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GREAT insights Magazine

Gold Mining and Shared Value: Contributing to Development and Communities

24-07-2014

Holland, N. 2014. Gold mining and shared value: Contributing to development and communities. GREAT insights Magazine, Volume 3, Issue 7. July/August 2014.

There can be no doubt that mining, executed responsibly, is a significant force for sustainable growth. Beyond the multiplier effects on employment, livelihoods and the national economy, it should not be underestimated that whole communities are directly and often exclusively dependent on the sustainability and growth of the mining sectorBut to succeed in achieving this growth, long-term relationships of trust and mutual respect must be established between its key stakeholders.

A mining operation should provide socio-economic benefits to all stakeholders. Employees and local communities stand to gain jobs, local procurement and community projects. National and regional governments receive royalties, taxes and investment. Investors of capital expect interest and risk adjusted returns on their investment. Yet if one group withdraws their support for the operation, this will negatively impact all stakeholders.

Host governments offer mineral resources that they hold in trust for their people; mining companies bring capital and know-how, creating value from such resources. As a potential mine is identified and developed, the number of stakeholders grows. The shareholders and banks, who must choose where to invest their money; the communities, who own or occupy the surface rights, employees and their trade unions; and contractors and suppliers. Each contributes to the realisation of the project and each looks to achieve a ‘fair’ return.

Key Contributions Made by Gold Mining

Gold mining typically accounts for a high proportion of foreign direct investment for developing countries and for a substantial chunk of foreign exchange earnings. A recent report by the World Gold Council (1) found that gold mining contributed some US$78 billion in gross economic value added and 530,000 direct jobs in the 15 leading gold producing countries. Moreover, mining tends to generate large numbers of indirect jobs and to have significant multiplier effects – in part because many mining jobs pay well and are highly skilled. This is particularly the case in developing countries.

In Ghana, one mining position supports an estimated 28 other jobs and livelihoods in the country and in Peru about 19 jobs. In South Africa, mining supports about 1.4 million direct, indirect and induced jobs, and each of these supports on average around nine dependents.

But there can be no doubt that we are currently facing a major gap in trust between mining companies and their capital providers on the one hand, and trade unions, governments and communities on the other. What can mining companies do better in explaining, and helping other stakeholders to validate, their overall social and economic contribution?

Underlying Requirements

Most critically, the mining sector needs to attract capital required to realise this growth and so to liberate the developmental and wealth creating potential of the mining economy. Unfortunately, providers of capital to the mining industry are frustrated, having, at present, little to show for the capital they have invested over the years. Many of these investors have recently deserted the industry, depriving it of new capital and leaving potentially viable ore bodies undeveloped. Growth in the mining industry is stagnant. If we want the capital providers to resume investment, we need to offer them a solid return on their risk capital.

Secondly, I take it a given that mining companies must manage their environmental impacts with the greatest care. We have a duty of stewardship to manage resources, such as water, and to ensure that we do not adversely impact upon the livelihoods of others and to remediate land once mining has finished.

Thirdly, the biggest single element in benefit distribution for communities and government comes from procurement by mines. The mining supply chain is well established in traditional mining countries like Australia, the US and South Africa. But, as mining companies have become more pro-active in their approach to supporting suppliers, local sourcing is becoming increasingly central to miners’ economic contribution.

In addition, mining companies can make a significant contribution to physical infrastructure surrounding the mine. Gold mines often need access roads, water pipelines and electricity grids. Increasingly these are built with an eye to creating regional or community benefits rather than being solely focused on the mine.

Finally, gold miners can make a big contribution, working with civil society, to improving governance and supporting capacity building, especially in areas like environmental management and public service delivery. All too often a mine finds it tough to improve the quality of life of surrounding communities because of the lack of local government partners capable of using revenues well. It is essential therefore that we work with local governments in jointly developing and implementing projects that utilise the revenues generated by mining.

Communities and Mining Companies – an Uneasy Relationship

While the consequences of not obtaining this social licence will not always be dramatic, there is potential for serious operational disruption or even ultimate project failure. Examples abound around the world and over the past few years there has been a significant increase in conflict between the miners and communities (see ICMM graph). The US$5 billion Conga project in Peru has been held up for years through community activism.

As mentioned above, mining operators often make substantial contributions to national government in the form of taxes and royalties. The reality is, however, that this does not always ‘trickle down’ to host communities that expect to benefit from their proximity to revenue-generating mines in the form of better public services and infrastructure. This is the case where mining revenues are paid into a central fiscal pot to fund general government expenditure, or where weak governance results in opaque and/or ineffective fiscal management.

