Friday, January 23, 2015

Are CSR projects still viable despite falling gold prices?



The outlook for commodities remains weak -- at least in the medium-term, and this is likely to weigh other minerals, especially gold, down too.

By close of last year, oil had hit a five-year low of around US$64 a barrel and gold a four-year low of US$1,200 an ounce. For crude, this represented a 40% drop since June this year and for the precious metal, a 30% fall in the past three years. 

Such conditions raise the question of whether extractives companies are likely to shift their thinking on corporate social responsibility (CSR) issues and perhaps cut budgets. If revenue is falling, the logic goes, savings must be made -- and CSR could be a prime contender. 

Therefore it has become integral to operations, in some cases. In other words, CSR is becoming more of a core function than an add-on, particularly for major extractive companies. 

In general, smaller companies are seen as more likely to cut CSR-spend if prices extend their fall over the coming months. 

Commodity analyst have already predicted  a drop-off in interest, and the plunge in prices might already be affecting the more traditional philanthropic side of CSR in the form of lower donations, alongside persistent high cost in electricity and power generation for production and exploration of the metal.

In recent years, concerns about the sustainability and social responsibility of businesses have become an increasingly high-profile issue in many countries and industries, including Ghana, and more so in the mining industry.

For mining, one outcome of the CSR agenda is an increasing need for individual companies to justify their existence and document their performance through the disclosure of social and environmental information.

The minerals and mining sector regulator, Minerals Commission, in 2012 began the development of a national framework to define parameters and guidelines for carrying out corporate social responsibility programmes in the extractive industry.

The guidelines, per B&FT’s last check, were at the draft stage and are drawn on policies, codes and principles issued by the industry, government, inter-governmental and non-governmental organisations.

The new rules are expected to serve mining companies, the government, local communities, stakeholders, and other groups with interests in, or who are affected by, mining activities.
CSR is commonly described by its promoters as aligning a company's activities with the social, economic and environmental expectations of its stakeholders.
  
It involves integrating ethical and responsible practices into a company’s business strategies and operations. CSR is not just about what a company does with the profit it makes; it’s about how a company makes its profits in the first place. 

It is obvious that the CSR programme in the country is still evolving and that it is a dynamic process of sustainable development.

In view of this, President John Mahama last year made a call for the establishment of CSR guidelines to define parameters for carrying out such activities in the mining industry.

 “We must establish guidelines for corporate social responsibility, so it really takes care of the critical needs and is not something that just done to be printed in brochures,” he said at a seminar about “Ghana’s Experience in the Management of Mineral Resources for Sustainable Development”, organised as part of activities for the state visit of the Guinean President, Alpha Condé.

“Today the philosophy of corporate social responsibility has caught on, and many mining companies realise that you cannot live in isolation from the communities that surround you; and so we are seeing developments in which mining and other extractive industries are investing in the communities around them,” the President said. 

But he added that CSR should not be mere populism, but rather tailored to the development needs of communities.

Global gold price, as it’s impossible to successfully predict what will happen to the trend, will surely affect smaller companies -- and those are closely tied to less economic extractive prospects which are likely to feel the most pressure to cut CSR spending if gold prices extend their decline over the coming months.

Community investment budgets vary significantly by company, project context, and the lifecycle stage, as exploration budgets tend to be the most volatile given the short-term nature of activities; however, projects that are in operation and have a life-cycle of 20 to 30 years tend to have a more stable funding. 

Nevertheless, the drop in commodity prices will surely put pressure on companies to cut back in all areas, including CSR.

In these cases, the shrinking returns on investment make it hard to justify adopting something outside their norm.

Yet for others already engaged, including most private companies and certainly majors, it’s very expensive to cancel a programme midway: the monetary and reputational cost is high.

A 2014 report by the Corporate Social Responsibility Initiative at Harvard’s Kennedy School found conflict in initial mineral exploration can cost as much as US$10,000 for every day of delay, while advanced exploration programmes can lose up to US$50,000 a day if they are placed on standby.

Rising production cost impedes CSR projects

The Chamber of Mines said the mining industry continues to be faced with increasing input cost, high power cost and intermittent electricity supply.

 According to the chamber, the cash cost of gold production went up 25% from US$768 per ounce in the first half of 2012 to US$962 per ounce in the same period in 2013.

The industry has already announced it will undertake massive job-cuts as part of its strategy to streamline cost structure and improve business efficiency.

The industry, which has been buoyant in the past few years, witnessed a slump in gold production by about six percent in 2013.

Between January 2013 and 2014 it lost 3,080 mineworkers through retrenchment, blamed on the slump in gold price.

