Pressure builds on extractives companies

Two Tomorrows consultants Alex Nichols and Doug Bannerman highlight some of the key developments shaping stakeholders’ expectations of extractives companies

We are at a turning point for the exploration and extractives sectors. As we saw from BP’s tragic accident in April this year, world events clearly affect these sectors – while also shaping the decisions and expectations of regulators, investors, employees, communities and others.

Growing worldwide demand for metals and minerals is pushing exploration activities into ever more challenging places where prospectors face remote and difficult terrain and/or complex socio-political conditions.

We note that mining companies should expect growing government intervention – witness Canadian government intervention in BHP’s Potash bid, changes in Australia's tax regime and increased levies in Chile, South Africa, Zambia, Tanzania and Burkina Faso. First Quantum Minerals is losing its tussle with the Democratic Republic of Congo and both Khan Resources and Centerra Gold are struggling in Mongolia as is Crystallex in Venezuela.

On top of this, the high-profile media stories on Los 33 in Chile, the Pike River Coal tragedy in New Zealand, and the MAL tailings spill in Hungary have intensified the spotlight on the mining and metals sector.

Beyond this, some important trends in recent years include:

• The concept of ‘social licence to operate’ has emerged. It requires exploration companies to show how their activities align with local needs, values and concerns. While good practice means securing all appropriate legal licences to conduct aerial or physical surveys, seismic tests or drilling, ensuring broad stakeholder involvement from the beginning is vital as potential exploration projects move into feasibility and development phases.
• The right of indigenous peoples to ‘free, prior and informed consultation’ (FPIC) has been recognised by a number of intergovernmental organisations, international bodies, conventions and international human rights laws in varying degrees and increasingly in the laws of state.
• A greater awareness of biodiversity’s role in sustaining life and the business value of ecosystems services has focused attention on the role of business in its protection.
• The International Finance Corporation (IFC) Performance Standards are emerging as an almost de facto CSR standard for extractives companies, regardless of their need to obtain IFC project financing. Similarly, financial institution members of the Equator Principles are growing weary of the environmental risks associated with mining, meaning that exploration activities may face financing challenges.
• The introduction (and failure) of Private Member's Mining Accountability bill, Bill C-300, by Liberal MP John McKay to the Canadian Parliament and the resulting discussion around the role of the Canadian government in regulating the activities of Canadian mining companies in sovereign jurisdictions.
• The Canadian government has created the position of CSR Counselor for the extractive sector following the Final Report of the Corporate Social Responsibility (CSR) Roundtables. This is a role that is currently unique major mining countries.

As stakeholder expectations of the exploration sector continue to evolve, stakeholder engagement and reporting will be critical platforms for demonstrating accountability and transparency on social, environmental and safety performance.

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