Tuesday, April 21, 2009

Rethinking The "Mining Model"

BUENOS AIRES -- As day two of the Rocky Mountain Mineral Law Foundation International Institute in Buenos Aires got underway it was even clearer that the issue of how the business of mining is conducted with respect to the local communities where it takes place is a huge challenge for the sector.

One of the highlights was a panel entitled, "Resource Development: The Key Role of Law and Institutions."  Adriano Trinidade of Pinheiro Neto Advogados of Brasilia, Brazil, presented a paper written by Elizabeth Bastida of the University of Dundee, describing the traditional assumption in this manner: "Mining per se contributes to development.  The overall development of mining is positive."
However, he pointed out that more recent developments -- including community opposition to some mining projects -- has caused many to rethink this assumption.  "Private markets require well-functioning legal systems that provide for stability and predictability.  In addition, the law should support institutions of well-functioning markets," he said.  But this has become more difficult to achieve as private investors have watched several mining projects encounter huge opposition, thus putting investors' money at risk.

Luis Carlos Rodrigo, an internationally recognized mining lawyer from the Lima firm of Estudio Rodrigo, Elias & Medrano, talked about Peru's experience with mining in general and the challenges the industry currently faces.  He began by noting that, "As of 1993 almost all state owned operations have been privitized with great success in terms of production." On the other hand, the success of how companies operate within communities is a more nuanced matter.
Many companies operating in Peru have become leaders in corporate social responsibility, one method of trying to address community relations challenges.  However, he identified some key problems to the long-term well-being of the mining industry in Peru:
  • Mining companies are not doing enough to call attention to their community relations efforts; this is a result of many years of maintaining a "low profile" in terms of talking about the mining sector.
  • The terrible past of the mining sector; "environmental legacies" in the form of badly polluted and managed sites continue to be "concrete evidence of previous contamination."
  • The government has failed to regulate "informal miners," who operate without respect to environmental obligations or standards.  "The government has failed to act because it is a social problem," he said.
  • NGOs and "political radicals" have taken advantage of the government's lack of action to oppose mining generally.
  • There is an enormous amount of money (collected from the mining companies) waiting to be spent for projects to help the communities in which the mines operate, but the funds have not been spent; the government seems very reluctant to allocate these funds for fear of making one group or another unhappy, he said.
In order to deal with these challenges, the government needs to deal with informal miners while major mining companies need to understand that the media helps set local perceptions and expectations.  There also needs to be a commitment to making sure the benefits of mining are shared with society as a whole.

Finally, he spoke of a crucial element in mining companies' addressing the challenges ahead of them: "Today companies are structured to favor short term decisions and results.  This needs to be changed and bonuses and benefits cannot be based on short term results."  In this regard, companies must understand that it is in the long-term interest of the mining industry to avoid short-term decisions that only result in longer-term problems with the communities in which they operate.

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