Community development agreements in mining projects.

• Author: Bruckner, Kristi Disney

1. INTRODUCTION

   In a world where there is a limited quantity of nonrenewable mineral resources, a rapidly growing population, and an escalating demand for resources, the dynamics between mineral developers and communities are changing. While the need for developers to understand and address project impacts on communities is nothing new, the increasing demands of international and domestic law and policy frameworks; the advanced level of organization of communities on local and global levels to demand their rights; and the expanding company adoption of voluntary standards and commitments to communities has shifted the expectations of the company-community relationship. One outcome of these changing dynamics is the increased use of Community Development Agreements ("CDAs") between companies and communities that govern various aspects of the impacts and benefits of natural resource development projects. (1)

   CDAs are a valuable tool for developing and maintaining positive company-community relationships through effective two-way communication and increased community participation throughout the life of a development project. (2) Parties use mechanisms established in one or more CDAs not only for improved communications and transparency, but also to avoid or mitigate negative project impacts, address grievances, and manage the distribution of benefits in a fair and equitable manner. (3) CD As are increasingly viewed as an important mechanism for preventing and managing conflict in natural resource development. (4)

   Section II of this article will discuss the growing demand for minerals that is driving mineral development. Section III will describe the importance of a "social license to operate" (5) and the costs of conflict to mineral developers. Section IV will discuss major international frameworks that relate to the company-community relationship. Section V will focus on trends in use, the agreement process, and content of CD As. While this article will focus primarily on use of CDAs in mining projects, as they are increasingly common, CDAs are also prevalent in the agricultural sector and are applicable to other natural resource sectors.

2. GROWING DEMAND FOR MINERALS

   The human species share a planet with limited nonrenewable mineral resources and seemingly limitless demand for those resources. As Earth's human population grows by the minute--currently in excess of 7.3 billion and expected to exceed 11 billion by 2100 (6)--demand for the many mineral components required for housing, transportation, communications devices, and other goods ranging from necessities to luxury items is on the rise. In 2015, the Minerals Education Coalition ("MEC") estimated that every person in the United States uses 39,543 pounds of new minerals per year. (7) MEC also estimated that each person born in the United States will utilize 3.11 million pounds of minerals, metals, and fuels over the span of his or her lifetime. (8) The lifetime estimated use of minerals is detailed in the table below.

   Estimated Minerals Used in the Lifetime of One U.S. Baby Born in 2015 (9) Amount Required Mineral Commodity Over a Lifetime Aluminum (bauxite) 5,214 pounds Cement 48,483 pounds Clays 11,427 pounds Coal 452,666 pounds Copper 985 pounds Gold 1.59 troy ounces Iron Ore 26,010 pounds Lead 903 pounds Natural Gas 9.96 cubic feet Other Minerals and Metals 56,016 pounds Petroleum 72,115 gallons Phosphate Rock 16,651 pounds Stone, Sand, and Gravel 1.25 million pounds Zinc 5.39 pounds While the 2015 estimates reflect a reduction in use of nonfuel mineral commodities when compared to prior years, (10) 3.11 million pounds is an increase of overall mineral use compared to prior years, and remains an enormous quantity of resources.

   Development of natural resources is essential to meet even the most basic needs of modern societies and economies. (11) However, such development has historically been conducted in ways that perpetuate the "resource curse" in resource rich developing countries, too often resulting in increased corruption, income inequality, armed conflict, and environmental damage. (12) There is tension between the increasing demand for sustainable development, "development that meets the needs of the present without compromising the ability of future generations to meet their own needs," (13) and the increasing global demand for natural resources. Responding to this tension is perhaps the key challenge of our time. As explained in the section below, when not properly managed on a community level, such tensions may grow into costly conflict.

