Predicting mining company-stakeholder conflict and incorporating social conditions into mining project valuation

Abstract

External stakeholders are becoming increasingly involved in mine design and permitting decision-making. Yet, the systems in which mining investment decisions take place do not fully capture the importance of stakeholder influence on the success or failure of a mining venture. Conventional mine planning and permitting methods elevate technical expertise, conventional views of risk management, and financial justifications as the drivers of “objective” decision making. The rising influence of external stakeholders to mining project outcomes means that stakeholder attitudes on mining, and institutional trust, and local environmental knowledge must be integrated into the decision-making systems in more comprehensive ways. This dissertation is a compilation of three research papers which seek to answer the following research questions: 1. How can governments better integrate local communities’ perceptions and concerns into mine permitting decisions? 2. What are the most important indicators of company-stakeholder conflict?3. How does stakeholder opposition affect the valuation of a mining property?This dissertation informs these questions with three research activities: A case study of the National Environmental Policy Act (NEPA) at the Donlin Gold project in Western Alaska: The National Environmental Policy Act requires US regulators to consult local stakeholders and include their concerns in an Environmental Impact Statement (EIS). At the Donlin project in Western Alaska, the Army Corps of Engineers included Alaskan Native tribes as cooperating agencies in the analysis in addition to conventional public comment meeting. This attempt at improved stakeholder involvement had some successes, but it also highlights divergent goals within NEPA and a lack of trust between local stakeholders and regulators. Tribes were able to push for examination and disclosure of some of their environmental concerns but remain frustrated with NEPA’s limitations with respect to transform findings into enforceable protections.A statistical examination of the social and environmental variables as indicators of company-stakeholder conflict: Prediction of company-stakeholder conflict remains a weak point in mine design and planning. This research statistically examines a database of mining properties and develops multiple linear regression models to identify the most important indicators of mining company-stakeholder conflict. These models find that the following conditions are the strongest indicators of future conflict: the conflict history of the mining property, the conflict history in the mining region, proximity to artisanal mining, and anticipated physical and economic displacement of local people.A decision tree model which incorporates company-stakeholder conflict into a mining project’s valuation: Mining investment decisions rely on a company’s financial valuation of a mining project. The discounted cash flow methodology is the foundation of these valuations. This research developed a tool for capturing the financial risk associated with higher likelihoods of company-stakeholder conflict by quantifying the risk of forced project abandonment. This research presents a decision tree model for calculating the expected cost of company-stakeholder conflict. The model concludes that even moderate conflict likelihoods can reduce the net present value (NPV) of a mining project by hundreds of millions of dollars. Collectively these studies conclude that external stakeholders are undervalued by mining’s present decision-making paradigms. This dissertation calls on companies and governments to place a greater emphasis on external stakeholders’ perspectives on mining. It recommends that companies and governments engage these stakeholders in permitting and mine design processes such that these decisions include nuanced understandings of how a mine will affect local people and how local people will affect a mine.