October 2015

Social capital in the life-of-mine

  • By Anna Littleboy FAusIMM, Research Director – Resources, Community and Environment Program, Mineral Resources Flagship, CSIRO

Exploring the complex and changing relationship between minerals companies, communities and the environment

Resource prices hang over Australia’s national economy like a mercurial CEO – sometimes inspiring unrestrained confidence and risk-taking, sometimes driving downsizing and restructuring, and sometimes instilling thoughts about how to diversify business. Perhaps understandably, the public/policy debate tends to focus on the short-term impacts of market prices. But behind the fluctuations of these prices there is a constant – rising demand for minerals to support global economic development, and a continued striving for technological innovation that will allow greater efficiency and productivity to supply that demand. The most obvious example is the transition towards automation – enabling operations to decrease costs, increase throughput, build competitive advantage, and lower cut-off grades.

As the resources sector innovates, its footprint on the land and its people shifts. As our society develops, accelerated by the connectivity permitted through social networking, its relationship with resource operations evolves. Hence there is a feedback loop set up between mining operations and people that is dynamic, changeable and mediated by technology. This interaction, whilst inevitable and foreseeable, is very difficult to quantify.  

Technological innovation in the industry has been the subject of numerous articles in industry and academic publications. Centres of research excellence – such as CSIRO Mineral Resources, the ORE and Deep Exploration Technology Cooperative Research Centres (CRC ORE and DET CRC), the ARC Centre for Excellence in ore Deposits (CODES), and CRC Mining – are dedicated to the delivery of technology-based innovation to improve productivity and efficiency in the resources industry. Technological innovation is embedded into the psyche of the industry and is seen as a route to increased productivity.

Less attention is paid to the changing nature of the social landscape in which operations are situated, despite some very obvious cause and effect relationships. A recent update of the CSIRO megatrends (Our Future World 2015) emphasises ‘porous boundaries’, ‘digital immersion’ and the ‘great expectations’ of consumers. These megatrends appear alongside the more common drivers of resource related research – those that derive from global consumption patterns.

Over the time frame of a 30 year operation, these trends – and the innovation that will follow – will substantially alter the nature of work, the nature of the workplace and our ability to monitor and manage the environment. This evolution, inevitable as it is, will drive significant change in what the industry expects from its local communities and in what the local and national communities expect from the industry.

For example, let’s look at automation again. Currently, one of the overriding benefits to local communities in the near vicinity of mining operations is employment (primary, secondary and tertiary). The automation of the truck fleets in the Pilbara will change the skills sets and number of jobs required at and around mine sites, but there are few estimates of these impacts. Conversations with industry representatives indicate a possible 30-40 per cent reduction in the near-mine workforce, as a result of halving the number of in-pit roles in an open-cut mine (McNab and Garcia-Vasquez, 2011). Some commentators identify that an increase in maintenance personnel will accompany the reduction in machine operators, as at El Teniente following the introduction of automated load-haul-dump machines (Bellamy and Pravica, 2010). But generally they predict that automation will culminate in a reduction in population of remote mining towns, a decrease in the lower skilled labour requirements for the mining sector, an increase in ‘fly-in, fly-out’ mining operations and remote control centres in larger cities – reducing employment overall in the sector.

Australia enjoys significant economic advantages as a result of its mature resources sector and the trade and the investment it brings to the country.  However, the very innovation intended to maintain this national advantage has the potential to erode the localised benefits experienced by mining communities. While the construction and initiation of new projects will inject finances into local economies, the longer term operational phases will, in the future, have less to offer local communities. A potential future problem or not?

Social licence, conflict and productivity

The International Council on Mining and Metals (ICMM, 2015) published data recently showing an exponential increase in the number of reported cases of significant mining/community conflict and displayed this against reported increases from annual surveys by the Business and Human Rights Resource Centre (Figure 1).

socialFig1

Delays cost, in more ways than one. Financial valuation tools are emerging, such as the IFC Financial Valuation Tool for Sustainability Investment (IFC, 2012), which argue a strong business case for the prevention of conflict (Jones et al, 2011) based on the identification of risks and flow-on effects from community opposition or conflict to the project. These costs can run into the billions (Davis and Franks, 2014). Moreover, an emerging correlation between market discount and social conflict (Henisz et al, 2013) suggests that conflict can, at the same time, wipe billions off shareholder value.

Social conflict at mine sites has negative effects on everyone. Through conflict, communities may feel they are ‘being heard’ but they are simultaneously pushing companies who could be agents for development further away. Companies lose time and money, and problematise communities. When things escalate then all parties lose out. Hence the attention given over the past decade to the concept of a ‘social licence to operate’ and the plethora of best practice guidelines emerging from peak bodies (ICMM, 2015), governments (DRTI) and global thinktanks (World Economic Forum, 2013) around stakeholder engagement and partnering for development. Companies make significant investments into social programs and community relations, often without understanding the manner in which these investments may, or may not, return value.

And yet, although social conflict has such a big influence on the balance sheet, systematic rules and norms for managing the issue have not yet been adopted into life-of-mine planning in the same way that grade control and other site-specific mining strategies have.

Detailed attention and sophisticated analysis is used to understand the resource and develop a mining strategy that will maximise production from the operation. From exploration through pre-feasibility and onwards, geologists and engineers are working to make sense of sparse, incomplete and variable information regarding the nature of the resource, the technology available to extract it and the supply chain required to deliver valuable product to market. Through the life of the mine, this rigorous assessment is continuously updated to take into account increasing knowledge of the orebody, changing market conditions and advances in technology. 

