Corporate Social Responsibility of Perus Mining Industry - Essay Example

Corporate Social Responsibility of Peru’s Mining Industry: The Case of the Antamina Mining Company (AMC) Introduction Mining has shaped Peru as early as the mid-16th century by the Spanish conquerors then in the 19th century by the British and Americans (Crabtree, 2002), making Peru the 7th largest world producers of precious minerals (PricewaterCoopers, 2013 p. 4) and the 2nd largest mineral producer in Latin America (Borregaard & Dufey, 2002, p. 4). Globally, Peru ranks 1st in silver; 3rd in zinc, bismuth, tin, and copper; 4th in lead, arsenic trioxide, molybdenum, and rhenium; and 5th in gold. Within Latin America, Peru ranks first in the production of gold, silver, zinc, lead, tin, and tellurium; then ranks second in the production of copper, molybdenum, and bismuth. (Gurmendi, 2009, p. 15.1) By 2014-2015, 49% of Peru’s FDI is seen to concentrate on mining (Rudarakanchana, 2014). Peru’s economy historically depends greatly on its very rich and mega-diverse natural resource base (Póveda, 2007a). The most significant is its mining industry, having contributed1% to its GDP, having employed 5% of the industrial sector, and having consistently generated the biggest foreign exchange revenues (61.8% of Peru’s $23.8 billion total export revenues) in 2006 (Gurmendi, 2009, pp. 15.1, 15.3). However, mining has also become a constant source of social turmoil in the country due to the absence of a sensible legal framework that would compel CSR (Póveda, 2007b). CSR of mining companies in Peru started only in late 1990s, greatly hoping this would pacify Peruvian protests against mining. Besides, people worldwide have become critical of the cost and benefits of mining. Hence, CSR is a corporate response to challenges arising from the relationship between the industry and society, specifically between common good and private interest. (Lemieux, 2009) For mining companies, CSR is achieving the balance between community needs, environment protection, and profitability (Jenkins 2004, as cited in Jenkins & Yakovleva, 2006). The CSR principle that ‘what is good for the company is good for the people’ sounds logical, believing that sustainable development is beneficial to all. It is a win-win solution. However, its correctness depends on a given social context. A very good case to ponder on is the AMC in Peru, not only because AMC is the biggest and most socially responsible mining company in the country but also because it operates in a country characterized by wide socio-economic inequality. AMC and CSR The AMC that commenced operation in October 2002 (World Bank, 2010, p. 93) is an open pit mining located at 200 kilometers from Huaraz City, San Marcos district, Huari province, Ancash region (Antamina, 2012, p. 12). The Antamina deposit is situated in the Callejon de Conchucos, lying between the two cordilleras – the Blanca and the Huayhuash. It has a principal deposit of 4,300 meters above sea level, estimated in August 1998 at proven reserves of 500 million tonnes. (Pascó-Font, Hurtado, Damonte & Salas, 2001, p. 177) With the largest mining investment in Peru, AMC has five operating units to extract and trade copper and zinc concentrates: 1) the mine, located in the Antamina Ravine, has an estimated life until 2029 and a total reserves of 745 million metric tons; 2) the tailings dam, located in the Huincush Ravine at 4,075 meters above sea level has a storage capacity up to 550 million tons tailings; (3) the Yanacancha camp which houses the concentrator with the highest level of automation all over the world; 4) the 302-kilometer long slurry pipeline which facilitates the loading and export of ores to the Huarmey port; and 5) the Punta Lobitos port, located in Huarmey, receives, filters, stores, and ship loads the transported slurry concentrates for export. Among the world’s leading mines, the AMC markets mainly to China (US$1,846,358,904), Germany (US$433,292,479), Japan (US$400,488,081), Chile (US$376,877,465), Finland (US$38,778,117), and South Korea (US$230,608,573). (Antamina, 2012, p. 14) The AMC is a consortium of four global leading companies: BHP Billiton (33.75%), Xstrata (33.75%), Teck Resources (22.50%), and Mitsubishi Corporation (10%) incorporated and privatized in 1996 under the Peruvian laws, (Pascó-Font et al. 2001, p. 177; Antamina, 2012, p. 12). More importantly, the AMC is most committed to CSR as recognized globally and locally by the Business Monitor of Corporate Reputation (MERCO) in 2012 (Antamina, 2012, p. 23). It is among the active founding members of the Sustainable Development and Mining Group (De Echave et al., 2009, as cited in Lemieux, 2009, p. 16). It was “the first company to enter into voluntary contribution agreement with the Government” (World Bank, 2010), called the Antamina Mining Fund (AMF) (APEC, 2011). Its reputed CSR is evident from construction to operation and expansion. During construction, the AMC initiated to relocate and compensate with new lands and basic services affected families. However, the lack of suitable relocation site and lands plus the affected families’ preference to reside in the valley’s urban centers stopped the relocation. Instead, AMC agreed paying US$33,000 each of the 52 affected resident families. Upon the commencement of its operation, AMC tried to gain the Peruvians’ trust and confidence to the company using different mechanisms ultimately to promote community participation and public consultancy, believing that Social License from the community is vital. These efforts promoted harmonious relations with affected local communities minimizing licensing problems with regulating agencies. It obtained 243 licenses during construction and 77 added authorizations during operation. The problem however was not the local communities but the inefficient and corrupt authorities. The company also developed a joint monitoring program which helped educate the people about their environment. This significantly lessened the number of complaints and arguments, and also resolved related issues. (APEC, 2011, pp. CS4-2-CS4-3) Evidently, AMC’s CSR has benefitted Peru’s local communities and economy. Its initiated Community Development Plan (CDP) meant to support communities’ education, economy, and culture, consequently obtaining the trust of