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Sustaining Development: Extractive Industries and Local Communities
By Lyuba Zarsky, on 06 Aug 2013

For mineral-rich countries, large-scale extractive industry projects are 
a double-edged sword. On one hand, mining royalties and taxes provide 
funds that can be invested in infrastructure and social services. Mining 
projects can also create local jobs and spur demand for locally produced 
goods and services, supporting livelihoods and spurring economic growth.

On the other hand, mining revenues can be—and there is plenty of 
evidence that they routinely are—spirited or frittered away, leaving 
little to show by way of long-term productive investment or better 
living standards. Moreover, mining booms undermine growth in other 
industries by skewing labor demand and swelling the exchange rate. 
Adding injury to dashed hopes, mining operations often leave a legacy of 
massive and long-lived environmental damage. Rather than receiving what 
amounts to manna from heaven, mineral-rich countries seem to suffer a 
“resource curse”—economic growth rates lower than those of countries 
without mineral resources.

For communities that live near mining projects, the stakes and 
trade-offs are particularly acute. A large mine might offer locals 
well-paying jobs, as well as social investment funds provided either by 
the government or by mining companies. But in practice, the share of 
mine revenues received by local communities tends to be very small. 
Moreover, jobs disappear when the mine closes or reduces production due 
to a commodity price bust.

While economic benefits tend to flow to national capitals, foreign 
shareholders and corrupt elites, local communities suffer the brunt of 
the environmental damage, as well as the social upheaval, caused by 
large-scale mining projects. Unless properly monitored and managed, 
environmental impacts tend to get worse over the life of the mine and 
even after it closes.

Despite its dismal record, mining investment continues to be championed 
by governments and development agencies as a route toward sustainable 
development. But the rubber hits the road at the local level. Given its 
myriad environmental, economic and social challenges, is it possible for 
mining to promote the sustainable development of local communities?

Conceptualizing Sustainability in Mining

The first step is to clarify what “sustainable development” might mean 
in a mining context. In environmental terms, mining is inherently 
unsustainable because metals and minerals are depletable, nonrenewable 
resources. Economists thus employ the “weak sustainability principle” 
for mining, suggesting that mining can be considered sustainable if it 
does not diminish and, better, if it augments, the overall stock of 
capital—natural, economic, social. Another way of saying this is that 
total benefits outweigh total costs. This principle suggests that 
diverse benefits are additive or, put another way, that economic and 
social benefits can substitute for loss of nature. Ecologists are more 
inclined to use a “strong sustainability” principle, arguing that there 
is no substitute for natural capital.

An in-between position is that some of the services provided by 
ecosystems are substitutable while others are not. The “provisioning” 
services that resources provide when they are mined are highly 
substitutable. Plastics, for example, can substitute for copper in pipe 
and plumbing fixtures; nanotechnologies can substitute for silver and 
gold in electronics production. Other ecosystem services, however, 
provide essential “life-support functions”—air, water, climate 
regulation—for which there are no substitutes, period.

The first condition for sustainable mining, therefore, is that mining 
projects must maintain essential life support systems over the life of 
the mine, that is, from exploration to exploitation to closure and 
post-closure. A second condition is that mining should maximize economic 
and social benefits to humans. There is little point in undertaking a 
mining project if it generates little economic benefit or worse, 
undermines long-term productive capacities.

Putting the two conditions together provides a conceptual and 
decision-making framework: Mining can be considered to promote 
sustainable development if it generates net benefits—that is, if it 
maximizes human welfare subject to the constraint that essential 
life-supporting ecosystem services are maintained.

The logic of substitutability can also be applied to the concept of 
cultural “capital.” For indigenous peoples, cultural identity is not 
substitutable. Sustainable mining projects must improve human welfare 
subject to the constraint that cultural capital—the identity and 
autonomy of indigenous communities—is maintained. In practice, 
maintaining life-support eco-functions and cultural identity are often 
closely linked for indigenous peoples who rely on agricultural and 
resource-based livelihoods. It is not surprising, therefore, that 
indigenous peoples have often been at the forefront of opposition to 
large-scale mining projects.

