Those in the mining industry are heading towards a future where a holistic approach to mine development will be fundamental for achieving a balance between strong financial returns and corporate social responsibility and transparency. The need to demonstrate sustainability at every step is in correlation with the best ore reserves becoming more remote, deeper and more complex, as well as being located in geo-politically challenging regions.
Planning and implementing sustainable development leads to improved productivity, the development and maintenance of a social licence to operate, stronger community relations, and greater collaboration between the many varied stakeholders in the ore chain.
Each year, the Fraser Institute conducts a survey that includes a ranking of the world’s most attractive regions for mining investment. Results from the survey consistently reinforce the importance of stable, transparent and predictable policies to attract globally mobile mining investment.
In the latest survey, over 36 per cent of respondents agreed that public opposition to mining had affected the permitting and/or approval process, with 23.8 per cent citing “permitting/approval delayed by 2 - 4 years,” as the most frequent way public opposition had affected the permitting and/or approval process. The second most common reason, cited by 21.8 per cent, was “permitting/approval delayed by 1 - 2 years,” followed by 21.3 per cent indicating “permitting/approval rejected.”1
When asked on what grounds the public opposed the mining project, respondents named environmental or water usage (59.2 per cent) as the most frequent reason given.
In 2005, PricewaterhouseCoopers’ global review of major mining capital projects indicated that over the prior decade, just 2.5 per cent of projects successfully achieved the desired outcomes in terms of cost, timing, scope and business benefits2. By comparison Ed Merrow, in his book Industrial Mega Projects, indicates a 35 per cent success rate for major projects across all industries.3
Sustainability and commercial issues, rather than technical issues, are often the reasons given for project failure. A failure rate of 97.5 per cent, well above the all industries average, strongly indicates the failure of mine development methods to keep pace with industry trends. Perhaps, therefore, it is time for a new approach.
Figure 1: What the research says
Current mining practices lean towards treating environmental and social/community aspects as discrete compliance issues: to be dealt with at minimum cost and disruption to the project and resulting operation. This approach often delivers less than optimal environmental and social outcomes. It also presents considerable liabilities at closure – when rehabilitation programmes continue to require funding after revenue has ceased.
The Five Capitals model4, which has been expanded to Six Capitals and promoted by the International Integrated Reporting Council (IIRC), provides a helpful basis for conceptualising sustainable development. The model uses the concept of natural, human, intellectual, social, manufactured, and financial sources of capital to encompass the dimensions of sustainability. The IIRC model offers a holistic approach to mine development, considering all six capitals in assessing the best possible approach to the project.
Financial capital, in this context, is a function of the other five capitals. It has no intrinsic value on its own, but rather serves as a mechanism for trade between the other capitals. From a resource perspective, this highlights the importance of access to the five non-financial capitals to develop a financially viable project.
Figure 2: The “Six Capitals” approach
For instance, ores are mined and waste rock and tailings are generated (natural capital). Different professional skills (geologists, engineers, managers) are required to develop and operate mines (intellectual and human capital). Project, construction, and operational teams, along with ore chain stakeholders need to work together to develop and operate mines (social capital). Infrastructure and equipment are essential to extracting a resource, processing the ore and transporting the concentrate (manufactured capital).
All of these activities need to occur under the right business and regulatory conditions to have a viable mining operation and to generate financial capital. Significantly compromising any one or more of the five non-financial capitals can negatively impact on financial capital; equally, enhancing any of the five non-financial capitals can improve financial capital. Naturally, there should be a balance between revenue generated from financial capital and the costs associated with any or all of the non-financial capitals.
There is immense value to be unlocked through a holistic focus on deriving value through a capitals-based sustainability approach.
During 2013, Aurecon undertook a case study at a sulphide nickel mine in Western Australia. The project was for the expansion of the mine to a new underground mine and an upgrade to increase production to support the deeper mining depth. The team reviewed the owner’s draft scoping study and, using a holistic capitals based approach, identified a number of project risks (including at least one potential fatal flaw) and value adding opportunities.
Focussing on the combination of Natural Capital (the ore and its properties, particularly hardness) and Manufactured Capital (the existing processing plant and proposed expansions) the potential bottleneck in the mill was identified as a major risk to the production rate and viability of the project. The high hardness of a significant proportion of the mill feed ROM ore presented high risks to the mill throughput. In addition, the size distribution from the SAG mill indicated large volumes of critically sized ore potentially clogging the circuit. A pre-crushing circuit and pebble crusher were proposed to mitigate this risk.
An even bigger value impact was obtained looking at the Natural (surrounding environment), Manufactured (the processing plant and mine water disposal ponds) and Financial (return from the product) Capitals. Highly saline water is produced in the existing open workings and significant additional water will be produced in the expanded mine. The existing project disposes water through evaporation and seepage from Water Management Ponds (WMP). This represented a potential fatal flaw, due to insufficient existing and expanded pond area available for the additional water volumes. Testing indicated that the use of hyper-saline water would:
Combining use of mine dewater in the process plant with innovative use of sprinklers to accelerate evaporation and a proactive, predictive water management tool based on modelling obviated the need to construct additional water management ponds with a significant capital saving.