As a result, while mining companies are contributing millions of dollars to the national economy, host communities may experience little or no benefit. Although responsibility for this can be ascribed to national government, it is ultimately mining companies that have to deal with the consequences. Indeed, no matter how pro-mining central government is, there can still be strong opposition to mining at both regional and local level.

The reality is that mining is an inherently high-impact economic activity. The nature of the business means that the establishment of a mining operation is going to affect local communities – for better or for worse. This includes, for example, major land disturbance, changes to water quality and availability, the establishment of supporting infrastructure, the influx of workers and migrants, the promotion of local economic activity, among others. Although responsible mining operators are able to avoid and/or mitigate many of these impacts, the latent sensitivity of their operating environments means they are still likely to generate a degree of community opposition due to their actual and perceived negative impacts.

Community sensitivity to actual and perceived mining impacts is being further fuelled by increasing access to, and sharing of, information at a local level, activism and awareness-raising by national and international NGOs, as well as the politicisation of many mining-related issues.

The purpose of mining will always be to extract a finite mineral ore-body that is often perceived to belong to the communities around it, irrespective of what national legal frameworks say. This means local people not only expect companies to manage their negative environmental and social impacts, but also to actively deliver benefits to local communities as part of the (generally) unwritten social contract. Indeed, in many countries the consent of local communities is now a requirement before the regulators grant the mining licence.

Communities know they only have one shot at benefiting from ore bodies that will eventually be exhausted with mining companies then moving on to pursue fresh opportunities elsewhere. As a result, there is even greater pressure for mining operators to not only generate community benefits in the short term, but to convert finite mineral resources into a positive and sustainable legacy for host communities that will continue after the life of mine. Unfortunately, many mining companies have historically failed to do this, generating cynicism and distrust.

Building Community Trust by Creating Shared Value

Although Gold Fields’ current mining operations do not face material opposition from their host communities, there is no room for complacency. It takes substantial time, effort and resources to establish and maintain a strong licence to operate and, once it is lost, it is very hard to regain. Furthermore, our ability to grow Gold Fields through the expansion of existing mines and the development of new projects will – to some degree – be determined by our ability to win the trust of communities in our areas of interest.

This means it is essential that we treat our host communities with respect, minimise our negative impacts and deliver tangible and ongoing benefits. The resources we have available to help us generate host community benefits are, however, becoming more limited.  This is due to:

  • our transformation into a smaller, mid-tier miner,
  • and the lower price of gold.

We are acutely aware that this could, if not managed corectly, undermine our relations with our host communities, whether at Cerro Corona in Peru, South Deep in South Africa, the Tarkwa and Damang mines in Ghana or in relation to our growth projects.

As a result, we are increasingly applying the shared value approach to promoting community development. This is based on the application of business strategies that not only deliver commercial and operational benefits to the company, but also deliver benefits to our host communities at the same time. Our approach is focused on three key areas:

  • Preferential community employment: While we have an established track record of employing nationals (or, in South Africa, historically disadvantaged South Africans) in our countries of operation, this does not necessarily enhance each of our mines’ social licence to operate. We now intend to build on such efforts by specifically targeting the employment of host community members. This is likely to be the single most important issue we can address to significantly enhance each of our mines’ social licence to operate – and it involves little or no additional expenditure.
  • Preferential community procurement: Again, we already have a track record of procuring from companies in our countries of operation. The truth is, however, that very few of these companies are located in – or draw workers from – our specific areas of operation. Again our mines will build on our existing approach by significantly increasing the products and services we source from our host communities. Given local capacities, this will realistically require us to (1) support local skills training and enterprise development; and (2) encourage our existing in-country suppliers to establish operations in – and draw employees from – our host communities.
  • Water security. Water is consistently one of the most important issues for communities located near mine sites. While we already apply stringent management systems to ensure the quality of our water discharges and to minimise our water consumption, we can do far more. In particular, we intend to focus on initiatives that not only support the supply of water to our mines, but which, where affordable, also increase the supply of clean water to our host communities.

Through this approach, we not only intend to maintain our social licence to operate, but to improve it by tying the fortunes of our host communities to those of our operations; and demonstrating that it is not how much you spend on community social investment that counts, but the impact you have in terms of creating value for host communities.

We also intend to demonstrate to those communities located near our current and future growth projects that we are the right mining company for them to partner with, which will help ongoing and lasting shared value from local mineral resources.

Number of global incidents of mining-related community confl­ict (Source: ICMM)

Nick-Holland-GOLDFIELDS_GREAT_insights_vol7_issue3Nick Holland is Chief Executive Officer of Gold Fields, South Africa.

 

Footnote

1. See http://www.gold.org for the report.

 

This article was published in GREAT insights Volume 3, Issue 7 (July/August 2014).

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External authors

Nick Holland