Stuck between a deposit and a hard place

Guest post by
Blogs, 26 February 2015

With Prospectors and Developers Association of Canada (PDAC) 2015 set to kick off next week, it is important to acknowledge that exploration firms and junior mining companies are often the first point of contact with artisanal and small-scale mining (ASM), and as such, they have an important voice and role to play in tackling the challenges and harnessing the potential of ASM.

A small mining operation near Garies in the Western Cape, South Africa (Photo: jbdodane, Creative Commons via Flickr)

The junior mining sector – those who search for deposits and develop and operate new mines – is diverse and complex, their issues unique. It includes exploration firms, institutional investors and operators drillers, financiers and mine managers.

Juniors often face greater operational risks, working with an unproven geological resource, often in remote locations where large-scale mining (LSM) has not happened before. They are constrained by funding, experience high levels of investor scrutiny, and have few staff.

Yet when it comes to relations between ASM and the rest of the mining sector, the junior operator is one of the principal interfaces where the rubber meets the road.

Where the rubber meets the road

Exploration companies, by definition, seek to identify new mineral resources. In the context of resource scarcity, these are increasingly in remote areas. Communities living and working in these areas may have no experience with LSM.

Some communities are already involved in ASM. Indeed, exploration companies are often drawn to areas where artisanal miners are operating – so called "barefoot geologists" pointing to the existence of a mineral resource. This can lead to disputes, with the allocation of land sometimes the first fault line.

In some cases, ASM communities may be living or operating on land where their rights to be on that land are not formally recognised. While at its core, this is an issue of resource governance for national governments, it creates a scenario where new prospectors put communities under threat by entering lands under a government-agreed contract. This relationship often works both ways – with rush artisanal miners moving on to the licensed areas of the company.

Exploration is also a high-risk business. The resource is as yet unproven, the level of investor scrutiny is high. This early phase of the mining life cycle involves huge operational costs with very low levels of production, and therefore revenue. Juniors operate under the hope that the venture will be worthwhile.

Although exploration companies have a relatively small footprint, their presence immediately raises community expectations. With an unproven resource and no clear idea of whether it will develop into full-scale mining operation, promises and commitments by the company are hard to make.

Exploration companies are often small and without the dedicated community relations teams and skills that LSM companies employ. Their ability to engage effectively with the host community is therefore limited. Exploration companies also do not always operate with a long-term vision. Once a resource is proven, the land is often acquired by LSM companies.

In short, juniors are faced with the potentially high costs of community engagement without the security of a proven resource.

Opportunities for change

Given the potential for ASM to contribute significantly to national development in some countries, engaging, supporting and empowering junior mining companies could be a useful entry point. The benefits could be felt by ASM communities, governments and the industry at large.

Land rights, informality, in-migration and security are some of the defining issues that characterise the dynamic between ASM and junior mining. And bodies that represent the junior sector and events like PDAC's International Mining Convention, Trade Show and Investors Exchange, where juniors are the focus, are a good place to start addressing some of these friction points.

However, there are no ASM-focused sessions in this year's CSE Event Series, which kicks off next week. Nor are there usually any ASM representatives (ASM associations or even miners themselves) in attendance. This displays a lack of foresight and a missed opportunity to address some of the key issues juniors experience on a regular basis.

In 2012, the International Finance Corporation (IFC) invested US$15 billion into mining projects (PDF), a large portion of which was into junior mining. The IFC Performance Standards therefore act as de facto standard for well-intentioned juniors along with the Equator Principles. But the IFC's Performance Standards were developed with large-scale deposits and timelines in mind. ASM is viewed as a social risk, which leaves little room or incentive for effective long-term engagement.

Although the IFC is making efforts in the right direction – the handbook on Early Stakeholder Engagement (PDF) provides advice for junior operators on ASM strategy and a compilation of best practice case studies is being worked on – but more needs to be done.

We need to fully understand and acknowledge the unique risks, costs and ways of operating faced by juniors in order to effectively address some of the challenges facing ASM. And any solutions need to be mutually beneficial in order to have any hope of being implemented.

Agents of change

That is not to say there have not been positive examples of juniors engaging with ASM communities. Many are punching above their weight.

Despite this potential, there has not been any significant effort to include the junior mining sector as true agents of change. The sector’s ability to affect change is currently undervalued. Any conversation on ASM needs to engage juniors to identify the mutually transformative potential of both sectors.

Matthew McKernan (matthew.mcKernan@iied.org) is a research consultant on IIED's ASM Knowledge Programme. Abbi Buxton (abbi.buxton@iied.org) is a senior researcher with IIED's Sustainable Markets Group.