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M I N I N G A N D D E V E L O P M E N T

Large Mines and Local

Communities:

FORGING

PARTNERSHIPS,

BUILDING

SUSTAINABILITY

Mining

W O R L D B A N K A N D

I N T E R N A T I O N A L

F I N A N C E C O R P O R A T I O N

Global

GLOBALMINING

O U R M I S S I O NTo work with passion and excellence with our clients to promote a vibrant mining sector in developing countries.Our vision is a mining sector that, by attractingresponsible private investment,creates a foundation for economic and social well-being.

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THE WORLD BANK GROUP’S MINING DEPARTMENT

A joint service of the World Bank and theInternational Finance Corporation

To find out more about the World BankGroup’s Mining Department, visit our websites at http://www.ifc.org/mining orhttp://www.worldbank.org/mining

On the cover: A detail of Arizona sandstone.



Large Mines and

Local Communities:

FORGING

PARTNERSHIPS,

BUILDING

SUSTAINABILITY

WORLD BANK AND

INTERNATIONAL

FINANCE

CORPORATION

2002


ii

A C K N O W L E D G M E N T S “Mining and Development” is published by the World

Bank Group’s Mining Department. “Large Mines and

Local Communities: Forging Partnerships, Building

Sustainability” was written by Felix Remy, Lead Mining

Specialist in the Department, and Gary MacMahon,

Principal Economist, Global Development Network. Their

paper is based on their book, Large Mines and the

Community, which was published in 2001 jointly by the

International Development Research Center (IDRC) and

the World Bank. Research on which this paper as well

as the book are based was undertaken by Fernando

Loayza, Ismael Franco, Fernando Quezada, Mario

Alvarado (Bolivian case), Julio Castillo, Jose Miguel

Sanchez, Veronica Kunze, Rodrigo Araya (Chilean case),

Alberto Pasco-Font, Alejandro Diez Hurtado, Gerardo

Damonte, Ricardo Fort, and Guillermo Salas

(Peruvian case), Enrique Ortega Girones and Carlos

Diez Viejobueno (Spanish case), Archibald Ritter

(Canadian overview), and Graham F. Parsons and Ron

Barsi (Saskatchewan case). The paper has benefited

from comments by Peter van der Veen and Monika

Weber-Fahr.

This is the second in a series of short papers that the

World Bank Group’s Mining Department will publish to

share some of the experience and knowledge gained

through daily work with developing country policymakers,

the mining industry, and mining communities and their

organizations. Over the coming years, as the sector

expands, governments, businesses, and communities in

many developing countries will face more and more

complex issues and difficult trade-offs. We hope to see

the “Mining and Development” series inform a wide

range of interested parties on the opportunities, as well

as the risks, presented by the sector.

The views expressed are those of the authors and do

not necessarily represent those of the World Bank

Group. IFC and the World Bank do not guarantee

the accuracy of the data included in this publication

and accept no responsibility whatsoever for any

consequence of their use. Mention of a proprietary

name does not constitute endorsement of the product

and is given only for information.

Copyright © 2002

International Finance Corporation

2121 Pennsylvania Avenue, N.W.

Washington, D.C. 20433

USA

www.ifc.org/mining

www.worldbank.org/mining


iii

C O N T E N T S

Foreword, by James Bond

Large Mines and Local Communities Generating Economic BenefitsEnvironmental and Health IssuesSocial and Cultural IssuesJust as Important as What Took Place: Why and How It Took Place

Seven Case Studies: Costs and Benefits of MiningOperations in Latin America

Economic Benefits from Large Mines are Significant for Andean countriesLand Acquisition Process: Transparency is KeyJobs, Jobs, Jobs: Large Mines Can Have Huge Multiplier EffectsInfrastructure: Roads, Power, Schools and HospitalsFoundations Help Create Social Capital in Mining CommunitiesCultural Externalities: Disturbance, but Rarely Cultural ShocksEnvironmental Externalities: Separating Fact from FantasyWhere Dialogue is Not Trilateral: Negotiation and Cooperation Become Difficult

Five Case Studies: Mines in Canada and SpainThe Canadian Experience: From Paternalism to PartnershipOne of the Best Models: Uranium Mining in Northern SaskatchewanThe Almadén Mine in Spain: A Treasure Chest but without Sustained Development

Moving Ahead: Lessons Learned in Developed andDeveloping Countries

Lesson 1: Benefits have to be sutainable, and outsourcing is key.Lesson 2: Companies need a "social license" to operate.Lesson 3: A successful community development process will build social capital.Central Governments Need to Become More Involved.The Emphasis is Shifting: From Limiting the Negative Effects to Increasing the PositivesNo One Size Fits All, and Communities Have the Last Word

Box 1. The Key Elements of SustainabilityBox 2. The Role of Central Governments

Appendix A. Mines Examined in the SampleAppendix B. Impact of Mines in the Sample on

Infrastructure and Local TaxesAppendix C. Impact of Mines in the Sample on Social

Programs

iv

2233

4

56

67

8

9

9

11

13

14

14

1516

1717

18

1518

2021

22


iv

The costs and benefits of large mines tolocal communities and the relationshipbetween mining companies and

communities are subjects that havebecome important in developing and developed countries alike. To date, however,there has been a dearth of comprehensiveresearch on these topics. Given that therelationship between mining companiesand communities is changing rapidly –albeit unevenly and unsystematically – theneed to develop tools to better assess theimpact of different approaches on this relationship, and on the ability to maximizesustainable benefits from mining, hasbecome paramount.

F O R E W O R D

To address these needs, and to answerquestions as to who benefits and who doesnot from the opening and operation of alarge mine, the World Bank Group’s MiningDepartment and the InternationalDevelopment Research Center (IDRC) inCanada funded a study by independentresearchers that looked at several mines indeveloping and developed countries. Thispaper summarizes their results, with a focuson the benefits and the costs of the minesin their neighboring communities and on theimpact that the rules of engagement andthe management of the process had onthose costs and benefits. Three of the sixstudies centered on three traditional miningcountries in Latin America; the other threefocused on mines in Canada and Spain, soas to compare experiences of developedand developing countries.

The general message of the study is ahopeful one: the relationship between mining operations and local communities is undergoing a largely positive evolution.Moreover, there are very practical programsand policies that can be followed toincrease the probability of positiveexperiences. Among these:

4First, mining companies need, as much as their legal license, a “social license” to operate. This social license would be the


v

result of work undertaken in processes of consultation, participation, and, increasingly, of a strong trilateral dialogueamong the mining company, the local community, and the government at the local, regional, or national level.

4Second, the trilateral dialogue would need to focus on the sustainability of benefits. The most successful cases found were those where local communitiesgradually got involved in providing many of the goods and services needed by the mining companies. To make sure this happens, communities require support from the mine – in the economic,social, cultural, and environmental areas, especially in the early stages of an operation. These issues also need to be addressed in anticipation of eventual mine closure.

4Third, the process of facilitating community and economic development programs yields a great benefit in and of itself: it fosters the formation of local social capital. Over time, through a constructive process, local communities can learn how to organize, how to negotiate, and how to take advantage ofthe opportunities offered by the mining operations to pull themselves up by theirown bootstraps.

