These funds are being managed by a 25- member community relations team plus many consultants, to ensure that Xstrata’s temporary presence in the region will be of permanent benefit, says community relations manager Alejandro Camino.
But in this impoverished region, allowing the communities to benefit from the mining project has first meant tackling some of their most basic needs, starting with food and health services.
With an economy largely based on raising livestock on poor-quality, overgrazed land, Xstrata has introduced local farmers to pasture cultivation techniques to improve animal quality. This, in turn, has helped to almost quadruple milk yields from local herds in four years, cutting malnutrition among local children.
W
ith local schools often dilapidated and unfit for local needs, education is another priority, with the company paying the salaries of 25 teachers, as well as the costs of training, libraries and health campaigns.
Only now is it ready to begin training programs to prepare locals for taking on skilled jobs once mine construction begins in two years’ time.
But even when Xstrata meets its target of filling 70% of positions with locals, the mine project will provide work for only a tiny proportion of the local population.
So Xstrata is involved in other initiatives such as work programs to build infrastructure and improve housing, and development of new economic activities such as tourism and the revival of traditional handicrafts. Jobs are being assigned on a rotational basis among local people, provid- ing many with their only source of cash.
Despite the project’s proximity to Cuzco and the famed Machu Picchu site, it will take at least a decade for tourism to take off, Camino predicts, but local textiles are now being sold across Peru as well as abroad, creating a source of income to compete with the
well-paid jobs on offer in the mining industry.
Despite the clear benefits to the community, Camino recognizes that the exploration project and associated social programs have had negative side-effects, including increased rates of alcoholism and inflation as the local economy heats up. The company is now looking at ways to combat these problems.
Despite increased community relations efforts, Chaparro predicts that the industry is likely to face more conflicts as mining investment rises rapidly over the next five years.
With no agreed standard on how to handle community relations, there is a wide range of approaches, all with equally wide-ranging results.
“Some companies spent a lot of money without achieving much, while others achieve a lot but do not publicize what they are doing,” Chaparro says.
Rio Blanca
Andrew Bristow, deputy manager for community and institutional affairs at Monterrico Metals’ (MNA-L) Rio Blanco project in northern Peru, agrees.
Monterrico ran into stiff opposition from local politicians to its plans to develop a 190,000-tonne-per- year copper mine, which probably reflected a failure to communicate the company’s aims.
“Enormous efforts were made in communicating the company’s plans to the local population but the message was not getting through,” Bristow says of the project’s troubled early stages.
Today, backed by its new Chinese and Korean owners, Monterrico is investing in radio programs and innovative interactive displays to explain the project to local people — although winning back trust lost early on will be tricky.
According to Chaparro, a gap is appearing between heavyweight mining companies that have the deep pockets and global experience to develop sophisticated community relations programs, and smaller mining companies that do not.
“One serious problem is how to ensure that small companies that lack capital and human resources can develop good community relations; they struggle just to maintain a good technical team of engineers and geologists, but don’t contract sociologists because there is no budget for that,” he suggests.
Greater regulation from their countries of origin could help. Foreign governments are playing a greater role in monitoring how their mining firms behave around the world. For instance, Australian legislators require Aussie companies to obey the same environmental standards abroad as they do at home.
Further pressure could come from investors, perhaps in the form of listing requirements that companies devote a certain proportion of investment budgets to community programs.
The late 1990s Bre-X Minerals scandal, Chapparro says, led to a major shake-up of how companies presented their mineral reserves, but the collapse of projects like Esquel and Tambogrande has yet to provoke similar community relations reforms.
In the fiercely competitive mining industry, the companies that stay ahead will be those that can best develop solid community relations as well as efficient mining operations.
But new conflicts could see more investors lose out, as mining companies fail to take stakeholders’ concerns into account and more communities miss out on opportunities to develop hand in hand with mining.
–The author is a freelance writer based in Santiago, Chile.
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