SCHOOLS and clinics. Soccer fields and bull rings. Even plump guinea pigs — to eat. From South America to Africa, mining companies are throwing all that and more at communities to quieten growing opposition to controversial projects.

"There’s something like $25bn worth of projects tied up or stopped," says Anglo American CEO Mark Cutifani. "We have to get all those relationships right."

While opposition to mines is nothing new, the issue is a growing concern for miners such as Anglo American, and executives are increasingly speaking out. Billions of dollars are at stake, they say.

Their opponents say the companies despoil the environment and often fail to benefit local economies, or at least not as much as they claim.

Push-back has been growing since the 1980s, when communities were rarely consulted about new mines. Now, local support is critical, according to Thras Moraitis, head of strategy at Xstrata before its 2013 takeover by Glencore.

"You can’t get a permit without involving full and prior consent of the local communities," he says.

Communities from Peru to SA are mobilising to negotiate more successfully with the companies, according to two studies released late last year. Residents who are relocated to make way for mines are demanding more in return. In Peru, it took six years of talks before work could begin on the Las Bambas copper project, says Moraitis, who is now a principal at X2 Resources, a mining investment vehicle founded by former Xstrata managers.

Clinching the Las Bambas deal required building a new village with six-bedroom houses, a bull ring and a soccer pitch atop a 4,000m mountain. The village, Nueva Fuerabamba, has power, running water and sewage-treatment facilities.

"We call it New York in the Andes," says Andrew Michelmore, CEO of China’s MMG, which bought Las Bambas from Glencore in July for $7bn.

MMG has moved three-quarters of the villagers and expects to complete the relocation this quarter. Relocation plans cover minute details. In Fuerabamba, for instance, Xstrata brought in husbandry experts to breed healthier, bigger guinea pigs, which are a common food in Peru and Ecuador. Increasingly, executives expect to face resistance from local communities.

...

AT THE same time, resistance is slowing development of more modern projects and adding new costs as the industry struggles with declining profits.

A total of $79bn is estimated to be spent on new projects in 2015, according to Macquarie Group. Unlocking delayed projects could have a significant effect on the global minerals trade by boosting supplies of commodities such as copper and gold.

In December, a study group at the Kellogg School of Management at Northwestern University in Illinois reported a growing lack of trust among local communities.

The cost is "both real and significant", the authors wrote in urging companies to work harder to integrate social effects, including human rights problems, into their earliest planning for new projects.

"It’s going to remain challenging for communities, countries and mining companies in the near future," says Vedanta Resources CEO Tom Albanese.

"It will contribute to reduce the number of new projects that do get developed. It makes it harder for supply to be responsive."

Vedanta shelved plans last year to mine bauxite in India’s Niyamgiri mountains after tribes that believe their god resides in the hills rejected its plan.

Anglo American’s plan to expand the continent’s largest iron-ore project in the Northern Cape shows how difficult it can be to win support from a community.

Cyril Briesies is one of 3,400 residents of Dingleton who must move by 2016 for the project to go forward. While many of his neighbours have struck deals with Anglo’s Kumba Iron Ore unit, he is one of about 36 households holding out for a better settlement.

"They never negotiate in good faith and at times it can get downright malicious," says Briesies in his four-bedroom house on a plot about half the size of a soccer field. "This is valuable land. If this house is so important to them, they can negotiate a price that will suit me."

The relocation of Dingleton includes the preparation of new locations for 24 businesses, schools and a clinic, a police station, parks and seven church congregations.

"This is a sensitive project; we’re dealing with people’s homes," says Yvonne Mfolo, Kumba’s head of relocation.

"There is still this lingering feeling they may not be doing the right thing, or they should hold out for more."

Bloomberg

Please sign in or register to comment.