Mining Institutions

3. Key mining institution issues for industry

Extent of government institutional involvement in the mining sector

Mining companies that have to compete with a state-owned mining company may not be as attracted to that country as they would be to a country where all mining development in driven by the private sector. Private companies may worry that there is no “level playing field” between them and the state-owned mining company. They may be concerned that competition between the two parties for exploration and mining licenses may be tilted in the state-owned company’s favour. Or private companies may feel that they will be held to a higher standard in terms of environmental, social and labour performance. In cases where this type of potential conflict could result in the two parties meeting in Court to resolve differences, the private companies may feel that the judgment will be biased toward the state-owned mining company. For all these reasons, companies generally favour a mining destination where are companies all have the same status and are all being licensed and monitored the same way.

Some jurisdictions, such as Botswana, have a state-owned copper/nickel mining company (BCL), but there are strong governance mechanisms applied to the running of the company, and the private sector does not believe that they are disadvantaged in any way. Another example of a successful government-private sector arrangement can also be found in Botswana. De Beers Group of Companies and the Botswana government have constructed a 50%-50% joint venture in the country’s largest diamond mining company, Debswana. The strength and success of this partnership has in part been attributed to the many positive attributes of the strong government mining institution in place in Botswana. The state-owned CODELCO copper mine in Chile and state-owned mines in China are also examples of where there has been successful government involvement in the mining sector.

In some countries, such as South Africa, mining companies are required by government to take on a local mining partner. In some cases, mining companies partner with local tribal authorities, or women and youth groups as part of their equity ownership responsibilities under the Mining Charter (Black Economic Empowerment). In these cases, the strength of the partner institutions can have a significant bearing on how efficiently the mining operation is run.

Human resource capacity of institutions

Mining companies need mining institutions to have sufficiently qualified people to be able to process exploration and mining permits efficiently. When applications are held up due to lack of sufficient human resource capability, companies cannot start their projects on time. This can affect the confidence of investors, and can even result in financing being withheld. The importance of this aspect of mineral governance cannot be over-estimated. It is particularly difficult when there are no processing times required by the mining law. Then, institutions are under no legal obligation to process permits expeditiously.  This is also an important factor in the approval of Environmental Impact Assessments through the environment regulator. Any delays in permitting for exploration or mining operations can have serious impacts on a project’s viability.

Once the mining operation has been licensed and is up and running, it is subject to inspection and monitoring by a range of mining and related institutions. The mining regulator must inspect the mining operation against the terms and conditions of the licence.

The environment and labour regulators must monitor the operations for environmental, social and labour compliance.  If these inspection teams are not well resourced by their institutions, the inspections may need to be partly financed by the mining companies they are inspecting. It is very common for mining companies to have to pay for transportation, accommodation and meals so that their operations can be inspected and mining companies can meet legal requirements. This is a conflict of interest and opens up both parties to allegations of corruption.

Also, when government regulators do not carry out inspections on mines, the mines rely mostly on self-regulation and reporting of results to authorities. When mines report responsibly and the results backed-up by onsite visits by authorities, this can be an effective system. However, irregularities can occur when insufficient government capacity exists to ensure compliance.

Other areas where the capacity of a mining and related institutions is of critical importance is when mineral development agreements, conventions or contracts are required. This issue has been a long-standing issue for many developing country governments. There is a concern that the institutions responsible for negotiating these agreements may not have the depth of knowledge, or the human resource capacity generally to deal with international mining lawyers, chartered accountants and other experts. Equally, mining companies are concerned that they may not be able to negotiate in good faith with a mining institution that may not have sufficient system controls to prevent transactional irregularities.

Transparency and accountability

The mining industry wants transparency in decision-making around exploration and mining licensing. Just as government needs computerised systems to undertake its responsibilities in the most efficient and effective way possible, the mining industry is also most confident when these systems are in place.

Without computerised systems to manage licences and define mining lease areas, duplication of licensing areas can occur. There can be conflict over land between smaller scale miners that may have been awarded mining permits on land that has been awarded to a large scale mining company. Political interference may be more possible without a computerised mining cadastre that registers “first come, first served”. And without a computerised system of storing geo data, companies may fear security of their geological data and be reluctant to supply government with the full results of their geological exploration activity.

For more information on transparency and accountability, explore the Extractives Hub Transparency & Anti-corruption topic.

Impact on mining of weak institutional capacity

Along with project delays and interruptions due to weak institutional capacity to manage a large-scale mining industry, companies are also concerned about the effect of weak mining and related institutions on their corporate reputations.

When governments are unable to manage impacts of mining that may be contained in an EIA or a Mine Safety Plan or a Community Development Agreement, companies can be blamed when incidents occur. Civil society can be an effective “watchdog” on industry compliance in these areas. However, if governments cannot enforce their own regulatory framework, companies may not be motivated sufficiently to perform to the highest standards.  Therefore, it is to the industry’s own benefit that government institutions are well resourced. When government does its job and ensures that mining impacts are managed lawfully, companies have a greater chance of reducing reputational risk when something goes wrong.