The Morality of Mining

Materials World magazine
,
3 Oct 2015

Miguel Diaz and Richard Leferink join Mike Harris’s call for a debate on the morality of mining, and outline a framework to move forward.

This debate follows a difficult economic period for major mining companies and the larger collection of extractive industries (including oil and gas). It only has a chance of success if it is framed in the reality of the industry as a whole and in the use of a well-defined conceptual framework so that a clearly shared understanding is developed by all the necessary parties. One of the objectives of this debate, and probably the most important, would be to agree on a moral stance that would grant a mining company the right to mine and establish a platform of expectations for all stakeholders.

Project development in the mining industry is complex because of socio-economic demands, biophysical constraints, differing development preferences and host country institutional uncertainties. At present, mining companies gain official permission to mine by trying to adhere to the law of each jurisdiction where the deposit is located. In some of these jurisdictions, the rule of law does not extend explicitly to mining, may apply in an arbitrary or ambiguous way, or lacks qualitative and quantitative performance thresholds, creating an uncomfortable and uncertain situation for companies. 

The assumed basis for a successful project implementation is that (having solved the technical and financial issues) companies will stick to the law or agreement and gain the so-called social license to operate. The social license is also pursued on an international lending level by complying with good practices, such as those established by the International Finance Corporation (IFC) Performance Standards (PS) or equivalent, and engaging in dialogue with project host communities. Mining companies’ expectations are (as a result of such dialogue, consultation and exchanges) that the social license will be granted through mutual agreement. However, in some cases, this unofficial license can be altered or withdrawn suddenly, as many mining companies have experienced. 

Landscape of the industry

Participants in the mining industry include employees, consultants, academic institutions, investors, service and finance providers. The key group is mining companies, as they bring together all production factors (such as capital, exploration, engineering). The mining industry
is constrained by factors such as:

Mineral deposits cannot be moved

Each deposit has unique metallurgy, environmental and social constraints

The industry is based on projects that are both spatially and temporally finite

The price of metals is decreasing while consumption of metals keeps increasing with time 

There is volatility in the price of inputs required for mining, such as energy 

The changing political/stakeholder landscapes

The industry was in a mindset of faster development and bigger projects until fairly recently

The International Council on Mining and Metals (ICMM) has estimated there are 6,000 mining companies covering the industry spectrum from early exploration to operations and closure, but only 500 have assets exceeding US$1bln. One would expect different behaviour from different mining companies. 

The moral code

A moral code can be defined as a written, formal, and consistent set of moral rules, accepted by a person or by a group of people. The first consideration is to recognise that the code cannot cater for every scenario, but if the key issues and processes are included then it should help and promote the judgement of all the players to do the right thing. The key issues are technical, social, legal and ethical considerations that need to be balanced by a set of criteria that will allow consideration of site-specific issues. One key debate would be when the interest of local communities can be overridden by national interests and, as Mike Harris mentioned, who provides the licensing of mining in delicate ecosystems. Many issues and criteria will need to be evaluated and agreed upon, but some of them are:

An agreed definition of the spirit of the code that all players can subscribe to

An information and knowledge dissemination strategy for debate and the code

Understanding of risk, and risk sharing by all players

Economic rent distribution criteria

Partnership mechanisms and principles

Legal contract principles

Monitoring and enforcement procedures for the code.

The debate should involve all the previous stakeholders in the GMI as well as, crucially, specific governments – only then will whatever moral code is generated have a chance to be enforced and make a difference to the industry, local communities and society at large. There are already many elements on which to base the moral standards as a result of the Global Mining Initiative (GMI), such as the Extractive Industry Review (EIR) and the Extractive Industry Transparency Initiative (EITI).

A brief definition of the stakeholders:

Governments

There are significant variations in the types of governments and national levels of rule of law around the world. If there is any authority able to grant the right to mine, at the moment, it would be governments. From the mining industry perspective, the most important issue is how civil societies and host communities perceive the legitimacy of their governments and the level of trust vested in them. The higher the level of trust between civil society and government, the more valuable the right to mine becomes. 

In some instances, there is a big asymmetry between the knowledge of regulators and mining companies and this raises the issue of whether an institution with insufficient knowledge can provide consent. 

Investors

Each investor may have a different level of understanding and information available to them. Usually investors are active in the market when the expected returns are at the level of a ‘gold mine’ and this is a contributing factor to the boom/bust cycle that the mining industry regularly suffers from. One argument put forward by the industry is that mining is recognised as being high risk and therefore high returns should be allowed in order to ensure that there is sufficient activity to allow enough projects to be developed to sustain demand for mineral products.

Host communities

Host communities are unique from any socio-economic perspective considered and are usually the main receptors to any impact created by new development. In most jurisdictions, one requirement for obtaining a permit to build a mine is to conduct an Environmental and Social Impact Assessment (ESIA) of the proposed project. The ESIA has been evolving from an environmental (bio-physical) to a more human-centric (social) process to the point that the present naming convention for an ESIA no longer reflects the nature of the process. The ESIA becomes the forum where local stakeholders can influence project development. One point to reiterate is that it is usually local communities that may suffer most from negative impacts of a project (in the absence of effective mitigations)

Model agreements for mining projects have been prepared by others such as the International Bar Associations Model Mining Development Agreement (MMDA 1.0), a template for negotiation and drafting. This template may represent a good starting point for further enhancements, along with other contributing references. Ultimately, a moral code would be tailored to each country to capture unique situations on both country and community levels. 

As a strategy to get the debate going, the industry should seek to engage a series of countries (with mining potential) to gain the right to mine. The development of an enhanced model contract that could be adopted as morally sound with defined ranges of what is considered acceptable to divide the ‘economic rent’ between shareholders, governments and local communities would be a great step forward in the potential success of the implementation of the moral code.

A successful moral code will act as a brace to successful projects and push players to solve problems on a national level. The moral code should act as a kind of centripetal force to assist players in solving the innumerable problems associated with developing and operating complex industries.

The advantage for countries endorsing a moral code would include attracting the most responsible companies and those companies will have very clear parameters of engagement. Host country communities and civil society will have a better understanding of what to expect following a company commitment to invest in a country and the terms and conditions will not be changed without their consent.

Developing and adopting a high-level ‘moral code’ on the host country level could reduce risk and provide stability from the company perspective. Ideally, such a code would ensure the project is a shared risk and fair rewards are gained by all stakeholders.

If the moral code addresses the right issues and develops the process and criteria that allows fair and balanced outcomes for all players, then it will act as a centripetal force to keep the mining operations going throughout the life of the mine.

Miguel Diaz is the Technical Director – Environmental at AMEASE, Construction and Speciality Consulting, and Richard Leferink is the Senior Social and Economic Analyst at Amec Foster Wheeler E & I, Denver Mining Group. 

The authors wish to acknowledge Amec Foster Wheeler for permission to publish and our colleagues in general for many years of fruitful discussion. 

An additional paper has been prepared describing the conceptual framework of the moral code and how it might be implemented. This paper is complementary to this article and may be requested by email to richard.leferink@amecfw.com or kirsten.floyd@amecfw.co

Want to join the debate? Materials World is organising a round table of opinions on this subject. To be involved, email rhiannon.garthjones@iom3.org