Florencia Heredia of HOLT Abogados examines the increase in investment and prosperity in the sector, and the corresponding corporate social responsibility of mining companies to communities and local governments.
The mining industry has always faced major challenges across the world – maybe because it is a very old industry (going back to prehistoric times), which can be viewed in a good and in a bad way: the mining industry has a strong history, but it could also be said that it does not have a good reputation within this history.
This notwithstanding, it is fair to stress that, today, high demands for metals in world markets, investment interest and an increase in commodities prices have all made the industry notorious and also very prosperous in recent years.
In addition, no one would deny that vibrant mining sectors can contribute significantly to the wellbeing and economic growth of a country. This has been seen in many jurisdictions, and Latin American countries are no exception. In this regard, Chile, Peru, Mexico and Brazil are the current leaders in receiving investments in the mining sector; they are followed by Colombia and, to a lesser degree, Argentina.
In this context – and independent of geological resources – the legal and investment frameworks, and the nature of mining policies, are to be considered key factors in the development of the industry and the main triggers for attracting or deterring investments in the area.
However, the general increase in investment and prosperity in the sector is only one part of the equation. In this regard, we have also been witness to the persistent and increasing social and environmental demands that apply to mining projects in many countries, and also to the sometimes-voracious intentions of governments to participate in, or boost their participation in, the profits of the projects.
This social/political/economic trend will continue and is undoubtedly the industry’s main challenge over the coming years. The extent to which shifting social, economic and political trends affect the mining sector is reaching an extreme level in the view of many analysts, and companies are being forced to consider more variable scenarios than ever before.
The debate on taxation for mining around the world is growing in intensity, and there are many jurisdictions that are considering reforming, or already have reformed, their tax regimes in order to increase the tax burden for mining projects – or, it may be fairer to say, to make project profits more accessible to the communities and people affected.
We cannot be more sympathetic to the idea of a better and more equitable distribution of the mining profits for the communities affected. Who could possibly be against this idea? No politician, no academic, no businessman in the industry could disagree.
The real issue, however, lies in determining the effectiveness of these new taxes or measures which are aiming towards a better allocation of the profits. In many cases, there is no further plan or programme in the minds of the authorities to really and effectively implement, in a serious and long-term way, the sustainable utilisation of these profits to the benefit of the impacted communities.
In addition, in many cases the term “corporate social responsibility” – as another burden on the companies’ side – is considered a solution to this lack of long-term programmes for the communities, and one which would need to be addressed in the first instance from the institutional – and therefore public governmental – side.
A good relationship between the communities and the mining companies is crucial for any successful project. In this regard, one of the key elements of the relationship will be consultation, and employing the right mechanisms to implement and carry out this consultation. In the dynamic world we live in, consultation processes have evolved differently across different mining jurisdictions.
Stakeholders from diverse backgrounds (which occurs much more than it did 10 years ago) expect open, transparent dialogue; long-term social and economic commitment; and state-of-the-art environmental performance. Engaging with stakeholders and their expectations at the right time is currently one of the main challenges and, frankly, concerns that mining companies have.
Effective, informed and well-implemented consultation can be the tool for a community’s useful and productive participation. In such a scenario, adequate legislation becomes a key element, and these days this is no doubt an area of major concern for experts in this field. Who to consult? How to consult? And when to consult? Answers to these and many other questions that may arise are certainly not easy to find. Some countries in Latin America are going through this debate in terms of either enacting new domestic legislation that will cover these issues or else adapting international treaties and standards adapted to local and domestic needs. The task of adapting these rules is not easy at all; on the other hand, as a legal challenge it gives rise to creativity and research for legal practitioners.
In the end, all investments made with respect for social responsibility, and taking into account stakeholder issues, will translate in having an increased number of solid, fast-growing and uninterrupted mining projects come to life. In this sense, mining companies have come to understand – and perhaps, to some extent, it has been a painful lesson – that they need to devote more time in resources (not merely economics) in order to improve and sustain community and government relations. Communities want and need a more active role in speaking directly to company managers, and in participating in the planning of the project. Local governments need to understand and find a suitable way to interact with the mining company and the community.
To work towards a successful mining industry, one needs to consider the long-term working relationship between companies, governments and communities in an evolving and dynamic environment which will need many adjustments and a lot of fine-tuning in the coming years.
The challenges ahead are many, and cover several different areas and ways in which a project might affect the environment where it will develop. All aspects from the economic, social and political perspectives have to be considered and balanced alongside each other.
Ultimately, all these challenges can be reduced to one: integration between the mining company, the community and the local government throughout the duration of the mining project – and even after this time – which aims towards equitable and fair allocation of the profits, with the impact of the project also being considered during and after the project.
This is the way forward for the mining industry, and we are sure that this idea is slowly becoming a reality in many parts of the world.