The challenge is for mining companies,communities and governments to “operationalize” these concepts. As initiatives and programs show success,these experiences can be woven intoongoing operations if lines of communicationare kept open. In this process, international financial institutions can playan important role: They can promote thedialogue among the various stakeholdersand disseminate the results of efforts thathave helped enhance the sustainability ofthe economic impacts of mining.

James BondMining Department, World Bank GroupApril 2002, Washington D.C.


1

Large Mines and

Local Communities:FORGING PARTNERSHIPS,

BUILDING SUSTAINABILITY

The opening of a large mine has economic,environmental, and social consequences atthe national, state or provincial, and locallevels. Large mines generate foreignexchange earnings and tax revenues andcreate employment directly and indirectly.

Large mines also impact the physical environment and can have strong socialand cultural repercussions on local communities, especially indigenous populations. Yet the mine’s impact – positiveand negative – can vary significantly at thelocal, state or provincial, or national levels,depending on the “rules of the game” – as set by the regulatory framework – anddepending on the management of theoperation.

Over the past years, the ground rules foropening and operating large mines haveshifted: Governments have begun to focuson their role as regulators rather than ownersof mines, and the international communityhas come to expect mining companies tobehave responsibly with regard to the environment and their relationships withlocal communities. It is now generallyaccepted that avoiding the potential detrimental effects that mining can have onfragile ecosystems and local communitiesshould be made a priority. Experience hasshown that large international mining companies are generally better environmentalcitizens than smaller, domestically ownedmines. Yet a number of negative incidentshave drawn widespread interest in and criticism of their practices, as well. Localand international environmental groupshave become increasingly involved in miningdisputes. Meanwhile, local communitieshave become more and more concernedthat they shoulder all the negative impactsof mining but receive few of the benefits.This is especially the case because capital-intensive large mining operations generateonly a fraction of the jobs that they did ageneration or two ago.

This paper attempts to fill a gap in researchabout the impact of large mines. Most analysesof the impact of mining in developing societieshave traditionally focused on broad macro-economic effects. The economic, environmental,and social effects of large mines in theirneighboring communities have yet to beexamined systematically to any extent.Furthermore, the concerns raised by those mostaffected by mining – the local communities –require an analysis not only of the impactsthemselves but also of the practices used inmanaging them. To answer

Who benefits – and who does not – from mining?

questions as to who benefits – and who doesnot – from the effects of the opening andoperation of a large mine, and why, the WorldBank Group’s Mining Department and theInternational Development Research Centerof Canada funded a study by independentresearchers in five countries, the results ofwhich are summarized in this paper. In particular, researchers analyzed the costs and benefits and the impact of the rules of engagement and of the management of theprocess that a few selected mines broughtabout in their neighboring communities. Threeof the six studies centered on Latin America,covering a total of seven mines – five largeand two medium mines - in Bolivia, Chile, andPeru (see Appendix A). Each study followedsimilar methodologies, addressing the issuesdescribed above. The other studies focused onmines in Canada and in Spain. Each case wasselected to further illuminate the results of theLatin American studies and provide additionallessons for developing countries involved inlarge-scale natural resource extraction.


2

Generating Economic Benefits: A Little Effort Can Go a Long Way

The sources of income that a mine generates– directly and indirectly – at the national,state or provincial, and local levels arediverse. The impact at each level can varysubstantially, depending on the rules established by the national legal and fiscalframeworks and the management attentiongiven to the relevant issues. The level ofthe tax burden, including indirect taxes, isstill an important issue. However, manycountries have reduced taxation levels andeased repatriation requirements in order toattract foreign investment. These steps, inturn, should generate additional taxation,as well as increased economic activity ateach level. However, in some countries,obsolete fiscal regulations still prevail,depriving the host country of a fair share ofthe benefits. At the same time, many othercountries have been decentralizing tax andexpenditure systems, resulting in more benefits for regional and local governments.More importantly, a proactive company policy of training and employing of localsand of engaging local contractors will yieldbenefits, in the form of greater localincomes – and taxes – that companies witha more passive approach may not generate.

Then there is the issue of how the benefitsare allocated within the host country. Thedivision of taxes and royalties among differentlevels of governments – national, state orprovincial, or local – will be an importantfactor in determining the ultimate distributionof the benefits and costs of the mine.Similarly, employment policies will affect

the geographic distribution of benefits and

costs, to the extent that they treat all

nationals on an equal basis or favor locals.

The influx of new migrants from other

regions of the same country will put great

strains on the existing social and economic

infrastructure. It is essential that some

mechanism exist to ensure an orderly

expansion of activities and provision of

services.

Environmental and Health Issues:Impacts Vary Widely and Are Complex

Critics sometimes charge that large

international mining companies seek pollution

havens in which to conduct their operations.

There does not seem to be any hard

evidence to substantiate this claim. With

some exceptions, international mining

companies use the same technology in

developing countries that they do in their

home countries, and they often supersede

local environmental standards. Yet

management teams at the operational level

have, in some cases, been stretched thin.

This has caused a number of large incidents

in recent years, which mining critics eagerly

point out. In this study, the researchers

assessed the general environmental

performance of the mining operations and

their general compliance with national and

international processes and standards. The

assessment was based primarily on

discussions with the various stakeholders.

Large or medium-scale mining operationshave economic and social impacts on localcommunities and affect their environment,health, and culture. The extent and severity

Impacts depend largely on how miningoperations are regulated and managed

of the impacts depend largely on the legal-regulatory framework under which the operations take place and on the management of the relationships andprocesses involved.


3

The health impacts of the opening of alarge mine are an important factor from the environmental, social, and cultural perspectives. Potential negative healthimpacts associated with mining generallyreceive most of the attention. The mostdirect of these are occupational health andsafety issues. Other important types ofhealth impacts stem from environmentalissues, such as flow contamination, or thepresence of pollution stocks, accumulated inyears of operation or through environmentalaccidents. Nevertheless, a large mine opening also can have significant positivehealth impacts if it leads to higher incomesand tax dollars spent locally on health care provision, including better medical facilities.

Social and Cultural Issues: Revival versus Disruption

The greatest concerns with respect to theopening of a new mine are often social andcultural repercussions, particularly whenindigenous populations are affected. (Ofcourse, these social and cultural impactsalso have strong economic implications.)The influx of migrant workers may lead tosocial problems stemming from a lack ofadequate housing and infrastructure, aneasing of access to the area through thedevelopment of roads, and deficiencies inover-extended educational and medicalfacilities. Moreover, workers from otherregions of the country or from abroad willoften bring different lifestyles and patternsof behavior with them and may create localresentments. Usually, the average “imported”worker will be wealthier than the local population, which may magnify their importance in the eyes of some local residents, especially the young. The growth of bars and prostitution could be an undesirable outcome, particularly when the

workers live at or near the mine site withouttheir families. The uneven distribution of benefits and costs among the locals mayupset existing social hierarchies and havedramatic cultural consequences. Notably, thecultural adaptation of indigenous and non-indigenous local communities may be quitedifferent. On the other hand, if managedproperly, the increased employment, wealth,commerce, and infrastructure caused by themine opening can lead to a cultural revival,especially in a depressed area.

