The morality of mining

Materials World magazine
,
2 Apr 2014

Is morality a case the mining industry can answer? Michael Harris, Technical Director at Rio Tinto Business Development and Visiting Professor at Imperial College, London, examines this complex and controversial issue.

The mining industry operates in an environment typified by a marked increase in demand for its products, while at the same time suffering rising pressures from governments, markets and society through higher costs of production and restrictions in the way it operates. These include the well-publicised resource taxes, extended time frames for regulatory approvals, price instability and ever tightening standards to be met for environmental care and the level of attention to be given to the surrounding communities.

Less well-publicised are the fundamental moral issues that underlie profits from the extraction of natural resources. Rio Tinto is keen to bring these issues into the open as it feels that encouraging an informed public debate about them is the best way of achieving a consensus on how society – the ultimate owners and regulators of the world’s natural resources – should view not only how and where but also if new areas should be approved for disturbance by mining.

Although many economists are sceptical about whether the current cycle of higher commodity prices is sustainable in the long term, there is sufficient evidence of escalating global demand for most commodities for there to be sustained market pressure on the mining industry for further increases in production.

To meet this forecast demand, mining companies are struggling with ever higher operating and capital costs from price inflation. They also have to adapt to the trend of governments wishing to take direct interests in projects as a partnership approach to development. Recent examples include the Mongolian government taking a 34% share in the Oyu Tolgoi project, and the Guinean Government taking a 35% share in the Simandou iron ore project. Governments are also increasingly demanding that they have a greater share of the proceeds of mining, such as the debate in Australia over the Mineral Resource Rent Tax.

Pressure points
Society will begin to demand that miners improve operation rates in the extractive process as a condition of mining rights. It will become increasingly unacceptable for companies to use inefficient processing technologies – such as many metallurgical recovery processes – the consequences of which are that even greater areas of the planet will have to be disturbed to satisfy future levels of demand. Investing in innovative new recovery technologies that maximise extraction rates and minimise wastage of resources will prove to be a crucial differentiator between miners in the future.

These pressures have led to increased competition for access to the most profitable orebodies, creating a market favouring miners with the skills to compensate for the changes inflicted on ecology, water resources, communities and non-renewable mineral resource depletion.

The increased cost and size of many mining projects, especially if they require large-scale infrastructure, has changed their impact on national economies from their traditional marginal positions to one where some are now comparable with oil projects. Large mining projects are capable of transforming national economies, with the ensuing potential for wealth creation. This phenomenon has been highlighted in Guinea and Mongolia, but it can be seen in other countries, as well. Without proper oversight, they are also capable of introducing the deleterious effects associated with the oil sector during the latter part of the 20th Century, such as the so-called Dutch disease, where stable societies may become unbalanced as a result of a sudden uncontrolled in-rush of revenue, out of proportion with the capabilities to invest it.

MINERAL RESOURCE RENT TAX
The minerals resource rent tax (MRRT) is a tax on certain profits generated from the extraction of coal and iron ore, applicable to companies whose annual profits reach AUS$75m. It came into effect on 1 July 2012 to all new and existing coal or iron ore mining ventures in Australia. The new Australian Government announced in October 2013 that it would seek to repeal the MRRT law, with effect from 1 July 2014.

QUESTIONS TO CONSIDER FOR A FUTURE SOCIETAL MORAL STANCE ON MINING
Who really owns Earth’s resources and who should be empowered to licence their depletion?
How should benefits from the depletion of irreplaceable natural resources be distributed – and who should be allowed to decide this?
If the world agrees that all of its population must share equally in prosperity, who will decide on how and where delicate ecosystems will disappear to supply this demand?
Is the mining industry sufficiently engaged in these questions or too absorbed in short-term profits?

Is society active enough in this debate?  
The potential for positively affecting the economies of underdeveloped countries is especially acute where mining projects include construction of large-scale infrastructure such as railways and ports. Sharing the benefits of new rail, road and port facilities are becoming increasingly important ways that large mining projects can introduce sustainable benefits beyond direct taxation. Electrification and improvements to water infrastructure fall into the same category.

Mining companies cannot dictate to sovereign governments how they spend income from mining and many countries do not have the skills or experience to ensure that proper systems of care are in place or that sudden influxes of high rates of income are properly safeguarded and used in the best interests of the country. A frequently cited example of a country that managed its natural resource wealth is Botswana, where transparent and consensual processes have enabled the country to govern its resource revenues in a way that benefits the country as a whole. Mining companies have a moral obligation to ensure that the benefits from their businesses are dealt with in a fair and transparent fashion, or else to question whether or not they should operate in jurisdictions where this cannot be assured. The widespread subscription to the principles laid down in the Industry Transparency Initiative has made important progress in this regard.

Moral mining
Establishing a moral case for taking natural resources from one part of the world to benefit another, with a large proprtion of the overall benefits leaving the host country, is becoming increasingly difficult. The same is true of the often irreparable change to delicate ecosystems from mining. Most modern mining companies try to operate in an environmental- and community-friendly way but with varying degrees of success. Mining companies must answer to their shareholders and are regulated by governments, but in the end they must also take careful heed of what society feels about the way they operate if they are to retain their long-term ‘right to mine’. In trying to judge whether the disturbance of Earth’s surface and consumption of its mineral resources at ever accelerating scales is justified, society must understand what is required from the mining industry to meet the demand for its products. It is up to us, as employees of mining companies, to put these points forward in a balanced way that takes the underlying moral concerns listed above into account. If we don’t do that, others who are often less well informed will do so, to the probable detriment of all.

These are, of course, thorny and difficult questions but the sooner they are publicly discussed, the better the debate will be on finding answers that are equitable and fair to society, its governments and to the financial risks undertaken by mining companies and their shareholders.

For more information, email mike.harris@riotinto.com

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