The capital cost, revenue and risk outcomes of the capitals based approach are summarised in Figure 3a-c.
By taking this holistic integrated approach, asking the right questions and designing to seek value, all of these outcome categories showed positive benefits to the project – even though on an individual level, some items increased capital or operating costs. Overall both capital and operating costs were reduced, leading to an estimated 12 per cent increase in revenues and a large reduction in project risk.
Figure 3a: Capital cost savings from Capitals based holistic approach
Figure 3b: Risk reductions from Capitals based holistic approach
Figure 3c: Outcomes summary from Capitals based holistic approach
Lengthening mine logistics chains have redefined a mine’s community to extend well beyond the mine boundary to a wide variety of stakeholders involved in these chains.
A new approach to social licence to operate, creating sustainable mining operations, minimising environmental impacts and increasing project value beyond the consideration of financial objectives, requires greater collaboration between this expanding numbers of stakeholders.
Today’s partnerships extend beyond governments and mining companies to include outside investors, infrastructure developers, international nongovernmental organisations (NGOs), community groups, and local businesses. Collaboration between these varied stakeholders is vital in helping economies and mining projects succeed.
Part of the recipe for success is bringing together all invested parties to work collaboratively to identify and develop initiatives that unite mining houses, allow governments and communities to deliver sustainable economic growth in a particular region, bring together country and community, and identify and realise business value for shareholders, employees and stakeholders.
A further key ingredient in successfully managing the complex relationships that exist between the myriad stakeholders is to build harmony, as proposed by Thomson and Boutilier (2001) in their pyramid model of the Social Licence to Operate.5
At the 2014 Mining Indaba conference in Cape Town, South Africa, a common theme around sustainability and community issues was that of ‘trust de?cit’ relating to the mining industry’s chequered past with regard to local communities and environmental issues. This seemed to work both ways, with mining companies perceiving a similar trust de?cit in the behaviour of so called community leaders in discussions and negotiations with miners. Certainty around the legitimacy, long-term mandate and community backing of these leaders was a critical issue for miners.
An additional theme articulated by mining companies was that their operating environment can be characterised as a complex system, complicated by unpredictability, uncertain relationships, and vulnerability to forces beyond their control.
Saha (2013)6 outlines how complexity management theory indicates that well managed systems result in harmony. Managing complexity is about creating and sustaining coherent enterprises in complex environments. Networked organisations aim to achieve coherence in favour of alignment (associated with rigidity and control) - especially in environments where the actors are not all under the control of a single entity. With coherence comes ?exibility, agility, and adaptability. Organisations can achieve coherence by integrating diverse elements of a complex system and harmony within their relationships.
More companies are starting to view sustainability as integral to ef?cient and pro?table business, as opposed to a straight compliance issue. Sustainability is starting to follow the shift of workplace health and safety in mining companies over recent decades, from an imposed compliance issue to a proactive culture.
Mining companies are seeking lack of con?ict, agreements respected, and mutual accountability frameworks with their stakeholders – all of which are evidence of integration between diverse elements and resultant harmony.
Many mining companies now recognise the bene?ts of proactive early engagement with their impacted communities and the fostering of attitudes that go beyond tolerance of the project towards support or even ‘psychological identi?cation’ (Figure 4), where the government and community together defend the project against detractors.
Figure 4: The “pyramid” model of the SLO proposed by Thomson & Boutilier (2011)
Historically, the approach has been to achieve regulatory compliance, i.e. the acceptance layer in Figure 4, especially for environmental and social impact. To be on a path towards social licence to operate, the project would need to be, at a minimum, within the approval layer. This would help ensure communities are not motivated to disrupt the mine operations. Once the project has surmounted the trust boundary, there is potential for communities and other stakeholders to actively contribute to the project’s sustainability.
Initiatives that provide forums in which the mining company and community can discuss matters of common interest have gone a long way in creating mutually beneficial relationships. Outcomes are particularly successful where the selection of members representing the community has the full backing of legitimate community leaders. Successful community engagement results in harmony over the long-term.
The method of community involvement in mine and enabling infrastructure development, especially through labour intensive projects for low-tech infrastructure construction and maintenance, such as roads and mine housing is providing a growing body of evidence of its effectiveness, both as a means of positive community engagement and corporate social responsibility (CSR), as well as developing community skills and income generation beyond corporate, government or aid hand-outs.
Truly successful projects are those that not only achieve their delivery objectives, but also add value by integrating their activities with local and regional efforts to achieve self-sustaining social and economic development. A focus on understanding local realities and concerns, while building social and economic capital, supports the delivery of community resilience through investing the in the well-being of present and future generations.