The industry is well accustomed to handling uncertainty, risk and change. Conceptually, we should not be far off applying the same level of rigour to proactively managing and valuing the relationship between the operation and its community.  To do that, we need to look at ways of integrating social capital into the productivity equation. Figure 2 presents a simplistic representation of what this might look like.

socialFig2

Currently, risks and impacts from the existence or lack of social licence are captured as part of risk-based accounting. However, social licence still tends to be managed as an externality operating on the business, rather than a fundamental component of how productive business is done. When it comes to creating goodwill amongst the community, there is a tendency (promoted through the media) to reduce the issue to the discussion of jobs, agreements and social investment.  This tendency privileges certain groups over others and is not easily adaptable to operational changes that will inevitably occur over the decadal lifetime of an operation. It also marginalises the community’s natural desire to act in a stewardship role over the environmental heritage of their home.

Planning for social change and innovation

Increasingly, studies are showing that social licence is more than just meeting regulations and maintaining community relations and social investment.  Society as a collective is smart. Meeting regulatory obligations is necessary, but not sufficient to command a social licence to operate in the extractive sector. Individuals and groups are connected to each other and to information on all scales through social media and the internet. Conflict can occur suddenly, triggered by external factors and facilitated by relatively small sectors of the community.

Reported causes and underlying causes of social conflict are related but quite different (Davis and Franks, 2014). The reported causes seem to be outcomes or consequences of a particular behaviour, such as environmental impact, consent seeking without consultation, or unacknowledged health concerns. Measuring and quantifying these reported causes can provide lag indicators of social conflict. However, the underlying causes appear to be about fundamental differences in the way companies and communities relate to each other (distribution of benefits, cultural norms and values). Developing lead indicators for social license requires attention to the nature of the relationship between company and community.

Moffat and Zhang (2014) have examined how people evaluate the benefits and negative impacts of mining and how this evaluation affects their acceptance of mining activities. They show that the quality, legitimacy and fairness of the engagements between industry and community are significant predictors of acceptance.

Herein lies the opportunity around social licence to operate, and also the risk. In terms of opportunity, these findings open up the possibility of working at the relationship, addressing problems together and of respecting different positions. In terms of risk, a company’s relationship with community requires ongoing maintenance through ups and downs to build a sense of joint ownership and commitment.

So the question is, now that we are beginning to establish and quantify the causal relationships between behaviours, social outcomes, trust and acceptance, can we (or should we) develop more systematic norms for the early assessment and ongoing management of social capital around a mine site? And how should we integrate these norms directly into life-of-mine planning? Perhaps we can draw a parallel with the sophisticated pre-feasibility studies and ore reserve estimations.

Summary

Innovation remains a pathway to increased productivity and a route for meeting future supply. Innovation is a strong driver of change in the resource sector and will impact on an increasingly savvy society. Therefore, new relationships with society are required to protect the value of the resource and build social capital. Developing a more systematic set of rules and norms to manage social capital through the life of mine is becoming increasingly important and could be tackled in a similar way to pre-feasibility studies.

In regards to automation, pinning a long-term relationship on the promise of jobs to come – which may be engineered out during the course of an operation – is not an act of respectful partnership. Instead, we must work together to identify what can be delivered through the course of a 30 year relationship, and create institutions and mechanisms from which all can benefit. 

References

Bellamy, D and Pravica, L 2010, ‘Assessing the impact of driverless haul trucks in Australian surface mining’, Resources Policy, (doi10.1016/j.resourpol.2010.09.002).

Davis, Rachel and Daniel M. Franks. 2014. Costs of Company-Community Conflict in the Extractive Sector. Corporate Social Responsibility Initiative Report No. 66. Cambridge, MA: Harvard Kennedy School.

Department of Resources Tourism and Industry 2011. Leading Practice Guidelines for Sustainable Development Handbooks.

Financial Valuation Tool for Sustainability Investments: User Guide (2012) IFC, MIGA, Deloitte, January 2012.

ICMM 2015 Stakeholder Research Toolkit: Best Practice guidelines for measuring and monitoring stakeholder relationship in the minerals and metals industry resources sector. ICMM 2015.

International Council on Mining and Metals : In Brief. Research on Company and Community Conflict. Social and Economic Development 2015.

Jones, V.N., Lukic, J., Bhalla, A., and Tapiero, D. (2011). Measuring Returns on Community Investments. First International Conference on Social Responsibility in Mining (SR Mining2011), Santiago, Chile.

McNab, K.L. and Garcia-Vasquez, M. 2011. Autonomous and remote operation technologies in Australian mining. Prepared for CSIRO Minerals Down Under Flagship, Minerals Futures Cluster Collaboration, by the Centre for Social Responsibility in Mining, Sustainable Minerals Institute, The University of Queensland, Brisbane.

Owen, J.R., Kemp, D., Social licence and mining: A critical perspective. Resources Policy (2012), http://dx.doi. org/10.1016/j.resourpol.2012.06.016.

Thomas Y.Choi, Kevin J Dooley, Manus Rungtusanathamc 2001: Supply networks and complex adaptive systems: control versus emergence. Journal of Operations Management 19 (2001) 351–366.

Witold Henisz, Sinziana Dorobantu Lite Nartey, 2013 : Spinning Gold: the financial returns to stakeholder engagement  Wharton School of Business.

World Economic Forum 2013: Responsible Minerals Development Initiative: Mineral Value Management – A Multidimensional View of Value Creation from Mining.

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