Commentary: Social license – addressing deeper issues boosts the odds of success

Publicly stated arguments are often what’s only on the surface of conflicts over natural-resource developments — underlying geopolitical issues and hidden agendas can also be at play. I have come across this on a number of projects in Peru, Ecuador, Indonesia, Guinea and Canada, but it seems to happen everywhere.

The “tip of the iceberg” are concerns and interests that are plainly expressed in public consultations, articles, protests, blogs, etc. For instance, they might include concerns about mine drainage affecting downstream basins used for crops, livestock and drinking water. Concerns over local jobs and benefits are almost always a given, and in most projects, these are among the main reasons for opposing a company’s resource project. The more important the resource a company claims, however, the greater the likelihood that subtler dynamics are at play.

These just-below-the-surface issues are key factors in a certain group’s stance on a project. Examples include concerns over the uneven distribution of benefits (e.g., to higher-qualified community members or politically connected ones). Populist politicians might also use the project as a wedge issue to play on people’s fears of what they don’t understand (e.g., a belief that all mines pollute and leave people worse off). No matter how many times a company may explain that its technology is better than the one used in a historic mine that discharged untreated tailings into a river, it may be advantageous for a politician to maintain an anti-mine stance.

Another common just-below-the-surface challenge involves building up the capacity of stakeholders to understand the mining business — just because the gold price is at US$1,300 per oz. and a company plans to produce millions of these, it doesn’t mean that its operation is guaranteed to be profitable. There are fluctuating variables in cost, price and risk that mean a company and its investors could actually lose money. It’s hard for financially illiterate communities to understand this, hence the pressure for more social expenditures, asset nationalization and company taxation. 

Finally, we have what I call “the Depths” — opaque agendas often involving competing economic interests that may unduly manipulate public opinion and politicians. These aren’t easy to detect, as they may lie in the realm of criminal activity, conspiracy theories and distorted perceptions of reality. Take the case of a junior-mining company losing its concession licences over community violence. This occurred in an Andean country that had one of the best mineral finds in years. Here, a number of locals admitted to being paid a daily stipend to oppose a project by a self-proclaimed ecological organization, which in turn was funded by a large foundation that enjoyed funding from a large, global resource company. The government did not intervene when certain community members illegally occupied company bought lands, nor did it prosecute those involved in violent acts or vandalism against company property and personnel. Instead, the same government stripped the junior-exploration company of its concessions due to the violent incidents. Within a couple of years a global major in partnership with this same government was granted the concession and began to socialize the project.

So what does this all mean for a mining investor dealing with below-the-surface issues? It can mean many things, but what is certain is that the odds are more stacked against a company than it may think, and it may need deeper pockets to compete. But a little upfront investment could save a company millions down the road.

Depending on the degree of underlying agendas uncovered, a company’s financial resources and the deposit’s attractiveness, it may choose to fight the good fight. A good corporate social responsibility program, if only part of the solution, is critical. A company needs to win the hearts and minds of the local community through transparent and responsible actions, and demonstrate that it will provide long-term, sustainable benefits.

A company’s solo efforts will rarely be enough in such cases. It will want to ally the project with partners that can hold broad influence and bolster its position. Ideally this means partnering with the local or national government, but multilateral organizations with a development agenda can also be valuable partners. Some development banks have a mandate to invest in socially responsible projects. Many times these banks are also creditors to national governments, and can exert some influence.

There are even environmental organizations that recognize that a resource project can be an ally to the environment by providing jobs, reforesting large areas and preserving natural areas much larger than the mine’s footprint. Aligning with such groups can provide more resources for social and environmental issues, and boost a company’s credibility while helping to delegitimize its detractors.

If a company — despite its best efforts — concludes that the odds are too stacked against it, its best bet may be to market and advance the project to a degree that it can be sold to someone with the deep pockets and influence to move it forward, albeit at a discounted profit. Then at least the company can push away from the table with a tidy profit.  

— Based in Toronto, Adam McEniry has over a dozen years experience helping junior exploration companies and some of the world’s largest producers effectively manage non-technical risks and create value for both shareholders and community stakeholders. Visit www.mceniry.co for more information.