Advancing Together With Barrick Gold

Mining Preventing and managing social conflict in Peru

Peru has one of the world’s fastest-growing economies, driven largely by its mineral wealth and the expansion of the mining industry. Today, most major global mining companies have operations in the country, including Barrick, BHP-Billiton, Newmont, Freeport McMoran, Glencore Xstrata and others.

Increased mining sector investment and revenues have provided significant benefits to Peru’s national economy. The sector’s contribution to total government revenue averaged 14 percent between 2000 and 2010. In 2010 alone, Peru mined $18 billion worth of minerals, accounting for 12 percent of the country’s gross domestic product. The mining boom has contributed to a marked reduction in Peru’s poverty rate to about 28 percent in 2011 from 42 percent five years earlier, according to The World Bank.

Barrick has been operating in Peru for the past 15 years and has two mines in northern Peru — Pierina and Lagunas Norte. The contribution of these operations to economic prosperity is significant. In 2012, Barrick paid nearly $400 million in taxes and royalties in Peru, and purchased approximately $340 million in goods and services in the country. Ninety-nine percent of the 1,200 Barrick employees who work at Pierina and Lagunas Norte are Peruvian nationals.

“Peru is an attractive and highly rewarding place to do business,” says Igor Gonzales, Barrick’s newly retired Chief Operating Officer and a Peruvian. “There are also challenges. Barrick and many of our industry peers recognize it is in our long-term interest to promote further economic growth and stability in Peru.”

Despite economic gains in Peru, ongoing social conflicts are occurring across the country. The root causes of these conflicts involve a complex mix of social, economic, political and environmental factors.

In rural Peru, where the poverty rate remains more than 50 percent in many communities, local residents expect nearby mining operations to generate significant improvements in their standard of living. Tensions can arise in communities when residents believe they are not receiving their fair share of resource wealth. Concern about potential mining-related impacts on the environment, particularly on water, can also be a source of tension. These tensions can sometimes escalate into full-blown social conflicts that result in work stoppages, project delays and, in some cases, violent confrontations.

As of February, there were 120 active conflicts across Peru, of which 70 percent were related to mining, according to the Peru Ombudsman’s Office. State institutions have documented an increase in these conflicts over the past four years.

Last year, Peruvian President Ollanta Humala called for mediation to avert social conflicts between communities and companies nationwide over royalties, water and other issues. The President also pledged to increase social spending for the poor to share the benefits of greater economic prosperity and reduce social conflicts.

In its recent article, “Peru’s Social Conflict Is About More Than Mining,” the Fraser Institute, a Canadian-based think tank, noted that mining opponents often frame the choice for communities as a choice between water and gold. “While communities may have legitimate concerns over water quality and usage, allegations of pollution have also become politicized,” the article said, citing research conducted by the World Economic Forum.

Gonzales says that some opposition to mining is rooted in an ideological aversion to all mining activity. However, he adds that the relationship between most mining companies and communities in Peru is not a zero-sum game, as is often portrayed by mining opponents. “We know that our operations contribute significantly to local economic development. Our approach is based on creating mutually beneficial relationships and working collaboratively with all stakeholders.”

While Barrick’s operations in Peru have a long history of positive community relations, Gonzales acknowledges that Barrick is one of many companies that have experienced social conflict recently. At Barrick’s Pierina mine last September, some members from the Marinayoc community, concerned about the supply of water, clashed with police, resulting in one fatality and four injuries. In February, protesters blocked the road to the company’s Lagunas Norte mine, but the protest was short-lived after Barrick and local leaders agreed to talks to find solutions to demands over jobs, wages and water supplies. “No one benefits from conflicts, which can have tragic consequences,” says Gonzales.

Barrick believes it can play a role in helping to prevent and resolve issues and create shared value from mining. Resolving these issues requires government, industry and stakeholder involvement. Following the confrontation with police at Pierina, the company helped initiate a process for peaceful and constructive dialogue with communities near the mine. A Dialogue Commission was established in Lima, led by the Government of Peru, with the participation of members of the Marinayoc community and local leaders, senior government representatives, water authorities and Barrick representatives. The mandate of the Commission’s working group encompasses water resources, environmental stewardship and sustainable development planning for the region.

