Social engagement can make or break mining investment in Colombia, Ecuador and Peru

When mining in Colombia, Ecuador, and Peru, implementing corporate social responsibility (CSR) programs is simply not enough to guarantee success. 

Instead, mineral explorers and developers often see substantial projects halted in their tracks by staunch community-level opposition, even when projects had passed regulatory muster, says mining sector researcher, analyst and reporter Paul Harris, in an interview with The Northern Miner. 

The analyst suggests those wishing to do business in these jurisdictions take a more holistic approach toward meaningful engagement with host communities before engaging governmental authorities about their respective projects. 

The solution, according to Harris, is for companies to be willing to give up an ownership stake in their projects so that local communities and local and federal governments have more skin in the game. 

“There is a tonne of options on how companies can make stakeholders see things through the lens of a shareholder,” said Harris. “When host communities can sit down and plan what their revenue over the long term will be, whether it’s five per cent of US$100 million per year over three decades, they can translate that benefit into economic development in the communities supporting any particular mine,” he says. “That’s what meaningful stakeholder engagement looks like.” 

He suggests it’s high time for companies operating in these jurisdictions to stimulate the creation of Indigenous-owned companies geared toward servicing the mining sector. In Canada, First Nations in British Columbia and elsewhere have risen to the challenge of creating economic spinoffs from mining operations in their regions. 

There is a greater push in these regions for a more inclusive mining industry than ever before, given the focus on environmental, social and governance (ESG) investment principles. 

While Colombia, Ecuador and Peru hold tremendous mineral endowments, their supporting mining legislations are at different stages of development, which impacts exploration and production, notes Harris. 

In his view, Peru’s legislative environment is the most advanced of the three, given about 20 years of development. During this time, mineral exploration and mine development thrived, helping it to become, for a period, the second biggest exporter of copper to China. It remains a vital copper exporter today, albeit at lower levels. 

Harris also notes the country’s gold sector as being robust on a regional level. 

By comparison, Ecuador has only been focused on developing its mining industry in the past two years. The current crop of legislation is perhaps only five to 10 years in the making. “So, it’s still very, very young. But things are really starting to happen in the form of some significant advanced-stage projects. And there’s a lot of exploration going on,” Harris said. 

He has observed the Ecuador and Colombian governments struggle with broadly similar issues at different times. 

“Issues regarding community engagement, issues with water, with forestry – governments want mining and support mining, but that feeling doesn’t necessarily percolate down to the middle levels of government that do things, and the grassroots communities where it’s done,” he said. 

“But both governments recognize that mining is important and should be an important part of the economy, and they’re becoming much more involved as an actor.” 

According to Harris, the current focus on community engagement was partially the respective governments’ own making. “In the past, both governments tended to leave companies to their fortunes, saying, ‘Here’s your concession, now go away, do what you need to do.’ But as you can expect, there was a lot of community resistance, and companies didn’t necessarily engage very well,” said Harris. 

“So, the governments had to step up to the plate to become the ‘oil in that wheel.’ It’s happening a lot in Colombia, and I can see that happening in Ecuador.” 

Because of this phenomenon, Harris says ESG had in some ways ‘come out of nowhere’ and had become an acute focus from the community relations perspective.  

“ESG has empowered impoverished people that had been largely marginalized for more than 200 years. People feel empowered to have a voice and express it and say, ‘I’m not okay with this.’” 

Harris believes companies will have to do a better job of engaging and, ultimately, become better at sharing the wealth their mines generate. 

Frozen out

From a mining standpoint, Peru is essentially frozen out of the investment landscape at present because of President Pedro Castillo’s left-leaning policies. 

Joe Mazumdar, an economic geologist and analyst at the popular newsletter Exploration Insights, says that while Peru was indeed at one point the largest exporter of copper into China, beating Chile, it remains a critically important sector of the economy. “But what we’ve seen in the last three years was changing governments, bringing in the left-leaning government that gives more voice to local opposition to oppose mine development and infrastructure. The economy is sometimes at the mercy of communities cutting off roads and hindering products from getting to ports, Mazumdar said. “The instability has made reinvestment in Peru an issue, so people are looking at other places.” 