The falling price of gold and rising costs have negative implications for the economy. The government will not get the expected revenue from companies, and this will impede future expansion projects -- including CSR in mining communities.

The trend ensures that producing mines in the country and their development projects have to devise their own systems to meet the company’s responsibilities: including reducing their environmental footprint, contributing to community development, and ensuring the health and safety of employees among others.

CSR Initiatives

The Chamber of Mines has adopted a policy whereby member-companies set aside a minimum of US$1 out of every earning per ounce of gold and also 1% of the their net profit to develop their communities.

Aside from adhering to this policy, mining companies in Ghana also voluntarily undertake community sustainable development projects in their catchment areas. In 2012 alone, mining companies committed US$26million to community sustainable development projects in various communities.

To these mining companies, sustainability is significant when it comes to CSR initiatives. That is why most of their projects are in the long-term. 

Chirano Gold Mine recently launched a US$5.5million four-year malaria control programme to help bring down the disease in its operational area. The malaria control programme covers 13 communities in the catchment area of Chirano Gold mine.

The case is no different with AngloGold Ashanti, as they also launched a malaria eradication programme earlier this year. The malaria eradication programme, which was earlier scheduled to cover five districts in the Western Region, now covers 40 districts across the country. The five districts including Ahanta West, Tarkwa Nsuem, Prestea-Huni Valley, Ellembelle and Axim were solely financed by AngloGold to the tune of US$9million.

The programme entailed spraying insecticide inside buildings to kill malaria-spreading mosquitoes. Due to the success story in the five districts, the Global Fund approved US$13 million funding to enable AngloGold Ashanti expand the programme over a five-year period. It is expected that by the end of the year over two million people will have benefitted from the malaria control programme.

The Ghana Manganese companies Ltd. also contributed US$200,000 to the University of Mines at Tarkwa (UMaT) to establish hostels. They also transmitted electricity to the Tarkwa-Benso Community and again renovated feeder roads for the people of Akyempim community.

As part of their CSR policy, Sandvic Mining has spent US$590,000 for training technicians at the UMaT and also spent a little over US$62,000 between 2009 and 2011 to renovate the dormitory block of the Tarkwa Midwifery Training School.

Newmont Ghana in the first quarter of 2013 distributed 1,250 solar lamps at the cost of US$25,000 to basic school children living around its water storage facility and resettlement communities in the Asutifi North district of Brong Ahafo. Newmont has also constructed a two-unit nurses' quarter to the people of Yawusukrom to the tune of GH₵55,000 as part of giving back to society.

Gold Fields Ghana has also constructed bore-holes in communities that fall under its catchment area. This has improved the lives of the inhabitants as they now have access to potable water. To date, Gold Fields Ghana has invested US$20million on various development projects in its host communities.

On the part of Golden Star Resources, its community development projects include the Golden Star Oil Palm Plantation (GOSPP) foundation that seeks to promote oil palm plantations within its catchment areas. To Golden Star, agri-businesses can be used in reducing poverty and creating wealth. The GOSPP now operates with over 200 smallholder farmers and 242 part-time contract workers.

The projects that have been named are just part of other numerous initiatives that these mining companies have untaken in their host communities.

In going forward, it is imperative for the Minerals Commission to as urgently as possible develop the CSR guidelines for adoption by extractive publics to ensure that mining firms reduce social conflicts in host communities.

Ghana’s Minerals and Mining Act 2006 (Act 703) does not have any provision for standard CSR, though companies are undertaking diverse projects to support the socio-economic development of communities.

Mining companies such as AngloGold Ashanti, Newmont, Gold Fields Ghana Ltd., Golden Resources, Abosso Goldfields Ltd., Axim Inc., Birim Goldfields Inc., Ghana Manganese Company Ltd., Golden Star Resources Ltd., Chirano Gold Mine, and Sandvik Mining among others contribute tremendously to the development of their host communities.

A host of developmental projects has been put in place by these mining companies to see that communities in which they operate also benefit from the mining industry.

It is a fact that the activities of mining companies in Ghana, to a large extent, affect the livelihood of the communities in which they operate. The majority of people living in natural mineral-rich areas such as Tarkwa; Obuasi; Axim; Abosso and others have had to be relocated or resettled due to mining operations.

The members of these communities could have also used the lands for farming or other income-earning purposes. It is therefore a move in the right direction for mining companies in Ghana to be seen as one of the sectors that take the CSR agenda very seriously. Projects undertaken by some of these mining companies largely seek to deal with basic developmental issues that their host communities face.

Developmental areas that mining companies are seen to pay critical attention to include education; access to potable water; electricity; employment; health care; roads; sanitation; agriculture; as well as scholarship schemes.

No comments:

Post a Comment