Mining companies have had a worse than normal 18 months. It began with Vale’s tailings dam collapse in Brazil in January 2019 and more recently we have seen Rio Tinto in the spotlight for the destruction of an aboriginal site in Australia in May 2020.
The former CEO of Vale, Fabio Schvartsman, was charged with homicide by Brazilian prosecutors.
The CEO of Rio Tinto, Jean-Sebastian Jacques, tried to cling on but the pressure became insurmountable for the company and he and two other senior executives have finally departed; this is in spite of the fact that under his leadership shareholder returns and safety were very good.
These two incidents have brought to the fore the increased intensity of the spotlight on mining companies in two areas that hitherto may have seemed to be of relatively minor importance: ethical investment and environmental, social and governance (ESG).
Read more about ESG
Though these two companies were major entities, junior miners will not be exempt.
As exploration for ‘new minerals’ to enable cleaner energy needs to increase over the medium term, so will the need for juniors to raise capital to fund both exploration and initial exploitation.
They will need both the finance and a social licence to operate – indeed the former may depend upon the latter.
The upshot is that mining companies will be required to show compliance with a broad range of requirements over the full life of a project to a variety of key stakeholders.
A risk-based approach
Failing to raise capital is a fundamental risk to any project’s inception. Killing or injuring people is a fundamental risk to its operation.
The old and tried method of project risk management used to start with a visit to site by either an in-house team, or some consultants, who would produce a multi serial risk register, usually on a spreadsheet.
That would then be processed with various remedies noted to remove, mitigate or accept the risk, and duly passed to potential investors or to others such as licencing authorities, who would be the key next step to enabling a project to get started.
This process was often based upon a brief snapshot with report backs as requested.
Nowadays there is the capability to have real-time ground truth that covers the full extent of any project and provides reliable information to all those who need to have oversight.
Data from a wide variety of sources can be captured, analysed and processed to give a very accurate operational picture of what the situation is at any site across the globe – able to be accessed from any location, by phone or laptop.
The sources include instruments such as piezometers, air and water quality sensors, satellite observation with thermal imagery and human inputs from on-site observations, CCTV feeds and analysis of local social media through ‘happiness algorithms’. The latter being a study in itself.
The ICMM’s Global Industry Standard on Tailings Management issued in August 2020 is the latest in a list of such measures that includes the Equator Principles, the UN Principles for Responsible Investment, the World Bank’s International Finance Corporation Policies and Standards, to name some of the most-high profile.
The Church of England’s Ethical Investment Advisory Group has now entered this arena and formed part of the process for the production of the ICMM Standard and its 15 principles. In short, the demand for credible proof of compliance with an increasing number of standards is growing.
Mining companies of all sizes that wish to grow through exploration and site development usually need to raise finance; indeed a number of annual reports for 2019 have referred to ‘ethically raised capital’.
This is likely to increase as the demand for new minerals needed for the ‘electromobility transition’ to clean energy leads to more activity in these fields, especially across sub Saharan Africa.
The historic ‘spreadsheet approach’ is unlikely to cut itnowadays. Investors want to see reliable evidence of real compliance with the standards mentioned above, and also real time oversight with transparency that shows sustained positive results throughout the life of a project. The Reagan dictum of “Trust but verify” will apply, more so because technology enables it to be achieved with relative ease.
Environmental, social and governance
Environmental issues include both the local area, and also what has been done to it. Here the greatest risk is water and mine tailings (read more on tailings management risk in the July 2020 edition of Mining Review Africa).
Tailings provide the greatest sustained risk to life and property as recent events have shown. Compliance with ICMM’s 15 principles is likely to become a requirement for many existing mines and for all mines that will be developed in the future. They mandate effective planning, design and oversight.
The oversight will be based on measuring and data and can be designed into the project and by so doing demonstrate a real willingness to comply.
The data gathered can be shared with stakeholders to provide credible evidence of good faith and continued compliance through the life of the project. This addresses one of the key challenges in raising investment.
Meanwhile, water management is now available in great detail with specific benefit to a company’s bottom line. Accurate water management can be a carrot rather than a stick as water wasted creates pollution and both waste and pollution waste money. Modern monitoring techniques enable water to be managed as accurately as money.
In addition to this, the social licence to operate from both regional governments and local communities is becoming increasingly important, backed up by investor action as Rio’s latest travails bear witness.
The days of a picture of a school and a clinic for the local village, and funding a few of the tribal elders’ pet projects, being able to tick the CSR box are gone. Sibanye-Stillwater’s Good Neighbor Agreement (GNA) in Montana is a good example of making necessity a virtue and the advantages of transparent oversight system (read more on this in the July 2020 edition of Mining Review Africa too).
Effective monitoring of a broad range of indicators can provide a comprehensive data set, one that gives a more accurate picture of the continuing commitment to social standards which can be shared with a range of stakeholders in real time.
For example, water and air quality can be measured by ground-based sensors, while satellite and other imagery can show how communities are growing, schools and clinics are being used and agriculture is being developed.
Processing the information
Technology provides a toolbox of enablers, and information and data that are not ends in themselves. They also have to be supported by appropriate and validated processes and procedures.
Also key to delivering a successful product is the effective fusion and analysis of information from all sources to achieve the full range of effects, from evidence of compliance, to the avoidance of tailings and water risk and beyond, to more effective operational management through real time ground truth.
There is a value to be had beyond simply monitoring. The integration of artificial intelligence and robotics can further enhance this capability.
The other side of the coin
Mining companies of all sizes could sometimes be forgiven for developing a persecution complex. In several jurisdictions they come under pressure to take responsibility for events beyond their remit, and also to be held to account for situations that can be questionable at best.
If they are doing what they agreed to do on the ESG front, and it has been measured and recorded, they can have a very effective body of evidence in place that could prove hard to refute in an arbitration case, something of a value add.
The oversight requirements that have been described do not need a brand new system. If there is already a system in place that is monitoring water and tailings, these additional data inputs can be processed as part of it and would also help broaden the context and ground truth.
The requirement for credible and verifiable data-based situational information across the mining sector is going to increase, whether mandated or just becoming best practice. The driver will be the more obvious elements of risk management such as water and tailings.
However, the comprehensive project risk register will have to include ethical investment and ESG. These can be addressed using the same risk management and mitigation systems that address the former. It then becomes a true value-add.
The opportunity is to be seen to be doing it voluntarily as that will always gain approval with those seeking to influence how things are undertaken on the ground.
ABOUT THE AUTHOR
Simon Barry, lead consultant: risk and standards, The Advisory Group holds a MSc in Risk Management from the University of Leicester, is a specialist member of the UK Institute of Risk Management and a ISO 9001 lead auditor.
He has worked in mining and associated activities across sub-Saharan Africa since 2008, as well as in a number of high-risk locations.
With extensive experience in aviation, logistics and management development he is a firm proponent of the team-based integrated approach to problem solving, addressing the hard questions early.
Prior to 2004 he spent 32 years in the British Army’s Parachute Regiment where he operated in many demanding roles worldwide, within a variety of cultures and environments.