Tom Burke’s political commentary: The risks that mining can’t dig its way out of

ENDS Report 429, p. 52, October 2010.

With its big environmental impacts and need for huge upfront investments, the global mining industry needs political and policy stability more than ever before.

I was in Western Australia in early October. I had been invited to speak at the Minerals Council of Australia’s annual conference on sustainable development. Mining was grabbing global headlines.

The dramatic rescue of 33 miners in Chile after 69 days below ground was a huge story. Understandably, this focused almost exclusively on the technical brilliance of the rescue effort. Less attention was being been paid to why a mine with such a dangerous reputation was allowed to operate at all.

Then there was the collapse of yet another tailings dam, this time in Hungary. The toxic torrent of red mud that killed nine people and left a filthy residue will take years to fully clean up.

This was followed by an underground collapse that killed four in Bolivia and an explosion in a Chinese mine that killed 26. These were all powerful reminders of the human cost of winning the metals we depend on.

Eleven years ago I spoke at the very first council conference on sustainable development. At a time when the global mining industry was facing a set of profound challenges, I argued that it was widely seen as dirty, dumb and dangerous.

This was less brave than it appears for I was not telling the delegates anything they did not already know. The challenge I set out was for the mining industry to become, and to be seen to be, clean, clever and careful.

Much has changed since then. The world’s leading mining companies set out to define the contribution their industry made to sustainable development. And the Global Mining Initiative was launched as a strategic effort to reform the industry’s behaviours on safety, the environment and on its relations with its host communities and the way it engaged with other social actors. The International Council on Mining and Metals was set up as a CEO-led body to give a global voice to the mining industry.

But in the light of the recent headlines no one would claim the industry had succeeded in meeting that challenge. Nevertheless, there is also no doubt that at least the major players in the industry are a lot more careful and much cleaner and cleverer than they were in the 1990s.

A decade ago, the big challenges to the industry arose from questions society was asking about its environmental and social impacts, the boom and bust disruption of local economies and its involvement in corruption and breaches of human rights.

What was at stake for the industry was retaining its social licence to operate. Those challenges remain. But they are now being joined by a new set of profound challenges, this time driven by what the mining industry needs from society.

The world is moving rapidly from an era of abundance to one of scarcity. This is generating new and increasingly difficult threats to stability. What is now increasingly at stake is the industry’s willingness to invest at all.

Large mining companies typically make high capital, long-life investments. Essentially, they invest billions of pounds in holes in the ground that will generate revenues for 30 years and beyond. A big project can easily be spending money in ever increasing amounts for 15 years before it receives any revenues at all.

This makes political and policy stability primary conditions for success. The need for political stability has concentrated most mining investment in the mature economies of North America and Australia. But the search for low-cost, long-life resources is increasingly driving investment into much less politically stable regions such as West Africa and Asia.

Furthermore, as governments struggle to maintain the pillars of prosperity – food, water, energy and climate security – the risk of abrupt policy changes grows. Judging the likely impact of carbon prices over the lifetime of a large mine is an increasingly fraught task for mining economists. And droughts can lead to sudden and disruptive changes in water policy regimes, affecting another of the industry’s critical resources.

My message to the miners ten years ago was that they had to come up with much better answers than hitherto to the questions society was asking of them if they were to retain their social licence to operate.

My message this year was that the industry needs to be much clearer about what it needs from governments if it is to be able to invest at all in the future.

The accelerating growth of global affluence is transforming the landscape of risk and opportunity for the industry. Ten years ago the principal driver of that change was a company’s own behaviour. The risks back then were endogenous. Those risks remain but they are increasingly being joined by exogenous risks driven by the actions – or inactions – of others, especially governments. These risks are driven by behaviours beyond the business boundary.

This new risk agenda includes those risks connected to failing states or intra-state conflict; policy failure on systemic issues such as climate change; increasingly sophisticated NGO campaigns targeting company law as well as environmental law; increasingly abrupt policy shifts, over-stressed host communities and much more besides.

And, as always, wherever there is a risk, there is an opportunity.What these emerging risks have in common is that they all require companies to reach out beyond the business boundary to manage them. In particular, they require a much more sophisticated and strategic relationship with governments.

The political and policy stability needed to justify the long life investments the mining industry makes will be increasingly difficult for governments anywhere to deliver.

The challenge that these emerging dynamics pose – and not just to the mining industry – is to develop a more three-dimensional approach to risk.

This will need to integrate existing quantitative economic risk assessment skills and methodologies with policy and political risk assessments that are more qualitative.

About tomburke

Tom Burke is the Chairman of E3G, Third Generation Environmentalism, and an Environmental Policy Adviser (part time) to Rio Tinto plc. He is a Visiting Professor at both Imperial and University Colleges, London. He is a member of the External Review Committee of Shell and the Sustainable Sourcing Advisory Board of Unilever and a Trustee of the Black-E Community Arts Project, Liverpool.
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