the locals through its three platforms: Association Ancash, the Community Relations Office, and the AMF has helped boost tourism in the area by 25%, has created employment for 300 locals, has economically empowered thereby improved the quality of life of women in nearby communities, and has helped fund Peru’s education, health, nutrition and infrastructure. The demographic and family health survey in 2007-2009 data showed significant improvements on the health condition and practices of women and children in the Ancash region. Whereas in education, significant improvements were also noted at the end of 2009: improved communication skills of students in 300 schools, teaching skills training of teachers in 65 schools, distributed additional 35,752 desks, and maintenance work for 77 schools. The company has also undertaken 74 social and productive project priorities by each provincial municipality, following the National Public Investment System. (pp. CS4-10-CS4-11) Truly, AMC’s CSR greatly improved its image and socio-economic prominence. However, the burden of financing these community development activities creates AMC’s financial difficulties. Furthermore, mining remains under close watch locally and globally both by the media and NGOs. Similarly, power struggle over control of Peruvian’s natural resources persists. (pp. CS4-11-CS4-12) With only 13 years of operation, the AMC is still young. Yet it was able to surpass complex challenges and to achieve economic viability, becoming the leading mining company locally and globally. What made this possible was AMC’s development of its institutional capacities established within a broad CSR framework. (Portocarrero, Sanborn, Castillo, & Chavez, 2007) Analysis Evidently, CSR is a good thing to AMC because it helped the company established its economic viability and become one of the most reputable and leading mining companies locally and globally. CSR is also a good thing to the people because in the absence of sufficient government services, it has become their effective tool in compelling AMC to addressing their needs and to become environmentally responsible. In this sense, the CSR principle that ‘what is good for the company is good for the people’ is true. It should be noted however that despite AMC’s sterling CSR performances, the tension between the AMC and the Peruvians continues in various forms, because the ugly truth remains that while the AMC enjoys its profitability, its CSR activities have not freed Peruvians from dire poverty. Contrarily, the presence of AMC constantly reminds Peruvians that the natural wealth they should be enjoying is instead being enjoyed by few economically powerful people that are not even Peruvians. AMC’s sterling CSR performance may reduce but cannot resolve social unrest and tension in Peru because its causes are structural in nature and cannot be simply addressed by CSR, much less by a single mining company, like AMC. Hence, despite the AMC’s award winning CSR performances, the social tensions between the AMC and the community will continue, and the demands of affected communities and Peruvians will never be satisfied. Furthermore, the extractive nature of mining is not simply depleting natural resources but is greatly harming the environment, constantly creating problems affecting communities. While the AMC may have been burdened by CSR demands, its economic gains from extracting valuable Peruvian minerals is in fact so much more than what it returns to communities. While the AMC greatly profited from the Peruvian wealth and while displaced Peruvian communities have to be contented with AMC’s CSR, the environmental hazards that inevitably go with mining will unfortunately be bore primarily by Peruvian communities. In this sense, the CSR principle that ‘what is good for the company is good for the people’ is not true. Conclusion The principle that ‘what is good for the company is good for the people’ is true at certain extent only as the AMC case illustrated. This principle becomes logically true, if the problem being addressed by CSR is not structural in nature and if the economic activity is not inherently destructive. For example, the government truly addresses the problem of national and human development. But if this is not the case, this principle becomes problematic because as the case of AMC shows the burden of addressing poverty is passed on by the government on socially responsible companies, like AMC. On the other hand, while the CSR helped make AMC successful, it however did not help resolve the poverty of Peruvians which causes their constant dissatisfaction and continues demands. From another perspective, the AMC will always be under close watch and will always be protested against despite its proven sterling CSR performance because of the harmful nature of mining activities. In short, CSR in mining is not always a win-win solution. References Antamina. (2012). 2012 sustainability report Antamina. Retrieved March 27, 2014, from http://www.antamina.com/images/upload/paginaweb/archivo/2/antamina-sustainabilityreport2012.pdf Asia-Pacific Economic Cooperation. (2011). CSR in the APEC mining sector. Singapore: APEC Secretariat. ISBN 978-981-08-8501-4. Borregaard, N. & Dufey, A. (2002). Environmental effects of foreign investment versus domestic investment in the mining sector in Latin-America. OECD global forum on international investment: Conference on foreign direct investment and the environment: Lessons to be learned from the mining sector. OECD Headquarters, Paris, France. Retrieved March 27, 2014, from http://www.oecd.org/env/1819617.pdf Crabtree, J. (2002). Peru: The background, the issues, the people. An Oxfam country profile. UK: Oxfam GB. Gurmendi, A. C. (2009). The mineral industry of Peru. In 2006 minerals yearbook: Peru (pp. 15.1-15-14). US: USGS. Retrieved March 28, 2014, from http://minerals.usgs.gov/minerals/pubs/country/2006/myb3-2006-pe.pdf. Jenkins, H. & Yakovleva, N. (2006). Corporate social responsibility in the mining industry: Exploring trends in social and environmental disclosure. Journal of Cleaner Production, 14, 271-284. doi:10.1016/j.jclepro.2004.10.004. Lemieux, E. (2009). Mining and local development. Canada: Gordon Global Fellow of the Walter and Duncan Gordon Foundation. 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