Corporate Governance and Ethics Barrick Gold Corporation: A Perfect Storm at Pascua Lama August 2021 BACKGROUND • Barrick Gold Corporation was founded in 1980 based in Toronto, Canada. The company was the world‘s largest gold producer with adjusted net earnings of $3.8 billion in 2012. It has 27 mines or mining projects in Argentina, Australia, Canada, Chile, the Dominican Republic, Papua New Guinea , Peru, Saudi Arabia, Tanzania, the United States and Zambia. • Corporation has built its position as the world‘s biggest mining company on a policy of “responsible mining“, which involved careful environmental planning and millions of dollars of investment in the communities they mined. Pascua Lama mining project • Pascua Lama mining project: in the Andes, straddling the border of Chile and Argentina. Set in a remote region among ancient glaciers. Project would tap into one of the worlds largest gold reserves (nearly 18 million ounces of gold and 676 million ounces of silver). • The company listed Pascua Lama project as its top priority and poured more than $5 billion into the giant construction. • Start of production had been delayed to 2016, and it had already cost billions more than anticipated when it started planning in 1997. • Originally, the governments the Chile and Argentina had welcomed the Pascua Lama project to bring jobs and economic benefits to a desolate region. • The cost and the obstacles mounted by local residents and international environmental groups who opposed the project had grown so high, that they now had to consider whether to suspend project altogether. BACKGROUND A Perfect Storm at Pascua Lama • The Pascua Lama mining project posed unprecedented challenges – both political and engineering. • The nearest communities on the Chilean and Argentinian side were keenly interested in the projects potential to impact their water supplies. • Historically, the populations in the valleys below had had some of Chile and Argentina‘s highest high poverty and unemployment rates but the pascual lama project promised to increase opportunities. • Barrick spent more than $15 million generating pages of environmental review documents to obtain permits for the Chilean side. Also conducted information campaigns and poured resources into the region around Pascua lama. • In February 2006, the Chilean regions environmental commission set more than 400 conditions the company needed to meet in order to go forward with the project. Barrick agreed on changes. • Barrick did dozens of social projects for local residents, then the mine gained fans in the community. • However, other members said that the land was sure to be harmed by the vast amount of rock crushing and chemical the gold mine operations would bring. They also worried about the effect on the glaciers. • In the 2010 members of the indigenous community came to Barrick's annual meeting in Toronto to express their opposition to the project: “Barrick has manipulated and corrupted our culture“. RISK MANAGEMENT Definition The company foresee the technical requirements of the mining operations, but they missed to map and mitigate local scenarios such as mid- and long-term environment impacts. Barrick’s source of information to take an action on specific requirements and onsite demands were through a mandate from the local Government and through the complaints from detractors – after which Barrick had already spent money and project had been kicked stared. Impact Focusing only on the operational aspects and treating lightly the surrounding context leads to ignore potential threats and points of fail and thus, there is not an appropriate response plan that includes a clear owner, action and most certainly funding. A solid and holistic risk management plan and the risk appetite of the company should have been the base of the project. STAKEHOLDER ENGAGEMENT & MANAGEMENT Definition Beyond the obvious environmental impact that claimed the communities, there is observed several issues in identifying, engaging, and managing the stakeholders of the program. Barrick took a reactive approach in the way they engaged the stakeholders. Then, a risk was materialized when they leveraged exclusively the Government’s relationship and did not captivate nor actively engaged the communities from the zone. Impact Barrick made huge efforts to address concerns and needs that resulted not as relevant as what the communities considered. While Barrick did well in building schools and hospitals, what the local people really wanted was for their land to keep untouched. This delay in identifying the actual position and expectations of the key influencers of the project critically jeopardized the aim of the company. SUSTAINABILITY Definition Is there any sustainable operation opportunity in mining in an area with such a high constraint in terms of environment impact, social awareness, and overall costly operation? The remedy and give-back actions that the company may run upon their activity in that area seem to be always short for the communities’ expectations. Impact From Barrick’s statement of sustainability strategy, the pillars that support their vision are protecting health & safety; respecting human rights; and minimizing our environmental impacts. They tried to minimize the environmental impact through a set of mitigation and corrective actions. However, “to minimize” does not mean to eliminate nor to prevent. BUSINESS ETHICS • The reputation of the company is affected since its practices violated the regulations established in its operating permit, generating a lack of confidence in the population. • Company's practices can cause irreparable damage to the environment. The population had a fair claim since there were many cases of mining companies with environmental commitments that were not fulfilled. • Populations decide to not support projects that, although generate jobs and development, are having an impact on the environment in which they live. • In the article, we may find a discussion about two ethical perspectives related to Huasco community: utilitarian vs. deontology. Utilitarian is represented by the mining activities to develop the community under Barrick’s claim “to make it a priority to improve the lives of citizens in countries like these [challenging environments] - first by stoking the economy and adding employment opportunities, then through community enhancements such as building hospitals and schools”. In contrast, Deontology is visible in its reason/liberty dimension by community claim “that the company had divided their community by creating education programs that were not faithful to the indigenous traditions of the region”. This need for respect to the community’s culture was not properly addressed by Barrick, so a strategy must be formulated. LEGAL & REGULATORY COMPLIANCE • As in many regions around the world and a persistent variable for most of LATAM countries, resources subject of mining are owned by the State and such a resources are allowed for commercial exploitation by means of concession contracts with private parties, regardless of who actually has ownership of the land. • In Chile, two core mining activities can be performed: exploration and exploitation. The two of them are subject of compliance of the Organic Constitutional Law on Mining Concessions and the Chilean Mining Code, mainly. • By the time Barrick started architecting the mining project in Pascua Lama, they probably had to perform their due diligence as for obligations derived from Acts 19.300 and 19.253, in which there is depicted the guidelines for Environmental Impact Assessment along with Protection of Cultural Heritage of Indigenous and Native Nation. • In particular, there is a statement that enforces for government agencies and licensees to build and deliver a plan to assess the risk of impact to cultural heritage and report on mitigation actions, where applicable, or the elimination of such a risks by holding up or ending the activities. • The OECD developed a due diligence guide for Responsible Supply Chains of Minerals that Barrick should be able to query and implement as appropriate. CORPORATE GOVERNANCE • On a closer look at the key pillars of CG, and as it relates to mining industry, the company should honor the transparency principle by disclosing both financial and environmental impacts as a result of the mineral exploitation in the zone. The company knows upfront the level of intervention that the project will imply from a people, resources and risk perspective, so in order to set a sustainable and fair relationship with the stakeholders, the relevant information should be presented in an accurately and timely fashion. This enables the communities and government to assess the possible impacts that the project and future operations would have so that an informed decision can be made. In addition to the impacts, the corresponding mitigation programs should be also disclosed. • Now that the information has been transparently disclosed and stakeholders are provided with the necessary information and are aware of the aspects that may impact their ecosystem and society, the company should remain accountable for the effects all the way through their operations. This would be the execution of the above-mentioned mitigation plans along with a permanent control and monitoring strategy that is fed by the dialogue with the communities and social organizations, the changes in the environment directly caused by mining – both short and long-term, supported by the absolute observation of the local regulations and liabilities. • By making the relevant information available, reaching agreements, and keeping accountable for the agreed actions, it would put the company in a position of fairness in from of the key stakeholders but also it would be a good message to their investors and the market since it demonstrate good management and a clear/consistent way to do business in a challenging environment .
