Economy & Trade, Environment, Headlines, North America

ENVIRONMENT: ‘Think Twice’, Report Warns Miners, Investors

Emad Mekay

WASHINGTON, Nov 13 2003 (IPS) - The world’s miners and the investors that back them must do more thorough impact studies before pouring money into ecologically and socially vulnerable areas – and should sometimes decide to avoid them altogether, a new study warned Wednesday.

Working in such areas carries the risk of dragging companies and their financial backers into lawsuits and environmental conflicts that could lose them money, says ‘Mining and Critical Ecosystems: Mapping the Risks’, by Washington-based World Resources Institute (WRI).

”This is the message we’re trying to take to companies: before you invest in areas where you might not have the social licence to operate, why not evaluate how sensitive these areas might be to avoid wasting money?” said Marta Miranda, lead author of the new report.

"Also, it’s very inefficient to ignore these issues only to be faced with lawsuits at a later stage from communities impacted by mining," she added in an interview.

According to the report, three-fourths of the world’s active mines and exploratory areas are located in endangered watersheds and biologically rich ecosystems.

Working there could put companies in direct confrontation with environmental groups and local communities.

”What we’re saying is that companies should treat these areas with caution," Miranda said. ”It might be OK to invest in them, but it might not if the areas are so vulnerable that the risk of environmental damage would destroy the areas in question."

For example, in 1996 gold miner Placer Dome reported a 65-million-dollar loss due largely to a spill at its Marcopper mine in the Philippines.

In 2001, BHP, an Anglo-Australian company and the world’s biggest miner, wrote off 400 million dollars in revenue after pulling out of the Ok Tedi mine in Papua New Guinea.

Sweden’s smelting and mining giant, Boliden, also faces a bill estimated at 24.5 million dollars after its tailings containment system failed at the lead and zinc Los Frailes mine in Spain in 1998.

The incident occurred when part of a waste reservoir collapsed, spilling almost seven million cubic meters of toxic waste just outside the Donana National Park, Europe’s largest natural reserve.

The WRI study says that such areas should be ”no go” zones for mining companies that are keen to assess whether investments pose greater corporate risks or not.

”If investors of financial institutions are looking to minimise the risks associated with mining around the world, they need to take into consideration social and environmental vulnerabilities in a more rigorous way than they have in the past," added Miranda.

The report points out that corporate risk includes loss of reputation, loss of the social license to operate and disruptions in operations as well as financial loss.

Many developing countries that depend on mining for income or for foreign currency lack safeguards to ensure that mining does not turn into a threat to their environments, it adds.

”Areas with multiple vulnerabilities should give pause to financial institutions considering investing in mining projects, especially in countries such as Papua New Guinea, where governance is weak," said Phil Shearman of the University of Papua New Guinea and one of the authors of the report, in a statement.

Nearly one-fourth of active mines and exploration sites are located in countries where governance structures are weakest, the report says. That means those governments lack ability to enforce laws, control corruption, or foster a strong civil society.

"In these countries, continued investment in mining will be unlikely to contribute to poverty alleviation unless governance improves," said Miranda.

The study comes at a time when the World Bank, the largest public funder of mining activities, is gearing up to release its Extractive Industries Review (EIR), an evaluation of whether and under what conditions the bank should invest in mining.

Extractive industries include oil, gas, coal and lumber. The EIR final draft is scheduled to be released Nov. 26.

"Financial institutions should also re-think support for any mine located in especially vulnerable areas, such as strictly protected areas, or those that propose environmentally risky practices, such as dumping mine waste in rivers," Miranda said.

The report recommends that financial institutions like the World Bank turn away from in-house environmental impact assessments to evaluate risks associated with certain projects.

Instead, they should rely on ”external reviews” by independent experts, preferably people not employed by the mining company or a potential financial backer.

Environmental and social impact studies should be made public, suggests the report.

While client confidentiality rules might have made private banks balk at transparency as a condition of project financing in the past, this could be costly in the long run, especially if community opposition is strong enough to halt operations, it adds.

The report also said that mining companies should agree to disclose payments made to governments as a way to address corruption.

”It’s so valuable in terms of the money that’s involved. If you are in a country with poor governance, the temptation is huge," Miranda said.