Can extractive industries promote sustainable development?

A net benefits framework and a case study of the Marlin mine in Guatemala

Lyuba Zarsky Associate Professor, Graduate School of International Policy and

Management, Monterey Institute of International Studies lzarsky@earthlink.net

Presentation to Center for Social Responsibility in Mining

University of Queensland July 18, 2012

Size: 977 × 1171

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Weak sustainability principle

• Different forms of capital (natural, human, social) are substitutable

• Mining can contribute to sustainable development if it generates long-term benefits (environmental, social, economic) that equal or exceed pre-exploitation values

Challenges of assessing net benefits

1. Time frame: operating phase is finite, post-closure phase is infinite (economic benefits in short-term, environmental costs in long term)

2. Skewed distribution: costs are borne locally; benefits…?

3. Poverty of CBA methodology:

• when people are poor, loss of their health, assets, income generates small numbers;

• no way to value cultural losses;

• eco-system services generally excluded

4. Lack of baseline data

Net benefits framework

1. Evidence of local community acceptance (FPIC)

2. Assessment of royalties and taxes (total and as share of mine revenues and earnings)

3. Assessment of total economic benefits (wages, procurement, indirect jobs, induced spending, social investment)

4. Investment in sustainable productive capacities

5. Environmental risk (operations and post-closure)

Source: Goldcorp

Goldcorp’s shareholder bonanza

• Adjusted net earnings (millions)

2009 $588

2010 $1,048

2011 $1786

• Dividends (millions)

2009 $137.1

2010 $154.1

2011 $330.0

Total mine revenues $903.5 million

Total mine earnings $346.1 million

Potential economic benefits of mining

• Wages

Direct jobs at the mine

• Procurement

Local purchases of goods and services

Indirect jobs

• Induced spending

Multiplier effects of wage spending

• Social investment by company

Procurement – some caveats

Is the value too high?

• Some goods and services are not domestically produced but are purchased from Guatemala-based importers. How much?

• Assuming 50% is imported, revenues to Guatemala fall to 27% of total Marlin revenues

• What is purchased, and at what price?

• Goldcorp is the only data source and provides only aggregate data

Social investment

In 2010, Goldcorp described projects spanning education, health, productivity, community relations, and infrastructure

Total 2006-2010 = $3.8 million

• Total Marlin earnings 2006-2010 = $862.9 m

• Total social investment 2006-2010 = < 0 .5% of total earnings

Investment in productive capacities?

Environmental risks of gold mining

• Loss of topsoil and forests from initial clearing

• Leaching of ore uses large amounts of water

• Cyanide leachate may pollute ground and surface water if tailings pond walls are weakened or breached

• Acid mine drainage if sulfide-rich crushed rock (tailings and waste rock) are exposed to rainfall

Naturally occurring hazardous chemical elements in Marlin mine ore

• Arsenic

• Cadmium

• Chromium

• Lead

• Manganese

• Mercury

• Nickel

• Selenium

• Thallium

• Zinc

Climate risks in mining

• Threats to security of water supply

• Damage to mines and associated transport infrastructure from flooding, cyclones, fires

• Overtopping of tailings dams

• Changes in surface water and groundwater interactions, with implications for acid mine drainage

Mine closure plan?

• Goldcorp has posted a voluntary surety bond of $1m

• New COPAE report estimates cost of mine closure at $49 million

• No Guatemalan legal requirements

Report Conclusions

Environmental risks significantly outweigh economic benefits over long term

O

Benefits are small and/or short term Environmental risk is high due to: • Lack of adequate government oversight • Potential for long-term heavy metals contamination of water

due to acid mine drainage • Lack of mine closure and reclamation plan • Increased intensity and frequency of flooding due to climate

change • Dependence of local communities on agricultural livelihood

Capture of net benefits requires good governance in multiple dimensions:

• Environmental regulation

• Negotiation capacities

• Development planning

• Fiscal transparency and accountability

• Protection of human rights

Governance capacity index ?