Licence to operate: understanding the biggest challenge for mining in 2019

According to the survey participants, CEOs and boards recognise the stakeholder landscape is changing and miners need to adapt their current approach, which is not broad enough. Moreover, globalism is advancing nationally, and the necessity of digital transformation highlights the need for a stronger licence to operate.

“Mining companies are now recognising this is a strategic concern,” says Jimena Blanco, head of Latin America research at Verisk Maplecroft, “and an operational one, too; it’s not just about having some corporate social responsibility programmes and investing in the local community: there is a recognition this affects the bottom line.”

The term social licence to operate emerged in the mid-1990s from within the mining industry as a response to social risk. Over the years, the issue has evolved beyond the narrow focus on social and environmental issues to have an increasing emphasis on transparency, shared value and genuine collaboration between governments, local communities and mining companies.

Yet, the industry fails to get the basics right, often with devastating effects that write headlines across the world. The recent Vale dam collapse in the Brazilian state of Minas Gerais that is believed to have killed 300 people is just one example. This latest mudslide follows another nearby three years earlier, involving a business co-owned by the same company.

Other incidents hit the news weekly, shattering trust between miners and local communities. Each incident serves to strengthen an increased sense of nationalism and protections, civil society bonds and overall opposition to mining.

“These incidents have a multiplier affect; when companies are talking to communities, it’s not just about concerns for their community, but they are asking, how can you guarantee what happened there won’t happen to here?” says Blanco.

Miners must do better. EY suggests companies need to “transform their business models to remain more competitive and bring all their stakeholders along on the journey,” with the licence to operate becoming part of a mining company’s DNA in the same way as safety. But what does this mean in practice?

Blanco says it’s best to start thinking about social engagement and licence to operate at the earliest stage, even before prospectors are on the ground, because those prospectors will be the first impression the company provides.

“Companies should do a risk assessment at this point, ideally going as granular as possible, doing on the ground research,” she says. “Then create a risk matrix and track the evolution of those risks; the idea is to always detect risk to avoid it having impact.”

Relying on second-hand or third-party information is a risk in itself. “Do your own homework, don’t rely solely on your operating partner or your local partner or the national or local government, because by the time it’s clear their assessment wasn’t accurate, the damage is done and much money will likely be needed to remediate it,” Blanco warns.

As a rule, companies should also conduct a social and human rights impact assessment, following United Nations guiding principles.

“It’s important to do strategic risk assessments because the risk changes depending on the country, the region or whether a company is operating close to indigenous communities or by a natural reservation,” adds Blanco.

Then a company should detect what actual impact it will have on nearby communities and how to prioritise remediation. They should also determine what is perceived as an impact by communities.

“The companies that are getting it right are the ones that are looking at the needs of the community and what is driving those needs, because sometimes it might be that local mining communities are not seeing the direct impact of the industry being there due to government mismanagement of tax payments, or that local communities have had bad experiences from the industry in the past,” says Blanco.

It is hard for companies to navigate around governmental and other issues that are seemingly out of its control, but they must play a role. This might be, Blanco says, as a link between the community and the government, bridging an institutional gap.

“Companies can lobby with the government and say our community needs a water treatment plant or an irrigation system rather than a new road, for example,” she says.

In the aftermath of the Vale dam disaster in Brazil, South32’s CEO Graham Kerr called for “meaningful action” across the mining industry in response to the deadly accident in Brazil, and for the industry to do better overall.

Yet while this may be easier for the majors, it will be harder for the cash strapped juniors. Nevertheless, Blanco says it is a price that will be paid one way or another.

“From the company perspective there is recognition now that not investing in this actually costs more due to operational disruption or answering questions from external investors or intuitional stakeholders,” she says. “It is actually a small expenditure compared to managing protests or meeting with investors or losing investment because of exposure to specific government risks."

Peru, which has seen a raft of protests against mining projects and environmental deregulation, is a good example of how difficult it can become to operate when a community – or a country – loses trust in the mining industry.

Now that social licence to operate is clearly on mining CEOs’ minds, will the sector see companies make the necessary changes once and for all?

“At the moment, it’s a mixed picture – some companies are doing this and taking it seriously, top down from their board, others don’t,” says Blanco. “In our view, an industry wide concerted effort is where part of this problem lies, maybe not at the international level but at the national level where the mining chambers of different countries might not prioritise it much or there is no consensus on how to tackle it, companies need to be aware of this and manage the risk.”

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