As with economic benefits and costs, thedistribution of social benefits and costs islikely to be unequal among different population groups. This is particularly true ifindigenous populations are affected. In thepast, companies often acted as a surrogategovernment, providing infrastructure,schools, and medical care. While in recentyears this may have continued to be truefor the company’s employees, it has beenless and less true for the community atlarge. Therefore, local governments need tobe empowered and financed to providesuch services. An important part of theanalysis in this study was to analyze theimplicit distributional effects of the provisionof government and company services. Therelated impact on poverty reduction wasalso a focus of the study.

Just as Important as What Took Place:Why and How It Took Place

With regard to legal and management issues,two factors are of particular importance.The first is the regulatory framework ineffect at the time of project development.The second is the management of theprocess by the company. This includes theconsultative processes followed in thenegotiations leading to the opening of the


4

mine, as well as mediation methods for anyconflicts that may develop later.

The outcomes of negotiations will also begreatly influenced by the existing legal andinstitutional framework. Three factors areparticularly important: the rights of localand indigenous communities with respect tonatural resources; environmental regulation,monitoring, and enforcement; and the general state of judicial systems and lawenforcement. Yet the cornerstone of aprocess that will lead to the successfulintegration of the mining operation in thedevelopment effort of the region will be theestablishment of a trilateral dialogue inwhich the state fully participates in the definition of programs and relationshipswith the company and the locals.

the amounts of investment and productionfor the large mines are of major significanceto the economies of the Andean countries.By contrast, the medium-scale mines arenot significant from a macroeconomic perspective.

The legal frameworks for mining in some of the countries reviewed direct a substantial portion of the revenues generated by the mines to the regions. InBolivia, since 1997, a royalty has gone tothe departmental level. This has benefitedcommunities in the area of Inti Raymi, but not those in the area of Puquio Norte,as the departmental capital is relatively faraway. In Peru, the “canon minero” – a type of royalty on the income tax paid tothe central government – is to be returnedto the region. It began at 20 percent in1996, when the royalty was enacted, and was increased to 50 percent in 2001. Whether and in what form transfersare received by the respective departments,and how they are distributed within thedepartments, were not analyzed by thisstudy. Transparency of accounts at different institutional levels remains an issue.

SEVEN CASE STUDIES: COSTS ANDBENEFITS OF MINING OPERATIONS INLATIN AMERICA

What are the actual impacts of mines onlocal communities? The seven large andmedium mines that were studied in LatinAmerica present specific evidence about a number of key social and economic variables, including land acquisition,employment, business creation and development, multiplier effects, infrastructurecreation, effects on local prices, trainingand education, and social, cultural, andenvironmental externalities.

Economic Benefits from Large Mines AreSignificant for Andean Countries

The findings of this study are clear: dataobtained on investment, production,exports, and fiscal revenues confirmed that

TABLE 1: INVESTMENT AND REVENUESGENERATED BY LARGE AND MEDIUM MINES

Mines(numberand size)

5 large

2 medium

Investment(US$ million)

6,200

110

Export revenues(US$ million/year)

4,000

40

Fiscal revenues(US$ million/year)

400

1

Note: All figures are totals—not averages—for all themines analyzed.Source: Authors’ calculations.


5

Land Acquisition Processes:Transparency Is Key

Land acquisition became a crucial issue inseveral mines. Although the prices paidwere far above pre-mine market values,the negotiations often were very difficult.Two issues proved especially troublesome.The first was a perception of fairness or unfairness in the relative prices paid to different sellers, as price differencesbecame an irritant in the process. The second was whether employment was partof the package, as employment provides asecure income and status in the new socialcontext of the region. Moreover, local peopleusually had a different conception of a landacquisition contract than the mining firmand would try to reopen the contracts(often successfully) when new informationcame to light or circumstances changed.Contracts were never reopened on thegrounds the company had originally beentoo generous.

In order to overcome difficulties associatedwith pricing, it is important to be transparentin negotiations with landowners – or communities, in the case of common land.If different vendors perceive that othershave received a better deal, not only willthey try to reopen their contracts, but illfeelings will be generated. Pricing becomesa particularly difficult challenge when landis bought over time. Yanacocha in Perupaid much larger amounts for land boughtin the late 1990s than in the early 1990s.The increases largely reflected changingmarket conditions caused by the reneweddynamism in the area – due to the miningoperation itself – as well as the defeat ofSendero Luminoso (“Shining Path”), a terrorist group. This led to a great deal ofbitterness on the part of early sellers, whoin turn were able to bring social forces likethe Catholic Church to bear on their side.In the end, the early contracts were renegotiated and a number of side payments were made, including jobs andsocial programs. Antamina, perhaps learningfrom the difficulties that Yanacocha hadfaced, bought almost all the land that itthought it might need at one time, payingthe same amount for land of similar quality.

Side payments, such as preferred employment, are one method to avoid difficulties that arise when former landownershave spent the money they received fortheir land and have no other source ofincome. Another method that can be usedin the case of the sale of community-ownedlands is to keep the funds in some sort oftrust. In the case of Inti Raymi in Bolivia,one community (La Joya) included a representative from the mining company as part of a three-member board oftrustees to help prevent both wastefulinvestments and corruption.

TABLE 2: IMPACT ON LAND ACQUISITION

Mines(numberand size)

5 large

2 medium

Pricerange ofland timespreviousprice

3 to 30times

n.a.

Side payments (nature andamount)

Preferredemployment,cash payments

None

Savings andinvestment (percentage/use)

50 to 100%saved, investedin other landand/or housing

Not relevant



6

Jobs, Jobs, Jobs: Large Mines Can HaveHuge Multiplier Effects

While employment in the new operation isthe main objective of the locals, indirectemployment effects are often extremelyimportant. Employment in subcontractedfirms that supply mine goods and servicesis often equal to or much higher than directmine employment: 14 times as high, in thecase of Yanacocha. Furthermore, estimatednon-mine-related employment generatedthrough multiplier effects is often muchhigher than direct or indirect mine employment: about 2.5 times as high as theothers combined, in the case of Inti Raymi.

Outsourcing is critical for both the size andthe sustainability of the economic impact ofmining operations. This point cannot beoveremphasized, and it is perhaps thestrongest result of these studies. In mostcases, outsourcing has increased over timeand is the key source of entrepreneurialdevelopment. Moreover, the multipliereffects of the operation are much larger ifthere is substantial local outsourcing. Thisoccurs both because the monetary injectionis greater and because employees of contractors usually spend more of their

money in the local economy. While all thelarger mines have worked actively to develop local contractors and suppliers,the program by Escondida to assist localcompanies in quality control is the mostnoteworthy. This program has been sosuccessful that many of Escondida’s localcontractors not only supply other firms inthe region but are supplying mining companies in other regions of Chile.

With the exception of Puquio Norte, amedium-sized operation in Bolivia, salariesfor miners and contractors are much higherthan general local levels (in the cases wheredata exist). As noted in the discussion onemployment, the local monetary injection ismuch greater than the salaries to the mineemployees, and this amount is increasedthrough the multiplier effects.

Infrastructure: Roads, Power, Schoolsand Hospitals

One important benefit of mining operationsis infrastructure creation, as it facilitates thedevelopment of other economic opportunities(see Appendix B). The building of roadsopens new areas and integrates them tothe national economy. This is especially

TABLE 3: IMPACT ON EMPLOYMENT

TABLE 4. IMPACT ON SALARIES AND WAGES

Mines (number and size)

5 large

3 medium

Dir. empl. (no.)

5,100

380

Indir. empl.(no.)