3. THE IMPORTANCE OF A "SOCIAL LICENSE TO OPERATE" AND THE COSTS OF CONFLICT

   Mineral commodities are sourced from all over the world, on a planet where opportunities to extract minerals in areas with no human activity are becoming increasingly scarce. (14) This reality increases the likelihood of company-community interaction and conflict, and signals a greater need to understand and utilize mechanisms such as CDAs to increase company-community communication and manage impacts. (15)

   Developers are often concerned that negotiating company-community agreements will be costly and time consuming, particularly in the early stages of a natural resource development project. (16) However, research on this topic shows that ignoring such investments can be even more costly, leading to temporary or permanent work stoppage; widespread community conflict; and reputational risks to investors, developers, host governments, and the resource sector as a whole (as has been experienced in mining, petroleum, palm oil, logging and other sectors). (17)

   Examples of financial loss due to social conflicts have been particularly significant in the mining sector. For example, in 2012, at Newmont's Minas Conga Copper-Gold Project in Peru, demonstrations by local community members to stop the project resulted in losses of U.S. $2 million per day. (18) In 2014, the Lonmin Mine in South Africa, the source of nearly eighty percent of global Platinum Group Metal ("PGM") resources, experienced a widespread strike that led to a forty-three percent drop in production at Lonmin. (19) The impacts were felt across the PGM sector in South Africa, where Lonmin, Anglo American Platinum, and Impala Platinum lost a collective 18.6 billion rand (U.S. $1.7 billion) in revenues as a result of the strikes. (20)

   Such reports are leading academic institutions to study the costs of conflict.

   In a comprehensive study, the Centre for Social Responsibility in Mining at the University of Queensland found that the cost of conflict in the extractive sector is up to U.S. $10,000 per day during initial exploration, up to U.S. $50,000 per day during advanced exploration, and up to U.S. $20 million per week during operations. (21)

   At the University of Pennsylvania's Wharton School, Professor Witold Henisz led a study that tracked the market valuation for twenty-six gold mines owned by nineteen publicly traded firms listed on the Toronto Stock Exchange between 1993 and 2008, using an index of the degree of stakeholder cooperation or conflict for these mines. (22) The key finding was that two-thirds of the market capitalization of these firms was a function of the firm's stakeholder engagement practices, whereas only one-third of the market capitalization was a function of the value of gold in the ground. (23)

   While developers traditionally focused primarily on finding a good ore deposit, obtaining the necessary legal rights to minerals, and securing the necessary permits to mine, there is now increasing pressure for companies to obtain and maintain a "social license to operate"--the acceptance and approval of local communities for the operation to proceed. (24) Although Anglo American, one of the world's largest mining company, has yet to make a public statement to this effect, it is reasonable to ascertain that its lack of a social license to operate and the expectation that this would lead to increased social and political risks led to the company's decision to pull out of the Pebble Mine project in the U.S. State of Alaska. (25) Prior to its withdrawal from the project, Anglo American had invested six years and over U.S. $541 million to develop a site noted as "the planet's richest undeveloped gold deposit." (26) The company's CEO, Mark Cuifani, explained that the decision, made prior to completion of the formal permitting process for the mine, was not based on a reassessment of Pebble Mine's potential, but on internal efforts to "prioritize capital to projects with the highest value and lowest risks." (27) The mine was the subject of intensive local, national, and international opposition, primarily pointing to the impacts the mine would have on salmon fisheries in Alaska's Bristol Bay and on the local predominately Native American communities in the areas that rely upon those fisheries to sustain their livelihoods. (28) The U.S. Environmental Protection Agency received over 670,000 public comments (29) about the project.

   The studies and examples noted in this section underscore the need to place the social license to operate at the same, if not greater, level of importance as other legal rights and permits. The findings of these and other studies increasingly point to the importance of engaging with communities and building company-community relationships as the means to avoid conflict and maximize benefits to all parties involved. As discussed in the next section, international frameworks increasingly incorporate requirements for such community engagement and relationship building.

4. INTERNATIONAL FRAMEWORKS AND THE COMPANY-COMMUNITY RELATIONSHIP

   Due in part to examples like...