Acorn Ideas

Issue No. 33, March 2015

Mature and Frontier Mining Geographies: Where does Greater Risk (and Reward) Reside?

The Globe and Mail recently reported that multiple foreign companies are considering moving out of more traditional African mining countries like South Africa and Zambia.1 While mature mining countries may offer more advanced infrastructure, developed mining regulations, established supply chains, and a history of successful mining activity, other risks are rising to the forefront. For example, delays caused by electrical shortages in South Africa and royalty taxes tripling to 20% in Zambia have persuaded some companies to look at opportunities in less familiar, frontier areas in Africa. Until recently, smaller countries such as Ivory Coast were considered unstable or extremely risky which delayed development of the extractives industry.

Based on our extensive experience in developing countries, particularly in West Africa, Acorn International created this high level list of challenges that companies might encounter when investing in frontier nations or in shifting portions of their portfolios from mature mining arenas to emerging mining jurisdictions.

While each operation’s context is unique, the following are some suggestions to support a smoother transition into frontier extractive countries:

  1. Capacity Building: Companies entering into countries where the mining industry is relatively new may find a favorable fiscal environment to encourage investment as well greater receptivity for influencing and shaping the development of future regulation. Demonstrating an interest in helping the country develop regulation for the extractive industry through capacity building activities with local and national governments can help stabilize an otherwise continuously changing regulatory environment.
  2. Reputation and Perception of Extractives Industry for Social License: Given a lack of prior activity in the sector, mining “legacy” issues may be minimal in frontier environments, and in many cases communities welcome mining as a catalyst to their economic development. However, industry experience has shown that maintaining and establishing this goodwill requires systematic application of good international industry practice that takes a long term (beyond permitting) view into account. In addition, the entry of mining activity into small developing countries attracts media and NGO attention due to both legitimate and misinformed fears of potential adverse impacts. As a result, mining companies have to be vigilant in conducting proactive engagement with stakeholders, clarifying potential misconceptions, and in communicating achievable expectations for jobs and social investment outcomes. By doing so, companies are far more likely to obtain and maintain a social license to operate while avoiding opposition and operational delays.
  3. Education, Training, and Local Content: The skills and capabilities required to perform work for an increasingly technical mining industry are significantly different from those required of more traditional livelihood activities, such as agriculture and fishing. Opportunities to build out new local content strategies that are integrated with social investment approaches may help to develop qualified local staff and service providers while also preserving and stimulating economic activity in other economic sectors.
  4. Human Rights, Corruption, and Conflict Risks: Some of the emerging mining countries may have histories of human rights abuses, corruption, and conflict which have deterred companies from pursuing operations there in the past. In thinking through their risk profiles, mining companies in these countries will need to bear in mind that anti-mining activists increasingly articulate their opposition through human rights lenses (in response to prior allegations of government or corporate abuse or in advancing an overall anti-mining agenda). Well integrated Social Impact Assessments (SIAs) and/or stand-alone Human Rights Impact Assessments (HRIAs) as well as participatory community engagement approaches can help to mitigate human rights risk. Rigorous training of private security providers on the Voluntary Principles as well as approaches to influencing public security awareness of appropriate use of force and human rights considerations help to mitigate risk, promote a healthier company/community relationship, and ensure successful operations at international standards.

Acorn International LLC delivers social and environmental risk management consulting services to the extractive industries and investors worldwide. We work with local partners in over 80 countries worldwide. Use of these local specialists is paramount, particularly in developing countries, where information is often scarce, second-hand, and unreliable. We look forward to engaging in continuous improvement for the industry and building capacity with our partners.

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1 York, G. The Globe and Mail. Canadian mining companies find niches in smaller African countries. 10 Feb 2015. Accessed 20 Feb 2015 at http://www.theglobeandmail.com/report-on-business/international-business/canadian-mining-companies-find-niches-in-smaller-african-countries/article22904732/


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Issue 32 -Local Content in Mining: Increasing Expectations and Potential Solutions
Issue 31 -Fast Money Beware: Non-Technical Risk Due Diligence
Issue 30 -Social and Environmental Performance - Considerations for Difficult Commodity Price Environments
Issue 29 -A Window into the Opposing View - Stakeholder Concerns about Oil and Gas in Mexico
Issue 28 -Why Non-Technical Risks Matter to the Mexican Apertura
Issue 27 -Equator Principles:Drivers of Sustainability in the Oil and Gas Industry?
Issue 26 -The Transparency Tightrope: Examining UNEP’s New Access to Information Policy
Issue 25 -July 2014: Bouston
Issue 24 - July 2014: Land Tenure and Property Rights - Where Legal Compliance May Not Be Enough
Issue 23 - May 2014: 3 Things I Learned in Mexico - Non-technical Risks in the Oil Industry
Issue 22 - April 2014: Capacity Building on Stakeholder Engagement
Issue 21 - March 2014: Above-ground Facilities and Stakeholder Engagement: Deploying the 'CAC'
Issue 20 - March 2014: A Starting Point for Shared Equity
Issue 19 - March 2014: What It Takes to Run a Great Consulting Firm
Issue 18 - February 2014: Considering Human Rights - Trends and Lessons in Oil and Gas Impact Assessments
Issue 17 - June 2013: Managing Environmental Health in International Development Projects
Issue 16 - January 2013: Integrating Environmental and Social Performance throughout the Project Lifecycle
Issue 15 - January 2013: The State of Shale Play in 2013
Issue 14 - August 2012: Building Environmental and Social Governance in Host Countries
Issue 13 - May 2012: Human Rights and Business: A New Era
Issue 12 - February 2012: Extractive Industries Confront Pressure for Greater Transparency
Issue 11 - January 2012: Key Updates to the IFC Sustainability Policy and Performance Standards
Issue 10 - June 2011: Oil & Gas and NGOs: New Rules of Engagement?
Issue 9 - February 2010: Annual Study of Sustainable Development Priorities
Issue 8 - January 2009: Annual Study of Sustainable Development Priorities
Issue 7 - May 2008: Top Ten Lessons Learned About Health Impact Assessment
Issue 6 - January 2008: Annual Study of Sustainable Development Priorities
Issue 5 - September 2007: Results of web forum with our International Partners
Issue 4 - January 2007: Annual Study of Sustainable Development Priorities
Issue 3 - May 2006: Suggestions and tips for safe international travel
Issue 2 - January 2006: Annual Study of Sustainable Development Priorities
Issue 1 - November 2005: The Top 10 “unspoken" criteria for determining the success of EIAs

 

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