14,500

865

%filledbylocals

˜80

>30

Localnon-mineempl.

18,700

900

Totalminegen.empl.

3-25%of reg.empl.Small

Mines (number and size)

5 large

2 medium

Minesalariesrelativeto localsalaries

250-400%

100-160%

Mine contractorsalariesrelativeto localsalaries

170-200%

n.a.

Annualmonetaryinjection

$380 m

Estim.multipl.effect

1.4-5.7

1.2-1.8




7

true in remote areas where little infrastructureexisted previously, such as Antamina inPeru. In the case of mines located close toexisting major roads or ports (like most ofthe Chilean mines) the most importantinfrastructure expenditures were for theconstruction or upgrading of local roads,schools, and hospitals. Other infrastructuredevelopments can have a major regionalimpact. In Puquio Norte in Bolivia, forexample, the company and local communitycombined funds to build a gas pipeline tothe mine that was larger than necessary tomeet the company’s needs. The extracapacity was used to provide electricity tothe local rural population.

The presence of the large mines studiedhere resulted in significant gains in trainingand education – while not causing anytraumatic price increases in the region. Theregional benefits of training and educationfor mine employment were significant in allthe large mines. This was not the case withthe medium mines. The most interestingexample occurred at Escondida, wheresignificant emphasis was placed on trainingin work habits and attitudes toward work.Fears that the mining operations wouldresult in large price increases were mostlyunjustified in Escondida, Candelaria, andInti Raymi, but there were some problemsin Yanacocha, Puquio Norte, and Fachinal,primarily concerning rents and real estatevalues. Local taxes can be another benefitof significance to the region, if properlychanneled. This has been the case with Inti Raymi in Bolivia, in recent years.

Foundations Help Create Social Capitalin Mining Communities

Discussions of the social and cultural externalities of large natural resource projectsusually focus on the negative impacts.These may include increases in crime andprostitution, cultural conflicts with indigenouspeoples or local communities in general,the upsetting of existing social hierarchies,and the creation of envy between thosewho benefit from the project and thosewho do not. However, the studies showedthat there can be positive externalitieswhich outweigh the negative aspects. Thisis true especially in the areas of health,training, education, and the creation of socialcapital – the capacity for local governance,the cohesiveness of the community, andthe communication links with and withinthe community (see Appendix C). However,there appear to be economies of scale inthe provision of such services. The medium-scale mines tend to limit the provision ofsuch services to their own work force.

In the absence of well-endowed local governments, foundations set up by themining companies can play a very importantrole in structuring, coordinating, and fundingthe activities that will make such positiveexternalities possible. Some of the largermines have set up “arm’s length” foundationsto provide these benefits to the local communities. All the foundations place astrong emphasis on training to increase theskills necessary for sustainable communitydevelopment, as well as health issues forwomen, particularly mothers. The Inti RaymiFoundation, for example, trains locals inthe design and preparation of projects topresent for funding, including organizationalmatters. As noted, Escondida included anentrepreneurial development program.


8

Most importantly, foundations are involved

in creating social capital, which is likely the

more important social outcome for

communities. They are learning how to

organize, how to negotiate with both

companies and central governments, and

how to take advantage of the opportunities

offered by the mining operations to pull

themselves up by their own bootstraps.

Foundations have the added advantage

that they can seek other sources of funding,

independent of the mine operation, and are

therefore able to leverage the resources of

the mining company. Benefits from

foundations can be further leveraged

when the private sector in a given region

engages or is engaged by both the

communities and government in a trilateral

dialogue aimed at regional development.

A notable example is the Productive

Development Corporation of Chile’s

Second Region. It began as an initiative

of the regional government aimed at

linking the regional development strategies

to large companies and universities in

order to foster public-private regional

development efforts.

In general, the majority of the direct

economic benefits went to those directly

affected by the mine, while the remaining

people in the area benefited indirectly. In

fact, one of the primary purposes of the

foundations was to help distribute the

benefits of the operation to the surrounding

communities that were not directly affected

by the mine operations. In this sense, the

foundations achieved the redistributive

results that could have been expected of

taxes paid to the local and regional

governments by the mining companies.

Cultural Externalities: Disturbance –but Rarely Cultural Shocks

The mines in this study also had importantsocial and cultural impacts. The largesteffects were in the two Peruvian cases,where traditional socio-economic relationsamong pastoral peoples were disturbedand family groups were occasionally broken. Social relationships may have alsobeen disturbed by the large amounts ofmoney paid for land in the cases of IntiRaymi, Yanacocha, and Antamina. Yet, innone of these cases was the social hierarchysignificantly upset, although of course therewas often movement among the differentsocial levels. Even though substantial numbers of indigenous peoples wereaffected, given their familiarity with mining,none of the mine operations was a culturalshock to them. Of more importance wasthe envy created by the new economicopportunities and land payments. In particular, there was rivalry between those villages directly affected by the mineoperation and those in the nearby region of the mine.

The major social problem in most of theareas was prostitution and related diseases,although alcohol abuse was also noted insome cases. However, given the integration of most of the mineworkers with local communities, these problemswere not very severe. They were mostnoted in Cajamarca (near Yanacocha),where residents have complained of thelarge increase of “sex” bars, and in Fachinal,where the community is very small.


9

Environmental Externalities: SeparatingFact from Fantasy

The first question often asked in the analysisof any potential mining operation iswhether the benefits of the mine exceedthe environmental costs. Thus, a majorobjective of the researchers in the LatinAmerican studies was to analyze the environmental costs thoroughly. They didnot undertake physical tests; rather, theyinvestigated the damage caused by anyenvironmental impact or accident. Theresearchers concluded that it was hard toseparate fact from fantasy when it came tothe environmental performance of the mining companies. While many groups inthe local communities complained aboutpollution, none of the mines under studyshowed any obvious evidence of substantialenvironmental damage. In fact, the studyfound that all mines made significant effortsto minimize environmental damage. Whenminor incidents occurred, the companiesresponded quickly.

The claims of environmental damageapparently stemmed from poor communication by the companies and, insome cases, from manipulation by localpoliticians and communities. The companiesthat were targets of complaints about their environmental performance had poor communication with the neighboring communities and poorly managed publicrelations departments. In the earlier yearsof mine operation, these companies weresecretive about their operations and did notbother to explain and demonstrate to thepublic that they were taking proper care ofthe environment. This miscommunicationwas aggravated by the poor historicalrecord of environmental performance of themining industries in the three countries.

In addition, local politicians and communitymembers in general used the environmentas a political tool. They would create distrusttoward the company on environmentalconcerns in order to extract larger concessions from it on other matters.

Where Dialogue Is Not Trilateral:Negotiation and Cooperation BecomeDifficult

In the relationship between the miningoperation and the surrounding communities,there are always at least three major players:the local (and regional) community, thecentral government, and the mining company. Ideally, this results in a trilateralrelationship; representatives of the threemain parties maintain an ongoing trilateraldialogue to facilitate the design and implementation of a local and/or regionaldevelopment plan. However, the moreusual case in Latin America is that thecompany negotiates with the central government and the local community (orgovernment) separately. There is very littlecommunication between the central government and the local community.

