sound familiar?

Mining faces the cost of repairing its image problem
Financial Times, London
By Rebecca Bream
Published: January 16 2006 20:35 | Last updated: January 16 2006 20:35

Mining has an image problem. In developing and developed countries alike, the public tends to regard the industry as dirty, dangerous and disruptive – and those who stand to profit from it as greedy despoilers.
But as gold, copper and other metals hit their highest prices for many years, and the power generation industry is poised for a big shift from gas to coal, the imperative to challenge that caricature is becoming more urgent.
While mine companies are making record profits, and mining stocks are attracting swaths of new investors, the risk of reputational damage is also rising as easy-to-reach deposits of metals, coal and diamonds in locations such as Australia and Canada are exhausted, forcing mining companies to expand into more remote areas of Africa, Asia and Latin America.
The critical voices are loud and well organised. But the industry is fighting back – admitting to past failings but trumpeting the message that, at a time when many fund managers use corporate social responsibility as an important criterion for investment, it has cleaned up its act.
Fierce criticism of the environmental and social impact of mining is nothing new. The industry has long had a reputation for making large profits in poor countries and leaving nothing but environmental and social havoc in its wake.
Typical of the protest movement is Earthworks, a US-based non-governmental organisation that since 2004 has been running a campaign called No Dirty Gold. It accuses gold producers of using cyanide to recover greater amounts of metal and of wrecking traditional ways of life. Like many NGOs, it argues that poor but mineral-rich countries are held back by the “resource curse”: profits from mining enrich foreign companies and a small, corrupt elite in government but not local communities.
Bobby Godsell, chief executive of AngloGold Ashanti of South Africa, one of the world’s largest gold producers, argues that mining is no more inherently harmful than any other form of economic activity. But he admits that not all companies are responsible corporate citizens. “There is the possibility of ‘good mining’ – and you can find good projects all over the world. But there are also bad projects,” he acknowledges.
In the 1960s, the mining industry pursued growth at all costs. The result was accidents and environmental damage. But in the 1970s the strategy began to be questioned. Mr Godsell says pressure from governments, NGOs and shareholders was pivotal although he argues that executives’ consciences also played a part.
But far from abating, protest movements have grown, in part because the internet has opened avenues of complaint to once-disenfranchised communities. Recent examples of anti-mining protests include objections to the Rio Blanco copper project in Peru, owned by Monterrico Metals of London, and hostility encountered by Newmont, the US gold producer, in Indonesia. In 2001, several big mining companies decided that action was needed to tackle their industry’s poor image. They formed the International Council on Mining and Metals, a grouping that styles itself as “the responsible face of mining”.
This made good business sense, companies say. As graduates increasingly shun “old” industries, the mining sector is facing a shortage of new talent and companies hope a rehabilitation of the industry’s reputation could help attract young blood.
In its first five years the ICMM has had plenty to keep it busy. While accidents are less frequent than they used to be, issues of waste disposal and the use of toxic chemicals remain. Newmont is currently locked in a battle with local people, NGOs and politicians in Indonesia over whether the gold company dumped toxic waste into Buyat Bay, near its now-closed Minahasa Raya mine, and consequently poisoned villagers. Newmont admits to dumping the waste but insists it had been treated and was harmless. Wayne Murdy, chief executive of Newmont, has since said the dispute was more to do with a breakdown in relations with the local community than the environment itself.
An example of ICMM’s proactive approach concerns cyanide – which, though highly toxic, is widely used in the recovery of gold because it allows metal to be retrieved from low-grade ore. In an attempt to ease criticism of the chemical, the ICMM has developed the “Cyanide Code”, a voluntary list of guidelines for the safe application of the poison in gold mining.
It is not simply reputations that are at stake. The World Bank, through its International Finance Corporation arm, controversially helps finance mining and oil and gas projects around the world. But access to the funding depends on companies’ capacity to make a convincing case that their approach to the environment and affected communities is “sustainable”, in the jargon.
