Emerging market challenges for global miners: what’s wrong & how to fix it?
In recent years mining operations across the globe have become increasingly complex, both in terms of location as well as increased political and social risk in countries that were once considered low risk. There are numerous reasons for this shift, but in essence the ?easy? places have been mined and industry standards and requirements have increased worldwide.
A consequence of this shift is that the mining industry is facing unprecedented challenges in securing the social license to operate, with everything from permitting issues and environmental sensitivity to stakeholder/community unrest impeding -- and at times -- halting mining activity altogether.
In a recent study by ERM (Environmental Resources Management), non-technical or ?above ground? issues, which includes everything from partner and stakeholder relationships to environmental sensitivity, can account for up to 75% of cost and schedule failures on major extraction projects.
News headlines from emerging markets around the world are testament to the fact that major mining companies are still not getting ahead of issues such as water management, indigenous community relations, permitting and environmental issues with local municipal and state authorities etc. Mining companies are well aware of these challenges and allocate substantial budget, time and resources towards managing these non-technical issues, yet we believe that a number of underlying causes contribute to their persistence.The two primary reasons behind major mining companies failing to address the ?soft?, yet potentially deadly, issues are:
1. Relegating management of corporate affairs entirely to a local communications team. The management of corporate affairs is more often than not left in the hands of a local team that may or may not have the training and experience from corporate headquarters to ensure company values and philosophy are implemented at the local level and the line of communication between the local team and headquarters is often circuitous rather than direct. Having in place a communications & control structure allowing best practice to be implemented from company headquarters down to the local level is fundamental. Conversely, the local team having a direct communication link with headquarters to convey cultural sensitivities of their market to be considered in decision-making is equally important.
The challenge today is placing quality management personnel in an unbroken chain in order to cascade company policies and standards from the center down to the literal ?coal face?. The point is to ensure these standards are being followed as rigorously in a remote mine in the Andes as they are at operations in the company?s home country.
2. Companies operating in isolation from each other, not working together on shared issues. The political and social risks facing mining companies in emerging markets, particularly in Latin America, are virtually identical in nature from company to company and very much alike from country to country, yet cross-company collaboration in emerging markets is weak and sporadic.
An exception to this is the Mining Council of Chile which is a good example of competing mining companies with a common interest working together in a challenging market.
The scenario of a democratized, better educated, better informed and increasingly connected population in emerging markets, who are adopting globally accepted regulatory and environmental norms, calls for much greater collaboration between mining companies in building regional industry standards and engaging relevant stakeholders, both governments and NGOs.
The Case of the Canadian Mining Sector:
Seeing as over 75 percent of the world?s exploration and mining companies are headquartered in Canada and mining and energy investment is the third-largest component of Canadian direct investment abroad, we have used the Canadian Mining Sector as a case study to show how inadequate investment in corporate communications and a lack of partnering with other mining companies in the region has potentially serious consequences.
On paper, the combined policies of the Canadian government and Canadian mining companies would virtually ensure that operations around the world would showcase the highest caliber of environmental, CSR and human rights policies as both entities have some of the strongest legislation/policies to support this. However, in reality, local operating standards are far removed from these theoretic ideals.
Recent Global HeadlinesEnvironmental Issues:
? ?Canadian mining firms worst for environment, rights? - Link
? ?Canadian mining companies subject of worldwide protests? - Link
? ?Landslide at Vancouver-based China Gold International?s mine buries 83 Tibetan workers? - Link
? ?Barrick Gold Corporation fined $16.4 million in May by Chile?s Superintendent of the Environment (SMA)? - Link
Human Rights Issues:
Our view is that the traditional communication model employed by most Canadian mining companies in emerging markets is outdated and increasingly less relevant in the ever-changing political and public policy landscape.
The quality of corporate communications management in the coming years must reflect the increased risk profile these countries and communities pose as their expectations and requirements grow year by year.
The Pascua-Lama project by Barrick on the Argentina/Chile border is an example of a well-respected mining company that conducted initial negotiations for the project in the mid-90?s, using the channels and structure that were deemed appropriate for these markets at that particular time. However, the numerous environmental and community-related issues they have faced have primarily appeared in the last few years (2011-present), demonstrating that changes in legislation, public policy, community organization and the national zeitgeist in Latin America happen quickly while the mining cycle is notoriously slow.
Therefore, companies must work proactively to anticipate the social, environmental and legislative landscape they are likely to face in five to ten years and work against those standards and community/governmental expectations.
Better Planning and Collaboration is the Answer
It is no longer viable for mining companies to make a distinction between standards and requirements at operations in their home countries vs. those in emerging markets, especially as expectations and demands of stakeholders globally become unified. This shift in internal policy within the industry is the catalyst that is needed to put mining companies on the path to securing the social license to operate in the emerging markets that are so vital to the sector.
Mining projects in Latin America, Africa, and other emerging markets must proceed under the assumption that the expectations and requirements of local government, communities, NGOs and other stakeholders will be on par with those in Canada, the US or Europe. Their corporate communications arm in these markets must be resourced in the same way and be centrally managed and directed.
Failure to do so will result in a repeat of many of the issues currently facing mining companies in the region who today find themselves in a very different and much more demanding environment than when they originally invested in these markets.
In parallel, mining companies must collaborate more significantly on issues and policies facing the industry with a view to create a united front to key stakeholders with voluntary implementation of best in class industry standards across the board.
Both of these key tenets will require reorganization and redirection of resources and a modicum of investing in the yet unseen.
For more information on Speyside and the services we provide throughout the LatAm region, please visit our website or subscribe to our Twitter feed (@SpeysideCR). To discuss a potential requirement for support and learn more about our business, please contact:
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