These “two-sided triangles” typified all theLatin American mines studied, with thepossible exception of the case of Antaminain Peru. In most cases, the major roleplayed by the central government was limited to previously establishing a legaland fiscal regime and environmental regulations, major infrastructure projects,and granting the mine license. In fact, allthree countries have modern mining codes,and all mines must follow modern environmental laws, undertake environmentalimpact assessments, and undergo inspection by representatives of the central government. All three governments have


10

established an enabling environment favorable to investment in their countries.However, a pernicious effect of the weakcommunication between government andthe local community (the incomplete triangle)was that it resulted in almost all fiscal revenues going to the central level, or in aninadequate dialogue among the three mainstakeholders, or both. Under such circumstances, it was difficult to establishthe basis of a reliable scheme to designand administer a regional development program with the full participation andownership of the three key stakeholders.

Given that regulations were already inplace, the initial concern of the companiesinvolved land acquisition. As the mininglaws of the three countries do not addresslocal economic benefits, social and culturalissues, or the property rights of the surfaceland, the situation was effectively left to the initiative of the companies. In such acontext, the absence of a trilateral dialoguebecame a serious shortcoming for theestablishment of the basis for sustainabledevelopment. When mining operationswere established, there was no formal relationship between the company and thelocal – that is, municipal – governments(except for Antamina). In general, companiesdealt directly with landowners or community representatives, rather thanlocal governments. In recent years, thisarrangement has been changing; it is nowmore common for local governments to the community interests.

Despite the lack of a formal relationship, byfar the most important side of the “triangle”in the seven mines under study has beenthe link between the companies and thelocal communities. In all cases, there havebeen significant interactions, both negative

and positive, between the companies anddifferent local community groups (municipalauthorities, community-based organizations,NGOs, church, universities, and landowners).In most cases, these relationships havebecome much more profound over theyears. This is due, in part, to a natural evolution of the relationships. It is also dueto changing global perceptions of the roleof mining companies with respect to theirhost communities, and to a better understanding by the mining companies ofthe values and aspirations of the localcommunities. For instance, in the case ofland acquisition from indigenous populations,it has taken decades for mining companiesto understand that the closure which theyinterpreted as finalizing a transaction wasinterpreted by the other side as the initiation of a long-term relationship.Consequently, land prices have to take intoaccount social considerations.

As a result of the factors described above,the mines that were built most recentlybegan with many of the community interactions that took several years todevelop in other cases. Antamina, themost recent mine, has begun with an effortto build a profound relationship with thelocal communities. While part of thischange probably stems from learning fromexperience, certainly a large part also hasbeen a result of the increasing pressure onlarge mining companies by communitiesand other stakeholders, including international NGOs and the shareholders ofthe international mining companies. In thepast, communities were often satisfied withthe large number of jobs that accompanied alarge mine operation. However technologicalprogress has greatly reduced the numberof jobs, and for compensation communitieswant other benefits.


11

The achievement of sustainable developmentby the communities is – or should be – theoverarching goal of the relationship betweenmining companies and the communities.Communities want support from the minein the economic, social, cultural, and environmental areas during its operations,but they also need to address these issuesonce the mine closes. Accordingly, therehas been a great emphasis on developingthe human and social capital and physicalinfrastructure that will allow the communityto continue to prosper after mine closure.In this regard, outsourcing and the relateddevelopment of new skills and businessesare a crucial step in the evolution of thecommunity.

The overall Canadian experience presents

strong evidence that mining can both

promote the socio-economic well-being of

communities and be environmentally benign.

Mining can also lead to the development of

clusters of activities centered on the mining

operations. It is even capable of resulting in

the creation of a “mining metropolis” with a

strong manufacturing sector.

The Canadian cases also shed light on

relations with aborigines. Most of the new

Canadian mines are located in northern,

remote areas with predominantly aboriginal

peoples. The cases reveal that socio-

economic agreements are crucial when

dealing with aboriginal peoples. These

should include employment quotas or

targets, special training programs, targets

for local procurement, support for local

business development, support for women’s

employment and training, and a supportive

work environment for distinctive cultures.

The one factor common to most mining

communities (however defined) in Canada

is that their relationship with mining

companies has evolved from paternalism to

partnership, with both sides striving – with

the help of governments – for sustainable

community development. The active role of

government in working with the local

communities to facilitate this evolution has

solidified the trilateral dialogue. This has

been particularly important in the context of

aboriginal communities, as there is usually

an asymmetry in the information held by

mining companies and these communities.

Given the poverty of many of these

communities, it will be necessary to provide

public funding for NGOs or consultant

services to work with aboriginal peoples

confronting a new mining project.

FIVE CASE STUDIES: MINES IN CANADA AND SPAIN

The Canadian Experience: FromPaternalism to Partnership

In Canada, the trilateral relationshipbetween communities, companies, andcentral (or higher level) governments have proved to be key to the effectivenessof the efforts to achieve sustainable development. Thus the main thrust of theanalysis of the Canadian cases was on theevolution of this trilateral relationship. Themain result observed is that the three parties are learning from experience. Thetrend is strongly positive; communities arereceiving more and more sustainable benefits from mining operations. The scopeand size of these benefits vary greatly,however, depending on the location of themine and the access to markets, both ofwhich can largely shape the economicalternatives realistically available.


12

The pattern of community development in

Canada is similar to the Latin America

cases, albeit more evolved. In the first

years of the mining operations, local

community members tend to fill the lower

skilled jobs and provide unsophisticated

services to the mine, especially if it is in a

remote location. However, as the community

matures, it is common for local residents to

provide such services as vehicle repair,

machine shop services, welding, sheet

metal work, plumbing, and electrical work.

In areas with multiple mining projects, the

next step for local business is complex

construction projects. Finally, in major

mining areas, production of complex mine

equipment that is also sold to other regions

or countries has been undertaken. The

Sudbury basin in Ontario is probably the

best example of such a “mining metropolis.”

With a population of about 250,000 persons,

it features 5,000 jobs in manufacturing,

as well as a number of important

government services.

The development of a well-established

tripartite process among communities,

companies, and governments has been

instrumental in laying the foundation of

sustainable development in many mining

communities in Canada. As noted above,

many of the new mines in Canada are

located in areas predominantly inhabited by

aboriginal peoples. While these operations

provide opportunities, they have also

ushered in social problems, including the

impact of the mine on traditional activities.

Until the 1990s, aboriginal peoples

participated very little in negotiations over

mine development on or near their lands.

By now, companies must negotiate impact

and benefits agreements with their

communities. They can and do demand,

among other things, training programs for

mine work and some assurances of buying

local inputs. The Diavik diamond mine in

the Northwest Territories provides for sub-

stantial purchases from northern business-

es and includes a policy of eventual 100

percent northern employment.

The increase in fly-in, fly-out operations

coupled with employment guarantees in

the impact and benefits agreements is

now helping aboriginal communities.

Where no semi-permanent or temporary

communities are created at or around

mine sites, they do not attract southern

Canadians, and the transitory nature of

the mining operation actually serves to

strengthen aboriginal communities.

Where access to mine-employment is

provided through fly-in, fly-out arrange-

ments, young males can continue to

live in their original communities rather

than flock to new mine sites. Moreover,

traditional activities can be pursued in

down periods.

In Canada, as in most mining countries,

there has been a strong trend toward

stricter environmental regulations and

better environmental performance. In

particular, there is a heavy emphasis on

mine closure and rehabilitation.