Key to preventing social conflict and building stable, long-term relationships is regular and open dialogue with host communities, says César Guzmán, Director, Center of Analysis and Resolution of Conflicts, Pontificia Universidad Católica de Lima, Peru. “In the past, companies did not have strong community relations teams in place,” he says. “But, today, we need to recognize that most mining companies have skilled and well-staffed community relations teams that engage regularly with the community. Communities participate in the mine approval process, and companies are making an effort to understand and work with them.”

Barrick has focused on early and sustained engagement with its host communities, including in Peru. The company’s new global community relations management system (CRMS) is driving a more consistent, disciplined and professional approach to these engagement activities. “The CRMS is enabling us to work more effectively and systematically with communities to track our commitments, manage impacts, and maximize local benefits,” says Peter Sinclair, Barrick’s Vice President, Corporate Social Responsibility.

For instance, the CRMS requires all Barrick sites to develop a grievance mechanism, a critical community relations tool that gives communities an opportunity to voice their concerns to the company in a culturally appropriate way, which helps prevent issues from escalating into conflict. (See grievance mechanism story, pg. 34.)

Barrick continues to work on a number of solutions to help build collaborative and mutually beneficial relationships with its stakeholders in Peru. This includes the establishment of community round tables, job-sharing programs and multi-stakeholder development initiatives. The company continues to strengthen its environmental performance through adoption of a stringent environmental management system (EMS). The EMS includes a water conservation standard that has resulted in improvements to water management practices. For example, the Lagunas Norte mine now derives a substantial portion of its water from brackish sources, rather than fresh water which is used by the community. In 2012, 240 million liters, or about 36 percent of total water used at the mine, was brackish water.

Community investments are another way Barrick is able to share the benefits of mining and demonstrate corporate responsibility. From 2008 to 2012, the company has provided $35 million in community investments, scholarships and donations in Peru.

For example, the company has contributed nearly $3 million to World Vision over the past 10 years to programs aimed at improving child and maternal health in dozens of communities near its operations in Peru’s Ancash and La Libertad districts. More recently, Barrick agreed to contribute $460,000 to a project led by the NGO CARE that will support farmers in three impoverished districts near Lagunas Norte. The Canadian International Development Agency is a partner and committed $1 million to co-fund the project.

“These examples are not to suggest that Barrick is doing everything right in Peru – we have had our share of challenges and we expect to have challenges in the future,” Gonzales says. “We do these things with a long-term perspective in mind, with a goal of being a welcomed and trusted partner. More than ever, mining companies, governments, civil society and communities need to come together to help prevent conflicts and ensure Peru continues on its path of economic success and prosperity.”

To address historic concerns over the supply of water, Barrick has explored a variety of solutions with the Marinayoc community over the years, including delivering water by truck. Today, the company continues to truck 10,000 –16,000 gallons of water per day to the community and is a strong supporter of the Dialogue Commission process, which is providing a forum for dialogue on water issues as well as future mine closure matters. Through this dialogue process, Barrick has agreed to fund studies to find a permanent solution to long-standing water issues in the region.

Barrick is one of several companies in Peru that have signed on to the Extractive Industry Transparency Initiative (EITI ). Peru is a fully compliant country of the EITI . Each year, companies like Barrick publish what they pay and then governments publish what they receive. For Barrick, it helps demonstrate investments in local and national economies; for government, it helps improve accountability.

In Peru, the Canon Minero was established by the national government as a mechanism to transfer corporate tax collected from mining companies to local and regional governments. This revenue is transferred to fund government services such as water treatment, roads, education and health care. The capacity of local and regional governments to manage and spend this revenue can be an issue, which also shapes perceptions of whether or not mining is contributing to local development.

In 2011, the Canadian government announced support for a $4.8 million project to manage and prevent conflict in the extractive sector, led by the United Nations Development Program, which has already achieved significant results in Peru. The initiative includes training and capacitybuilding for 1,000 public officials in Peru and support for the creation of multisectoral dialogue tables.