Has sustainable mining become a reality?

Once synonymous with exploitation of indigenous peoples, environmental pollution and corruption, the mining industry has, in the last decade, responded by recasting itself, through the efforts of a handful of leading companies, into one that strives to minimise its harmful impacts, according to a new report entitled Sustainable Mining: Oxymoron or New Reality? published this week by F&C.

The report examines how an industry whose stock-in-trade is to extract finite resources from the earth's crust yearns to be recognised as "sustainable", and many of its higher-profile companies have rolled out new, sophisticated policies and operational systems. However, it also highlights that real challenges still remain, as miners seek new resources in faraway, high-risk places and face severe capital expenditure cutbacks to combat collapsing commodity prices.

Is sustainable mining a pipe dream, or can the industry escape its longstanding association with environmental and social degradation? The challenges faced by the mining sector are multiple. Despite visible efforts in mine safety, the sector's high environmental impacts continue to dog its image and exact a growing toll on new and legacy projects alike. Meanwhile, complex community relations and pervasive corruption pose extraordinary challenges that can spell the difference between stable, profitable operations and costly disruption.

Karina Litvack, Head of Governance and Sustainable Investment at F&C, commented: "Bad relations with the locals can, in the worst cases, lead to shutdowns, loss of licenses, or even violence and sabotage, with obvious implications for site and staff security as well as production volumes. In addition, corruption and waste also often mean that resource wealth fails to benefit development, as taxes, royalties and social payments are misappropriated by government officials; this fuels community resentment against companies, and raises the risk of contract renegotiation or even expropriation."

Can "sustainable" mining practices play a meaningful role in ensuring commercial success? F&C has long argued that mining companies have a particular interest in getting sustainability right if they want to secure their long-term financial viability and generate optimal returns for their shareholders. The report outlines a number of key areas, including mine safety, community relations, corruption and joint ventures, where mining companies are most at risk, and recommends how best to address them.

Looking ahead, F&C believes that two issues are gaining significance and will require more concerted attention. "Subsistence miners" with no legal title to the land are a growing feature of industrial mining, and are at particular risk of accidents as well as of abuse by local semi-criminal organisations. In addition to posing a direct safety and security risk to the mine, these artisanal miners often cause environmental damage by using primitive, highly toxic extraction methods. They lie beyond the mining companies' direct sphere of control, yet complicate relations with local communities as they are effectively seen as part and parcel of mining development. The second issue relates to capacity-building, where mining companies expanding into poor and underdeveloped countries are looked to by the local communities to provide basic services such as healthcare and clean water. Companies have, on the one hand, to find a balance between meeting these expectations to secure their reputation in the region, while on the other avoiding the trap of taking on a quasi-governmental role, from which it is difficult to extricate themselves.

Litvack strikes a final note of caution: "In addition to these longer-term challenges, mining companies are faced with the immediacy of falling commodities prices in the wake of the credit crunch and resulting global recession. As a consequence, they have announced dramatic spending cuts". Despite the impressive gains achieved by many of the leading firms on ESG risk management, the recent retrenchment may tempt some to cut corners. "This is really a case of ‘pay now or pay a lot more later'," said Litvack. "Savings in these areas store up costly problems for the future, saddling shareholders with burdens that they understand much better than they did in the past and are increasingly reluctant to shoulder."

So can mining ever be sustainable? And if so, has the industry reached that point? "It would be hard to argue that extracting a non-renewable resource is sustainable in the absolute sense of the term but neither can companies afford to dodge sustainability challenges, or they will pay an unacceptable price. In practical terms, miners have little choice but to act as if sustainability is an attainable goal, and do the very best possible job. We intend to continue our dialogue with the mining companies to ensure that prudence prevails in developing and operating sustainable mines," Litvack concluded.