Economic View

On the importance of building trust between mining companies and local communities

To what extent does the lack of access to financing limit exploration efforts in the mining sector?

FUMAGALLI: When metal prices began to drop in 2013 mining companies were forced to prioritise cash flow over production by reducing costs and tightening margins. As a result, the sector reassessed its capital allocation priorities, which made accessing finance more difficult. However, in 2016 prices began to recover, bringing renewed optimism to the sector and a revival in exploration. Due to improved investor sentiment, we now have an advanced global market where mining companies can raise capital for their projects. Additionally, Peru’s geological wealth has helped create the perfect conditions for attracting funds to boost exploration activities. Having said this, thorough capital allocation management is always paramount to sound investment. 

How would you characterise Peru’s exploration prospects in the short to medium term? 

FUMAGALLI: Peru is one of the world’s top producers for gold, silver, copper, tin and zinc, among others. Prospects and mining opportunities in Peru are bountiful, and the country still possesses rich mineral reserves that have yet to be exploited. However, despite the country’s geological wealth and political will, there are certain social challenges that could jeopardise exploration prospects, and these need to be addressed. The key to overcoming such issues is to seek greater cooperation between the state, mining companies and civil society. The dynamic between all three stakeholders has already begun to change for the better, but there is still room for improvement. Better communication among all parties will help achieve the common goals of enhancing sustainability in mining projects, advancing the quality of life in these communities and improving transparency. 

In what ways can the private sector help minimise the social and environmental conflicts that arise from mining operations? 

FUMAGALLI: Social unrest is the single most-important challenge faced by the mining sector. Therefore, mining companies need to establish a close link with local communities to minimise conflicts. Building a relationship of trust with those living in close proximity to the projects is of the utmost importance, and all parties involved must understand that this takes time. It is essential that promises made to community members are fulfilled. Equally, it is crucial for the local communities to understand that they too benefit from these mining projects. Involving communities – either through employment opportunities or by developing local contractors that can benefit from mining activities – is an efficient way of de-escalating unrest within the community. 

Without respect for the law, however, there is little chance of having constructive dialogue between the private sector and communities. Thus, it is important that all parties respect legal regulations, and that the presence of state institutions is enhanced across country. 

The administration of justice, together with a relationship of trust and open dialogue between communities and mining companies, will ultimately result in less conflict, more wealth generation and an overall improvement in the standard of living. In this regard, the current administration is taking steps in the right direction. The Social Advancement Fund, for example, was established to finance public works that address infrastructure needs in areas with mining activities or mining potential. 

What role does innovation play in optimising mining production?

FUMAGALLI: The fall in global commodities prices experienced between 2013 and 2016 highlighted the need for mining companies to address inherent structural challenges. This has been done by streamlining and optimising operations, as well as by increasing investment in innovation. The aim, so far, has been to improve the production processes by becoming more efficient. Mining companies are also looking to partner with firms in areas such as digitisation, IT and automation, to learn from and incorporate innovative developments into the mining field.