Companies usually have to set up

environmental funds, especially when

tailings must be stored in perpetuity.

Comprehensive environmental reviews

must be undertaken, and they must

include detailed analyses social and

cultural factors. In general, these reviews

are functioning well. There is also a trend

toward cooperative monitoring of

environmental management programs,

especially in aboriginal areas.

s,eir

oh fly-adi-


13

One of the Best Models: UraniumMining in Northern Saskatchewan in Canada

The uranium mining experience in northernSaskatchewan may well approach themost sophisticated model of tripartite relationships to be found anywhere in theworld. Over about a 20-year period, thesituation in northern Saskatchewan evolvedfrom one characterized by very little inputfrom the local community, minimal directimpacts, and large negative externalities, toone with large and positive direct impactsand externalities. Over this relatively shortperiod of time, good policies and practiceshave moved an industry from a situation inwhich it primarily generated revenues forfaraway governments to one in which it isthe leading force for dynamic communitydevelopment. This type of development isclearly more sustainable in a regional context where new mines are replacing oldmines, and the effects can take place overseveral generations.

After a difficult start, concerns related tothe effects of uranium mining resulted inthe appointment of a commission, theBayda Commission. The recommendationsit made in 1978 – together with the privatization of the industry – have provided the foundation for later develop-ments. Northern Saskatchewan is aremote area home mostly to aboriginalpeoples, who make up 87 percent of thepopulation. Only 40,000 of Saskatchewan’s1 million inhabitants live in this area. Earlierattempts to exploit uranium here weremade through a state-owned enterprisethat employed mostly people from outsidethe region. A mining town was built, whichattracted migrants from all over the regionand resulted in social problems of crime,

alcoholism, and prostitution. The unsatisfactory results gave rise to oppositionto uranium mining from both southerners,for environmental reasons, and aboriginals,because of a lack of economic benefitsand the perceived large social, cultural,and environmental costs.

To address these problems, the BaydaCommission made several recommendations.Among these: consulations should movefrom a bipartite to a tripartite form, incorporating local governments as well as the provincial and federal government.Socio-economic and cultural impactsshould be incorporated into the decision-making process, rather than focusing solelyon the environment. The northern areasshould share in the fiscal revenues generatedby uranium mining. More importantly, theCommission laid the foundation for uraniumdevelopment in northern Saskatchewanthat evolved and developed through the1980s to include: 4 best efforts (rather than targets) to

deliver social and economic benefits;4 cooperative tripartite negotiations; 4 increased monitoring of environmental

and occupational health and safety performances;

4 community-based consultation procedures; and

4 recognition of social spending as a legitimate royalty deduction for companies.

The movement from state-owned to privately owned corporations has also beenvery important with respect to the levels ofinvestment, ability to quickly adapt to newsituations, and a stronger commitment tocommunity development by firms whosesurvival and prosperity depend on strong,healthy community relations. By the end ofthe 1980s, the state was no longer


14

involved directly in uranium mining. Theprovincial and federal state-owned companies merged to form CamecoCorporation, which in turn was quickly privatized. Cameco and other privatelyowned uranium mining companies movedrapidly in the 1990s to take advantage ofthe lessons learned during the years ofstate-run mining operations. They haveworked with the communities and variouslevels of government to dramaticallyincrease the levels of benefits to residentsof northern Saskatchewan. At the sametime, they have been fulfilling more andmore stringent environmental regulations.

The Almadén Mine in Spain: A Treasure Chest but without Sustained Development

The Almadén mercury mine has been inoperation for over 2000 years. Yet it is atypical example of a mining operation thathas resulted in non-sustained development.During most of its history, the mine hasoperated as a state-run enterprise and wasused as a treasure chest of the SpanishCrown. Twice it was used to guaranteeenormous sovereign loans. Little if any ofthe rents went back to the local communitiesand little attention was paid to developingthe area or to diversifying the local economy.The community never participated in thedecisions that most affected it. Its membersseldom had any alternatives to the mineand have seen the state as obliged to givethem employment.

The very high quality of the deposit tookaway the need of the parastatal managementto innovate and increase the productivity ofthe operation. The Almadén deposit is thelargest, richest mercury deposit known toexist. It contained over 30 percent of the

world’s known reserves of mercury and itsgrade has been six times the global averageof mercury mines. Since management’smain concern has always been to maximizeproduction, the productivity and profitabilityof the operation were never made priorities.

MOVING AHEAD: LESSONS LEARNED INDEVELOPED AND DEVELOPINGCOUNTRIES

The underlying studies of this reportdemonstrate that there often are substantialsocial and economic benefits to local communities from mining operations, butthat these do not come automatically.Mining is an activity that will come to stayin a region “through thick and thin,” and it is a powerful vehicle for transferring technologies and skills to developing countries and remote regions. Yet someregions with no history of mining andhence no work force and industry ready totake advantage of new opportunities haveneeded proactive interventions to jump-start the development process.

Lesson 1: Benefits have to be sustainable, and outsourcing is key.

The key issue is the sustainability of benefits(see Box 1). The most successful caseswere those where the local communities(often gradually) provided many of thegoods and services needed by the miningcompanies. In some cases, the miningcompanies played an active role in enhancingthe quality of the goods and services theirsuppliers provided. Proactive policies andtraining with respect to mine employment,non-mine employment, and the provision ofgoods and services were of major importance. The skills developed in all


15

these cases often were transferable to otherindustries. Companies and communitiesthat took a long-term view – includingpostclosure – were also more likely to havea clearer vision of what types of trainingand programs were more likely to providesustainable benefits.

Sustainability is partially dependent on theprovision of infrastructure that could beused for other activities. The case ofSudbury (Ontario) shows how in the rightconditions infrastructure provision canresult in a vibrant industrial community. It seems likely that infrastructure creationwill be one of the largest benefits of theAntamina mining operation in Peru.

Lesson 2: Companies need a “sociallicense” to operate, and a trilateraldialogue with open communication iskey to achieving this.

The studies confirm that sustainability isclosely related to local participation of theneighboring communities in the decisionsaffecting them. The Canadian cases pointto the importance of active participation bygovernment in such a process, and of allthree main stakeholders – the community,the company, and the government –engaging in a trilateral dialogue. Such adialogue would not only ensure direct communication among the stakeholdersbut also provide the opportunity for otherinterested parties to participate.

Almadén’s failure to bring about sustainabledevelopment is largely due to the lack ofprivate sector and community participationin the context of the operation of theparastatal company. Adequate design andimplementation of a program to diversify anarea’s economy demand participation and

ownership by all three major stakeholders.A key result of the studies is that a legallicense is no longer good enough. Companiesmust obtain a social license. This dependson consultation, participation, and, increasingly, a strong trilateral dialogue.

A company that is about to enter a newcountry or a new region must ensure that it knows the country and communities, as well as the social dynamics, and politics of the host region. In this regard,baseline studies should be undertaken togain a good understanding of the local

BOX 1: THE KEY ELEMENTS OF SUSTAINABILITY

4 Non-renewable resource developmentshould not threaten the environment andthe renewable resources upon whichfuture generations depend.

4 Mineral wealth should be maintainedfrom one generation to the next.

4 Sustainable mining balances economicgrowth and protection of the environ-ment through sensible trade-offs thatconsider all costs and benefits in thedecision-making process.

