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Executive Perspectives

EXECUTIVE PERSPECTIVE: Unearthing gold, not conflict

J. Chris Anderson

25 Nov 2015

The traditional “gold rush,” as we know from history and film, has long been a thing of the past. When gold is discovered now, rarely is it found above the surface, where hordes of newly minted miners swoop in and grab what they find.

Instead, the metal is found underground. The land above must be cleared and the people who live on the land must leave their homes. Then, the ground must be excavated and the gold separated from its ore.

The process of establishing these mines is often contentious, costly, and can stretch for many years, an eternity in business today. There is a new model, however, that addresses these challenges, and the industry can find it at the Newmont Mining Corporation’s Ahafo facility in North Central Ghana. At Ahafo, Newmont built one of the most successful large-scale gold projects ever, largely because instead of pushing aside local communities, Newmont built a partnership with them.

The new model starts with the premise that the people who live on the site marked for development have a relationship with the land that has to be respected. So Newmont started consultations with the elders and chiefs, queen mothers, youth groups, and senior business men and women, to ensure that everyone in the community was represented in planning the project.

After a great deal of discussions and negotiations, two new villages were constructed for the 10,000 people who were asked to relocate. A community-run development foundation was established and funded from Newmont’s profits. The foundation and the local communities set their own priorities and make all funding decisions, as opposed to the older way where a mining company might assume it could drill a few water wells and build a school and call it a day.

The development and construction of the Ahafo mine required almost 8,000 workers, most of whom were hired locally—at least 85 percent, from memory, over the period of construction to operation. When the mine started formal operations, it needed only half that workforce, so Newmont helped establish alternate paths for people to support their families. The company relied extensively on local purchasing for as much as it could—the mine eventually purchased $10 million annually in materials and services from local businesses. Agricultural cooperatives were established for five commodities, tripling and quadrupling profits for 5,000 farmers and providing better employment prospects in farming.

The end result is a mine whose start-up time and expenses were not markedly different from other facilities of its size, but whose operations over the last nine years have never lost a day of work because of demonstrations, vandalism, or violence. This is not to say there have been zero complaints, but that issues between the company and the communities are negotiated openly instead, through formal procedures. Compared to the many global mining operations embroiled in social conflict today, this is a pay-off worth paying attention to.

Unfortunately, listening to and empowering local communities before setting up mining operations has never been standard. Decades earlier, when developing a new mine, companies could identify a potential site, negotiate rights with the national government of the country in question, bring their team into the area, wave their permits around, and get started with the work. If people happened to live there, they were compelled, not asked, to move.

In fact, Newmont itself has followed this older and more adverse model of operations at their Yanacocha mine and the Conga project in Peru, inadequately engaging with local communities and then experiencing a significant amount of social confrontations and conflict. Shouldering through these conflicts has an impact on the bottom line: the price of extracting an ounce of gold for Newmont in South America is $1,069, while in Ghana it is $920.

Newmont isn’t alone in generating problems with the old way of doing business. In Tanzania, for example, Barrick Gold Corporation’s Mara mine caused such massive problems for the local communities that the resulting unrest compelled the company to divest itself of all African assets.

Too many governments still do not recognize the rights of indigenous people and local communities to their lands and fail to hold the private sector accountable. A recent survey of 64 countries from the Rights and Resources Initiative found that even though indigenous people and local communities have customary use of up to 65 percent of the world’s land area for their livelihoods, they only have legal rights to 18 percent.

But proper due diligence and risk management should end up with all companies involved in international land transactions incorporating respect for these rights into their business plans regardless of the government’s mandate. Institutions like the International Finance Corporation provide financing for companies to do so—as they did with the Ahafo mine.

More importantly, there is not only a powerful business imperative to do so, but also a moral and ethical one. You cannot launch an industrial activity like a mine if it lands unexpectedly, like a spaceship, in people’s backyards. This is simply a violation of the most basic human rights.

The Ahafo mine, which has been profitable for almost a decade now, has unearthed a new paradigm whose costs are minimal and whose implementation time is not different from the more exploitive and confrontational business models. Working with the local communities may be a tsunami-level change for the mining industry, but it underscores a fundamental reality. You cannot gain unimpeded access to land and natural resources unless you behave responsibly and respect the rights of local peoples.

Chris Anderson, the Principal of Yirri Global, has worked as a field practitioner and senior executive in the mining industry for 17 years, with Rio Tinto, Newmont Mining, and Normandy Mining. He sits on the Interlaken Group, which has recently released a suite of tools that help international corporations respect local land rights, and holds a PhD in anthropology from the University of Queensland.

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