SLTO: The Key to a Successful Mining Operation
Mining plays an important role in the economic development of a country. However, there is a lot that needs to be done in order to remove the barriers to successful mining operations.
Obtaining a license from the government after meeting regulatory requirements is not enough. Gaining trust, support, and acceptance within the context of diverging expectations regarding mining-led development is of paramount importance.
Instances of mining developments being interrupted, delayed, and even closed due to public censure have been heavily documented. In this context, a social license to operate (SLTO) has emerged as the preferred response to the public opposition that can help ensure viable operations.
Here, we will explain what SLTO is and how mining companies can best frame social obligation using this method.
What is Meant by SLTO?
SLTO, or Social License to Operate, can be defined as the process of getting support within the local community for mining projects. The World Bank has defined SLTO in the document Striking a Better Balance: The World Bank and Extractive Industries as:
“A social license to operate is the acquiring of free, prior and informed consent of local communities and stakeholders”.
Obtaining a social license is an ongoing process that involves getting approval from society to operate mines. It is a community engagement process that aims to obtain a broad social consensus before starting work on a mine.
Origin of the SLTO Concept
The concept of SLTO originated in the 1990s due to increased public concern over mining activities in many countries. The concerns had emerged after a series of environmental disasters such as the Westray Mining accident in Nova Scotia that resulted in a coal dust explosion and the Nambija mine disaster where a landslide was triggered killing more than 300 people.
A Canadian mining expert named James Cooney had first suggested the term 'social license to operate' in early 1997 during a conference on mining and the community held in Quito, Ecuador sponsored by the World Bank. He had used this metaphor to describe a process of obtaining the support of the host community regarding a mining project.
Importance of Obtaining an SLTO
An SLTO is of critical importance for mining companies particularly those operating within jurisdictions of representative democratic societies. Obtaining an SLTO is essential for reducing public opposition, social conflicts, and damage to the reputation of the company. It helps improve the effectiveness of resources of the company, especially the CSR budget.
SLOTs are relevant where there is potential for significant impact on the environment. They are important in environments where the stakeholders are competent and articulate their concerns regarding projects.
Lack of social consent can lead to social conflict. This can result in high financial costs, delays, and difficulties in hiring labor. Mine shutdown can also result due to opposition from the society. It can damage the reputation of the company that can hamper the ability of the company to operate profitability.
SLOT can be viewed as an insurance against disruptions of operations. The importance of getting approval from the public is now widely recognized as critical to project success.
How to Obtain an SLTO?
According to Pierre Lassonde, President of Newmont Mining Corporation:
‘You don’t get your social license by going to a government ministry and making an application or simply paying a fee…It requires far more than money to truly become part of the communities in which you operate.’
In order to obtain an SLTO, a mining company needs to develop cordial relationships with the community members. The World Bank suggests that mining companies, local communities, and the government should carry on a trilateral negotiation regarding mining projects.
Good relationships with stakeholders are the key to obtain and maintain SLTO. The relationship should be based on open communication and mutual respect. There is a need for open and fair disclosure of information and transparency regarding the mining exploration and development projects.
Mining companies need to be sensitive to expectations and fear of the local community. They need to know the cultural norms and create realistic expectations regarding the mining project. Also, they need to develop an effective mechanism for conflict resolution.
Social support is obtained once good relationships are maintained with the community members. This type of relationship should not be based on monetary benefits. While monetary benefits may be important in some cases, the Prospectors and Developers Association of Canada states that the main goal of SLTO should be long-term sustainability.
Mining companies need to engage with the community and inform them of the benefits, costs, and risks associated with a mining project. They also need to identify opportunities and discuss possible tradeoffs. Lastly, they need to interact with indigenous people, communities, individuals, and environmental groups on the basis of meaningful participation and inclusion.
In short, SLTO is about creating procedural fairness, distributional fairness, and increasing governance capacity. This helps in gaining stakeholder trust that leads to acceptance of mining projects.
SLTO has become the key to successful mining operations. Not obtaining the SLTO can result in increased costs for operating mining projects. This can also jeopardize the ability of the company to obtain financing for projects. In addition, stakeholder's profit will decrease due to opposition from the community.
Mining companies have operational and financial reasons to ensure that their projects run without any interruptions. They need to be consistent with regards to ethical actions and flexible enough to meet changing regulatory environment.
Companies operating in the mining sector need to create a framework for identifying, assessing, and managing concerns related to projects. They need to create social risk profile to find out stakeholders that can pose a threat to mining operations. In this respect, companies such as Deloitte and International Financial Corporation (IFC) have developed a Financial Valuation Tool. This tool can be used to assess return on different social investments and help in selecting the best social investment portfolio to operate without opposition from the stakeholders.