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A Bottom-Line Focus For Solving Mining Conflicts

Downstream from the suspended Pascua-Lama mine, in Chile's Atacama Region (Credit:  Alturas Oceanicas)
Downstream from the suspended Pascua-Lama mine, in Chile’s Atacama Region (Credit: Alturas Oceanicas)

The lure of precious metals and other natural resources has long been a source of conflict in Latin America, from the Andes to the Amazon and most everywhere else.  But new research has begun to put a price tag on this conflict, and investors have started to respond. When the lives and livelihoods of Indigenous Peoples are uprooted by large-scale mining developments, their opposition is driving up the cost of these developments, a point that is finally starting to get noticed in corporate financial statements.

In a class action lawsuit filed last week, investors of the Barrick Gold Corp. argued that the company misstated the financial risk in its $8.5 billion Pascua Lama mining development on the border of Chile and Argentina. The project was originally estimated to cost $3 billion.

Instead of mineral riches, Barrick has unearthed a wealth of criticism for the project’s environmental impacts and how the company has addressed the concerns of local communities. Farmers living downstream of the mega-mine have fought the company for more than a decade, insisting that it would degrade the glaciers above the mine and that chemicals like cyanide and mercury will flow through the watershed of the semi-arid environment.

While the project has been shelved by Chile’s environmental authorities, Barrick has been trying to restart the project, which it once promoted as having the potential to become “one of the world’s largest, lowest cost mines.”  All activity at the development—which sought to tap more than 15 million ounces of gold and 675 million ounces of silver—is currently suspended, which will cost the company an estimated US$300 million in 2014.

Argentina’s mining minister has also been outspoken in urging the project forward.

The conflict between Barrick and the local communities was typical of the 50 case studies examined in the first peer-reviewed study on how local conflicts impact the bottom line in international mining, oil and gas developments. The researchers found that delays caused by local conflicts could cost about US$20 million a week for mining projects valued between US$3 billion and US$5 billion.

The lead author for the study, Deputy Directory of University of Queensland Centre for Social Responsibility in Mining Dr. Daniel Franks, said that community opposition had become a major contributor to the cost of projects.

“There is a popular misconception that local communities are powerless in the face of large corporations and governments,” Dr Franks said. “The cost-cutting currently under way in these industries seems to be missing the potential opportunities for cost savings that can come from investing in improved relationships with communities.”

The Pascua-Lama project was featured in a report released recently by the Inter-American Commission on Human Rights (IACHR) on the impact of Canadian mining in Latin America. The IAHCR report notes that 50-70 percent of mining in Latin America is run by Canadian companies like Barrick. In 2012, more than half of all mining companies globally were registered on the Toronto Stock Exchange (TSX) and almost three quarters of all shares issued by the mining sector in the world were run by the TSX.

Yet when asked by The Guardian to respond to the IAHCR report’s main points, a spokesperson for Canada’s Department of Foreign Affairs, Trade and Development (DFATD) said that “Canada’s mining sector leads the world in responsible mining practices.” The disconnect between what happens on the ground and how it is discussed on the other side of the world goes a long way in explaining how conflicts escalate to the point where the bottom lines of international corporations are imperiled.

It remains to be seen whether the new shareholder lawsuit will motivate corporations to build constructive relationships with local communities affected by large-scale natural resource developments. More often than not, the communities feel bulldozed instead.

“A number of companies have been caught out assuming that seemingly powerless local communities and Indigenous Peoples won’t have a material impact on the success of the development,” added Dr. Franks, who emphasized the need for companies to identify and respond to issues before they escalate into conflict.  “Extracting resources is as much a social project as it is a technical one.”

Comments

  1. John Klotz
    May 27, 2014, 5:41 pm

    The importance of this piece is that it refocuses attention on disputes between forces seeking to develop as yet underdeveloped lands of South America including the Amazon. In the past year there have been multiple reports of environmental disasters around the the globe that threaten climate disasters on an unheard of scale.

    The struggle to control over-development in South America is the struggle for survival, not just of the indigenous peoples, but of humanity itself.