Image courtesy of Barrick

It just happened again: three years after the Samarco (Vale/BHP Billiton) tailings dam failure, which is considered to be Brazil’s worst environmental disaster ever and claimed the lives of 19 people, in January 2019 Brazil suffered yet another catastrophic event with the burst of the Brumadinho tailings dam at Vale’s Córrego do Feijão iron ore mine. While the volume of the waste flow was lower than in Samarco (12 million cubic meters versus 60 million cubic meters in 2015), the latest incident caused a horrendous death toll: by February 14, 2019, 166 people were confirmed to have died, while a further 147 people remained missing. Most of the victims were Vale workers.

The implications of these events cannot be taken lightly, as they deeply affect the relationship of the mining company with all its stakeholders: the workforce, the surrounding communities, the authorities, and Mother Nature. If in the past it was enough to focus on the technical aspects of a project to move it forward, today other ingredients have become indispensable components of a project’s success: political and social acceptance, environmental stewardship and an uncompromised commitment to safety.

Working the political and social aspect

In Peru, the level of conflict between the mining industry and anti-mining activists has eased with respect to past confrontations, such as the ones that led to the paralyzation of the Conga project in Cajamarca and the Tía María project in Arequipa. Yet, while Quellaveco and Mina Justa have successfully moved to the construction stage, the aforementioned projects on stand-by are still to see the light. Southern Copper spokesmen regularly make statements about their will to put Tía María into production as soon as possible, but Newmont seems to have abandoned Conga until further notice.

Oscar Díaz, CEO of Viceversa Consulting, a specialist firm in environmental and social services, drew a comparison between successful and failed projects: “Quellaveco is an excellent example of how working for 18 months on the social aspect is not a waste of time. Tía María did not follow the same path, and even if it had its EIA approved at some point, it has now been on hold for nine years.”

For Díaz, the challenge for Southern Copper is that it has to work not just on obtaining the social consent, but also the political consent. “If the authorities do not support your project, not only will they not help, but they will also become an obstacle,” he affirmed.

By and large, the industry should be able to work well with the new regional leaders elected in October 2018, perhaps with the exception of the Puno region, where Walter Aduviri was elected as governor. Back in 2011, Aduviri led violent protests that ended with six deaths, while Bear Creek Mining lost its concession for the Santa Ana project. Today, Bear Creek is still in Puno with another silver project, Corani, which is expected to move to the construction phase soon and will involve a capex of approximately US$585 million.

Having said this, not only Puno raises some questions with respects to mining development. The new governor of Arequipa, Elmer Cáceres, has shown its opposition to the Tía María copper project, and while the new governor of Cajamarca, Mesías Guevara, is not an outspoken opponent of mining like his predecessor Gregorio Santos, he is not likely to push ahead any mining projects that could raise controversy.

“Regional and local elections introduce a new scenario and companies need to rebuild their relationships,” explained Díaz, who advised mining companies to be more proactive in their communication efforts with political leaders: “Companies always wait for the results of the polls, but what they should do instead is to work with the main candidates before the elections.”

For Jorge León Benavides, leader of the Peruvian delegation to PDAC at the Canada-Peru Chamber of Commerce, some of the new regional governors that have shown their reluctance to promote the industry are not categorically anti-mining, but rather “they do not understand the problems of some particular projects.” As part of the Chamber’s initiatives during the PDAC gathering in Toronto, invites are sent to several regional governors to fly to Canada. “PDAC is like a World Cup where the different jurisdictions showcase their strengths, and we always invite regional governors and mayors from the mining areas. This is very important, especially now that we have new authorities, so they can see in person how difficult it is to attract investment,” he said.

Contributing like good neighbors

Getting a project to the stage where it has all necessary permits as well as the social license is a great amount of work, but it is just the start. Once the mine is in production, a whole new set of questions is generated in terms of how to design the social strategy in the area of influence. Indeed, defining the area of influence itself is one of the first headaches for companies operating in remote areas, where State institutions are weak or non-existent.

“There is a great deal of discussion about whom the mining company should work with: if just with the direct area of influence, or if it should include the indirect area as well. There is no guideline for this, and every project is different. The State should be the one mediating to help companies define what their area of influence is,” explained Díaz of Viceversa.

For León Benavides, Peru cannot afford to have a 20% poverty rate when the country has such a rich geological endowment: “Our GDP needs to grow by at least 7% or 8% annually to tackle poverty rates, and for that the country needs mining.”

Numbers on the contribution of the mining industry to the economy speak for themselves, according to executive director of the National Society of Mining, Petroleum and Energy (SNMPE) Pablo de la Flor: “Over the last decade, the industry has transferred nearly 40 billion soles (PEN) to the regions, and the industry accounts for nearly 20% of all the taxes collected by the country.”

The problem, then, is about the perception of the population living near mining operations. De la Flor continued: “The perception of people in the mining regions is that the wealth created by the industry is not fairly distributed. Therefore, the mining canon needs to be reworked.” The mining canon is Peru’s tax distribution tool whereby 50% of the income tax paid by the mining companies is sent directly to the areas of influence. The mechanism presents a problem, namely that regional and local authorities often do not have the capacity to spend that money on the right projects that could address the basic needs of the population in terms of health, nutrition, education and infrastructure. 

Partly to address these shortcomings, Peru has been promoting the ‘Works for Taxes’ program in recent years, where private companies contribute their project management capacity to invest directly in particular infrastructure projects, rather than just transferring the taxes to the State. Through this program, mining companies have contributed to the development of relevant infrastructure such as bridges, hospitals, irrigation canals and police schools, to name a few.

What is clear is that the industry cannot turn a blind eye to the problems of the population around its operations. For Oscar Díaz, a company investing hundreds of millions of billions of dollars in an area cannot only pay attention to the resource beneath the surface: “Operators know about the copper, the silver or the oil, but they must also be aware of the history of the people in the area, their educational level, their concerns, and their economic and health situation.”

Suresh Vadnagra, president of Minera Las Bambas, reflected on how the company wants to work with the new regional authorities in Apurimac: “It is important to build strong and sustainable relationships with the new authorities, understanding their views and aspirations and learning how we can contribute towards their development goals for the region. One of the key challenges for Apurimac is the high rate of anemia, which is 54% in children under 36 months. The central and regional governments have a plan to eradicate anemia, and we are looking at programs to support this initiative,” he said.

Indeed, it is still difficult to accept that, nearly three decades after modern mining development took off in Peru, the country’s population continues to face severe development issues in the poorer areas. This must prompt both industry and government to continue working together, so that the industry representing around two thirds of Peru’s total exports by value continues to be a key driver of Peru’s economic development at both the macro and micro levels.•