In 2004, the Extractive Industries Review, an independent report commissioned by the World Bank, recommended a halt to this funding, because of the industries’ negative side-effects. The bank rejected this recommendation and pledged to fund more projects than ever. But it undertook to get involved with projects earlier, so its standards on the environment and community engagement were met.
Rashad Kaldany, director of oil, gas, mining and chemicals at the World Bank/IFC, insists past problems have been resolved, maintaining: “The use of cyanide should not be an issue in a well-run mine today.” But he says communities near to mines “have legitimate worries” based on past pollution incidents. Again, the problem often boils down to a lack of communication between mining companies and local people. If mining companies go against their natural instinct to keep a low profile, and try to engage local communities, protests can be avoided, says the World Bank.
There are some signs that companies’ claims to have got to grips with the environmental side-effects of what they do in recent years are well-founded. They are making more efforts to study the ecosystem in an area before they start work and to limit the damage that mining does to plant and animal life.
Generally, the industry is starting to compile better environmental data – on water quality, for example – before mines are built. The World Bank is encouraging this, in part so they can counter any subsequent accusations of pollution.
Perhaps the most striking example of a company that has sought to shed a reputation for environmental irresponsibility is Rio Tinto of the UK. It spent several years working on the preservation of biodiversity before proceeding with its controversial ilmenite project in Fort-Dauphin, Madagascar.
This represents a big cultural shift. As one of the first large diversified mining companies listed on the London Stock Exchange, Rio Tinto was for many years the bête-noire of environmental groups, who used regularly to picket its annual shareholder meetings. “It is ridiculous to say that mining is not intrusive for the environment – but we can minimise the intrusiveness,” says Andrew Vickerman, Rio Tinto’s head of communication and sustainable development.
The company has got better at explaining itself, he says, and he talks to a full range of NGOs, from well-established organisations such as Oxfam and Greenpeace to more radical groups. “Our approach to engagement changed about a decade ago. There was a realisation that reputation is hugely important.” There is a clear commercial pay-off, he acknowledges. “If we prove we can mine responsibly, it will get us access to new resources.”
Mr Kaldany at the World Bank says that “many of the most important players in the industry take the issue of sustainable development very seriously” but smaller mining companies do not always adhere to the new standards. Mr Vickerman at Rio Tinto accepts that this is a problem for the sector. “The mining industry is judged by its worst performers and there are some real cowboys out there.”
Now a new front is opening up for the industry: the need to tackle the social fall-out from its activities. That can range from the spread of HIV/Aids by migrant workers to increased government corruption and broader questions about whether indigenous populations are reaping an appropriate share of the spoils.
Critics point out that examples of communities made rich by mining are sparse. Botswana’s economy has grown fast as a result of revenues from diamond mining but, even there, people are worried about what will happen to the economy after the mines are closed. The World Bank is encouraging the development of other types of economic activity in mining regions, so that people are not so dependent on finite mineral resources.
But investors may query whether a need to appease environmental and social campaigners is leading companies to assume a role that more properly belongs to governments.
In the poorest countries, mining companies often find themselves building infrastructure such as roads, schools and hospitals. Not surprisingly, these companies are sometimes attacked as proxies for the government. In such cases, the World Bank is pursuing a policy of “capacity building”, a mixture of education, training and anti-corruption measures. Although it is not mining companies’ responsibility to ensure governments function properly, it is in their interests, the bank argues.
Mr Kaldany says mining companies should focus on winning local support. For example, jobs should go to local, rather than imported workers. “If local communities do not feel they are benefiting from mining, I don’t think the image of the industry will change.”
There are signs that investors agree. Todd Warren, who manages mining and energy stocks for First State Investments, says he would avoid investing in a company that had put aside insufficient money to cover environmental issues, especially for the clean-up of the site after closure. “The mining industry can no longer operate without taking environmental issues into consideration. If they do, these issues will come back and hurt them.”
Although an eye should be kept on corporate costs, Mr Warren says, the increasing amount devoted to the environmental and social side of mining is money well spent. It protects both against accidents and community protests.
“Bad publicity has a huge cost,” he says