In Harris’s view, Castilo doesn’t necessarily have firm control over the country. “The politicians are doing whatever they want, the community is doing whatever they want, and investors hate uncertainty,” Harris said. 

“My perception is a lot of things are on hold. A lot of decisions are on hold,” he said. 

The biggest is perhaps Newmont (TSX: NGT; NYSE: NEM) with its stalled Yanacocha sulphides expansion. “The company has made the investments to get 100% ownership, but it keeps knocking the financing decision from quarter to quarter. I think they’re looking for a clear line of sight on when the stability will return,” Harris said. 

He underlined that stability was critical for a US$2.5-billion investment spanning several decades. 

Harris sees investment trickling into Ecuador and Colombia on the exploration front. Neither country is building a mine now, but both have projects getting close, some of substantial size. 

In contrast to Peru, both Colombia and Ecuador are promoting investment, hoping to seize the opportunity to benefit from the energy revolution and provide the “green copper” and other metals the world needs. “Fantastic, but that will remain a pipe dream unless Colombia and Ecuador can establish the beneficiation chains to add downstream value to their exports,” Harris said. 

“But communities are the same as in Australia, Canada, and the U.S.; they don’t want a copper mine in their backyard. That’s the same hurdle that must be overcome as in other jurisdictions.” 

Mazumdar also points out that massive infrastructure deficits in each of Colombia, Ecuador and Peru continue to hinder investment in mineral exploration and development. At the same time, all three jurisdictions had shown significant sensitivity to projects located in the headwaters of vital rivers. 

“Water is a big issue – not only usage, but effluent, how you impact the water,” Mazumdar said. 

He added that there’s a challenge in bridging the culture gap too, where local subsistence farmers are generally loathe to sell their land for a one-time payment. “They measure their wealth in land ownership, which can stop mining projects for better or worse,” said Mazumdar. “These places have the same sort of risks to development, just like most parts of the world in terms of local opposition; all are highly endowed. 

“If I had to rank them, in terms of investment friendliness, more companies are seeing opportunities for exploration and development in Ecuador, followed by maybe Peru, and when it comes to Colombia, it’s still a bit problematic with respect to their acute dislike of open-pittable resources,” Mazumdar said. 

The project pipeline

The most important projects making their way through the development pipeline are B2Gold (TSX: BTO; NYSE-AM: BTG) and AngloGold Ashanti’s (NYSE: AU; JSE: ANG;) joint venture on the Gramalote project. Harris has noted continued postponements of the JV’s feasibility study. “They keep saying it’s for optimization purposes, but the fact is Colombia has a presidential election at the end of May. I’m sure a part of that is also waiting to see how the land lies in a couple of months,” he said. 

Meanwhile, AngloGold’s Quebradona project keeps running into permitting roadblocks. Just recently, an appeal on the environmental permit application was archived, leaving the company to start the process from scratch. 

Also in Colombia is the Soto Norte gold project, which Aris Gold (TSX: ARIS: US-OTC: ALLXF) has taken over. “There’s a lot of community relations damage management to be undertaken before they can really resume a development path,” Harris said. 

The most advanced stage project in Ecuador is Dundee Precious Metals‘ (TSX: DPM) Loma Larga gold project. This project, too, has been held up by a protracted community engagement process to iron out the path forward. 

However, recent development successes include Lundin Gold‘s (TSX: LUG; NASDAQ: LUG) Fruta del Norte gold project and the Chinese-owned Mirador copper project. 

The Ecuador development pipeline also looks healthy, with SolGold‘s (TSX: SOLG; LSE: SOLG;) Apala deposit at Cascabel being a project of note and Solaris Resources’ (TSX: SLS; US-OTC: SLSSF) Warintza copper project rapidly coming through the pipeline.