4 It is critical to recognize that mining willaffect the social structure and culture oflocal people and to consider theseimpacts as part of the decision-makingprocess.

4 It also must be recognized that thebuilding of local capacities does nothappen overnight. Thus, the processshould begin as early as possible.

4 Reducing, reusing, and recyclingresources should be encouraged, whileavoiding the waste of the resource baseby inefficient mining techniques.

4 Policy and taxation decisions shouldconsider the economic health of themining industry.

Source: Conservation Strategy Committee to theSaskatchewan Round Table on Environment andEconomy, Regina, 1986.


16

situation. These should be followed byclose supervision of the evolution of keysocial indicators to monitor the progress ofthe community. The relationship that the company is about to establish should beguided by a long-term vision, even if – asin the case of the junior companies – thefirm does not intend to stay. A commitmentby the company to the development of theregion is important; the earlier the companyis perceived and understood as a memberof local society, the better. The companymust be clear that the responsibility it isabout to assume in the local communitiesis part of its corporate ethics and that itsassistance will strengthen local governanceand capability to formulate projects.

The importance of good communicationbetween the company and the communitiescannot be overemphasized. Companiesshould begin early, be open, and give lotsof information. It is essential to have a clearmission statement and clear humanresource and environmental policies. Thereshould be a group in the company dedicatedto these tasks.

Lesson 3: A successful communitydevelopment processes will build socialcapital – but it needs management and funding.

The implementation of a successful development strategy for the communitiesdemands an adequate institutional designfor its management and funding, and theorganized participation of the community.An important consideration for a companythat is about to undertake an initiative relatedto local economic development concernsthe instruments to be used for the channelingof funds and implementation of the project.Some companies have chosen to set up a

“foundation” as an independent institutionand assign it such responsibility. However,such foundations are in fact controlled bythe mining company, and the degree oflocal participation is independent of thepresence of a foundation or of a company. Amore recent alternative is the establishmentof an informal “Governance Board” that represents the main stakeholders and thatacts on the basis of consensus of the main stakeholders.

The funds assigned by a company tofinance a community development programshould constitute only the seed capital of abroader financial strategy funded throughother means. The company’s contributionshould be a minority share, made under areimbursable credit-scheme, to be repaidonce the productive projects are in operation,and positioned such that at least part ofthe amount invested can be recovered.Funds should not be lent at below-marketrates; the scheme should simply makeavailable to the community financial instruments that the market does not offer.

Local communities are generally at a profound disadvantage when negotiatingwith large mining companies. It often takesconsiderable effort and several years beforethey can be considered to be true partners.In the interim, higher level governmentsshould fund NGOs or other institutions toprovide advice and training to the localcommunity members. Over the longer term,foundations or similar institutions – fundedboth by companies and governments – havebecome a very common way of providingsocial services and, more importantly, ofbuilding up human and social capital incommunities. In many respects, these havebecome partial substitutes for governments.It also seems likely that there are


17

economies of scale in the delivery of suchservices. The medium-scale mines in thesample provided relatively much smalleramounts. A regional approach, by whichvarious mining operations would pool theirresources for such activities and governmentwould add its own transfers to thoseresources, may be necessary in such cases.

A strong lesson from the Andean studies isthe need for a concerted local economicdevelopment plan to be available as earlyas possible.1 Institutional and organizationalweaknesses of the local populations constitute one of the key bottlenecks tolocal economic development, and capacitybuilding takes time; thus the need for anearly start. A concerted process involvingthe participation of the local population (andnot just the local leaders) should bring abouta reasonable action plan where the companycan express its priorities – a very differentprocess and outcome from unilaterallydeciding what is good for the community.The company should start working on sucha plan at the earliest possible stage.Preferably during the exploration stage, aninformation and consultation strategyshould be implemented quickly.

Central Governments Need to BecomeMore Involved

It is clear from the studies that central government needs to become moreinvolved in community development workin the Andean countries. Its role in the

trilateral dialogue with the local communitiesand the mining companies is essential. Only the participation of central governmentwill ensure the adequate coordination oflocal plans with the national programs, thus multiplying their beneficial impact(see Box 2).

The Emphasis Is Shifting: FromLimiting the Negative Effects toIncreasing the Positives

While the samples revealed few negativesocial and cultural effects, two issuescaused significant social problems in theLatin American case studies: land acquisition,and the cultural clash between (usuallydomestic) immigrants and residents of thearea. Land purchases that are lacking intransparency and fairness are likely tocause long-term damage to company-community relations. Antamina learnedfrom the Yanacocha experience andagreed to a transparent process of landacquisition, where uniform prices wereagreed for land of the same quality. Also,given the attachment of aboriginal communities to their ancestral land, thecases make clear that companies mustrealize that completing the acquisition ofthe land is not the end of the relationship.It only means that the agenda of the formerowners changes: from land to jobs, marketsfor local products, or similar concerns.

Clashes between immigrant workers andresidents of the area are a consequence ofthe mine’s need for qualified workers whocannot be recruited among the locals.While the ability of mining companies togenerate jobs (especially those that couldbe filled by locals) is limited, the miningcompany can implement a recruitment policy that gives priority to local hires and

1The Andean countries have preferred not to includecommunity development provisions in their nationalmining legislation, as it bureaucratizes a process thatthey believe needs to be left flexible, given the uniqueconsiderations of each mining operation and the localcommunities in the area. By contrast, some countries,such as the Philippines and (potentially) Indonesia, areopting to move in this direction. Companies are generallyagainst such provisions, as it presents them with legalobligations, even when the mine is not profitable.


18

assist the potential local candidates withtraining programs. Companies can generateadditional employment by agreeing to obtaingoods and services from local providers.

As the focus of the study was on modernmining operations, most of the mines wereusing up-to-date environmental practices.Yet there were a few negative environmentaleffects. In the older mines that were included(Sudbury in Canada and Almadén in Spain)there was an environmental legacy fromthe past, although much had been done toimprove the situation. Nevertheless, thecommunities and other stakeholders oftenused the environment as a political tool inorder to extract concessions from the mining companies. At times, the miningcompanies partially brought the problemsdown upon themselves due to poor communication and public relations

strategies. In the case of Canada, it hastaken many years of experience and learningto eliminate or mitigate negative effects onaboriginal peoples.

In sum, there were not many negatives in the accounting ledger, but in somecases there were also not many positives.Accordingly, the communities were not always very accepting of the mining opera-tions. This was particularly true of thesmaller medium-scale mines. Yet it isimportant to point out that, while the past agenda has been on reducing theminuses, the new agenda is on increasingthe positives.

No One Size Fits All, and CommunitiesHave the Last Word

Although there are some rules that apply to all mining operations – such as the importance of tripartite negotiations andtransparency – each mine has its own historical, social, cultural, and geographicalcharacteristics that preclude the use of a one-size-fits-all prescription. For example, not every mining city has thepotential to become a mining metropolis; it is important to be in an area with manyoperations and not too far off the beatentrack. Training programs and other community initiatives are also more likely tohave long-term success if a regionalapproach is taken. This, in turn, is feasibleonly when a succession of mines is beingdeveloped. Similarly, while the infrastructurethat a large mining operation brings to aregion can be its most important contributionto the local community, in remote regionswith little possibility of significant industrialdevelopment because of climatic or geographic conditions, fly-in, fly-out mining may be the preferred choice.

BOX 2. THE ROLE OF CENTRAL GOVERNMENTS

To help generate positive impacts for localcommunities from large mines and distribute those benefits better, central governments should:

4 Redistribute some of the tax revenuefrom mining to local governments – andensure compliance with redistributionsmandated by law. Often, this will need tobe accompanied by capacity building atlocal levels.

4 Promote social responsibility among the mining companies toward the communities. Initially, this could beaccomplished by playing the role of go-between that shows both the company and the community the fundamental nature and legitimate aspirations of each side.

4 Play a proactive role in community development programs, either directly or indirectly through the use of NGOs,community-based organizations, or religious organizations.


20

Mine

Antamina

Candelaria

Escondida

Fachinal

Inti Raymi

Puquio Norte

Yanacocha

Almadén

Diavik, Northwest Territories

Northern Saskatchewan

Sudbury, Ontario

Sussex, New Brunswick

Country

Peru

Chile

Chile

Chile

Bolivia

Bolivia

Peru

Spain

Canada

Canada

Canada

Canada

Mineral

Copper

Copper

Copper

Gold

Gold

Gold

Gold

Mercury

Diamonds

Uranium

Nickel

Potash

Size of mine

Large

Large

Large

Medium

Large

Medium

Large

Large

Large

Large

Large

Medium

APPENDIX AMINES EXAMINED IN THE SAMPLE

Dev

elop

ed

coun

trie

sD

evel

opin

g co

untr

ies/

La

tin A

mer

ica

FURTHER READING

Large Mines and the Community –Socioeconomic and Environmental Effects inLatin America, Canada and Spain.Edited by Gary McMahon and Felix Remy. Published by the World Bank (Washington DC)and IDRC (Ottawa, ON) 2001. Available online through:http://www.idrc.ca/books/focus/949_mining/949/f949c011keyobs.htm?


21

Mines

Inti Raymi

Yanacocha

Antamina(planning stage)

Escondida

Candelaria

Diavik(projection)

Northern Saskatchewan

Almadén

Puquio Norte

Fachinal

Sussex

Roads and ports

Minor roads

Built and upgraded local roads; assisted in maintenance of road to coast

Major upgrading of road to coast and Lima (in progress); secondary roads upgraded

Port of Coloso (only for company use); road to mine; local roads in port area

Port at Punta Padrones (only for company use); 22 km of road

-

Significant road expansion, including a connected network

Worse than national standards

Insignificant

Road improvements(25 km)

-

Power

Generating station formine; not suitable for rural areas

None

None

High-voltage power line

-

-

High-voltage power lines with local access

At national standards

Electricity for rural areas

-

-

Hospitals, schools, and other

High-quality local schools in rural and urban areas; high-quality rural health center

High-quality school; rural water and sanitation projects

Technical and secondary schools (built by community with land payments)

International school; water tanks

Sports complex; creation of primary and secondary school

-

Recreational facilities; health care facilities; water and sewage

High school; university; hospitals; sports complex; all much higher than national standards

None

-

-

Local taxes

10% of departmentbudget (1998)

$7 million/year(1993-97)a

$16.6 million/year oncein production

$2.2 million(1997)

-

$1.2 million/year

1995 $42.4 million(1985-96)

Negligible

Negligible (paid to Santa Cruz department)

-

$6 million/year to provincial governmentb

LARGE-SCALE MINES

MEDIUM-SCALE MINES

APPENDIX BIMPACT OF MINES IN THE SAMPLE ON INFRASTRUCTURE AND LOCAL TAXES

a This is the approximate regional contribution to regional taxes based on the legal percentage of taxes that are supposed to go to the regions. It is not certain that they are actually redistributed.

b This amount includes only royalty payments. An unknown amount of corporate income tax would also be paid.


22

Mines

Inti Raymi

Yanacocha

Antamina(planning stage)

Escondida

Candelaria

Diavik

NorthernSaskatchewan

Almadén

Puquio Norte

Fachinal

Sussex

Health

Several

Several

-

Cancer research; upgrade children’s hospital; out-patient hospice

Various small projects

-

Several community health drug and alcohol treatment healing lodges

Specific care for mercury-related diseases

None

-

-

Education

Several

Large number of programs

-

School upgrading; scholarships;internationalschool

Funding for pri-mary and se-condary school;funding for technical school; scholarships

-

Scholarships;awards; trainingprogram; northern college

Elementary school withnational standards

Improvement of local school

-

-

Foundation

Yes

Yes

No

Yes

No

No

No

No

No

No

No

Training

Mine, agriculture, business and community management;weaving; small business development

Agriculture

Agriculture; small business development

Technical mine training; microenterprise development; labor market insertion; apprenticeship program; quality training for local suppliers

Technical mine training;training in modern industrial practices; training for local suppliers

Support for business development

Multi-party training program ($7 million from 1993-98, 50% of funding from industry); skills training; work placements

Artisanal jobs

None

Technical mine training for locals

-

Other

Social capital development

Forestation; foodsecurity program;social capital development

-

-

Funds “EnvironmentalBrigades” in localschools

Socioeconomic monitoring agreement

Regional developmentprograms by govern-ment and industry;community involvedin environmentalmonitoring commit-tees and communityeconomic develop-ment committees

-

-

-

-

LARGE-SCALE MINES

MEDIUM-SCALE MINES

APPENDIX CIMPACT OF MINES IN THE SAMPLE ON SOCIAL PROGRAMS

Sovereign lending and advice for thedesign and implementation of policy andregulatory frameworks and interventionsthat help:

4Support private sector development andattract national and foreign investment forenvironmentally and socially sustainable mining.

4Equip government agencies to manage fiscal revenues from mining.

4Create economically, environmentally, andsocially sustainable mine closure programs.

4Encourage local and regional economic devel-opment in the context of mining.

4Equip government agencies to restructureand privatize mining operations.

4Equip administrations to better administer/monitor and enforce environmental and social laws and regulations.

4Encourage coal extraction strategies that min-imize global warming effects.

Support and financing for environmentallyand socially sustainable private sectorinvestment in developing countries’ mining sectors through:

4Equity investment in and loans to miningcompanies, including loans syndicated fromcommercial banks under IFC’s syndicationsloan umbrella.

4Various risk insurance instruments (IBRD,MIGA).

4Advice and investment in support of privatization.

4Partnerships to disseminate and apply best practices (Business Partners forDevelopment: www.bpdweb.org)

IFC has 29 mining projects in its portfolio for atotal of $669 million (FY2001).

Support the dialogue with mining companies and government by:

4Facilitating access to information on projects, policies, and best practices.

4Arranging conferences and other formal andinformal meetings.

4Supporting partnerships with mining firms andcivil society organizations that integrate civilsociety in mining activities.

SERVICES TO CIVIL SOCIETY

SERVICES TO GOVERNMENTS

SERVICES TO THE PRIVATE SECTOR

T H E W O R L D B A N K G R O U P ’ S M I N I N G D E P A R T M E N T

DE

SIG

N:

ST

UD

IO G

RA

FIK

, H

ER

ND

ON

, V

A.

Mining Department

World Bank and

International Finance Corporation

2121 Pennsylvania Avenue

Washington, DC 20433 USA

www.worldbank.org/mining

www.ifc.org/mining

mining anddevelopment - world...

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