Net Benefits and the Mining Boom

Unraveling the relationship between mining and sustainable 
development—whether and under what circumstances mining offers net 
benefits—is not an academic exercise. After decades of low-level 
activity, mining operations boomed in the past decade, spurred by a 
cyclical rise in global commodity prices. Between 2003 and 2011, gold 
prices swelled from around $340 to $1,900 an ounce, copper from 70 cents 
to $4.50 a pound and silver from $5 to $50 a pound. While prices peaked 
and then slid after the global financial crisis in 2008, they afterward 
recovered their upward trajectory, even if they have been volatile and 
generally sliding in recent years. Experts have mixed views as to 
whether the commodity boom has gone bust or is simply decelerating.

Resource-rich developing countries in Africa, Asia, and Central and 
South America have been flooded by a wave of foreign investment in 
mining exploration and exploitation projects deemed marginal when global 
commodity prices were low. In Latin America, for example, the value of 
mining tripled from $90 billion in 2001 to $306 billion in 2011. In 
Mongolia, mining accounted for some 17 percent of GDP by 2012.

Down on the ground, the mining boom has been highly controversial. 
Despite flashy promises of economic benefits, high-tech mining projects 
have triggered widespread pushback by local and indigenous communities. 
In Latin America alone, 191 conflicts involving 199 projects and 284 
communities were raging as of mid-July 2013.

Whether in Africa or Latin America—or, indeed, Mongolia, Australia and 
North America—local grievances are strikingly similar:

- Governments approve mining projects without the consent and sometimes 
without even the knowledge of local, often indigenous, communities.
- Mining companies pollute and deplete natural resources, and 
governments do little to stop them.
- Jobs and other local economic benefits are meager and short-lived.
- Local people are displaced, sometimes against their will and often 
with inadequate relocation arrangements.
- Competition for scarce jobs creates deep and long-lasting social 

Such concerns cannot be addressed by national policies alone. For there 
to be a hope that mining can promote sustainable development, local 
communities must be at the center of the mine approval, benefit 
negotiation and impact monitoring process. Only local communities can 
evaluate the complex environmental, economic and social trade-offs 
offered by a large-scale mining project and decide whether or not it 
offers net benefits.

Environmental Impacts: “It’s the Water”

Modern high-tech mining projects are large industrial operations 
requiring a significant amount of infrastructure to access, process and 
transport minerals. Mining companies use explosives to blast large holes 
or dig out vast tunnels in the ground. The waste rock is dumped nearby 
in large mounds or hauled off to nearby valleys. The next step involves 
excavating large amounts of ore and leaching out the metal or mineral 
using water and chemicals, often cyanide. The metal is then sent to a 
refining smelter, on- or off-site, and the resulting leftover tailings 
slurry is stored in an on-site pond known as an impoundment.

These processes have significant environmental impacts at each stage. 
The initial blasting and clearing, as well as the waste rock dumps, 
destroy productive topsoil and forest cover, stress farm animals and 
wildlife and create dust that causes respiratory problems for humans. If 
mines use dirt roads, or if the mine itself is not properly watered and 
maintained, dust can remain a problem for the entire operational life of 
the mine. The smelting process can also pollute the air, if pollution 
control devices are not in place.

The most destructive and longest-lasting impacts of mining, however, are 
on water. Mine-sites must be “de-watered” to enable access to ore, and 
water is heavily used in mining processes, including leaching. Concerns 
about loss of access to water underpin many conflicts between mining 
companies and local communities. At Newmont’s $5 billion Conga gold and 
copper mine in Peru, for example, plans to destroy four mountain lakes 
to enable mineral access are at the center of widespread and sometimes 
violent protests by local farmers. It is common for national governments 
to grant mining leases without taking a local hydrological survey of the 
availability and uses of existing water supplies. Moreover, many mines 
are sited in dry areas.

Mining operations can not only deplete but also pollute surrounding 
ground and surface waters. Most mining processes use chemicals such as 
cyanide and sulfuric acid to separate ore from rock. Widely used in gold 
mining, cyanide is acutely toxic to humans and wildlife. Cyanide-rich 
tailings ponds are prone to leakage and overflow, especially in areas 
vulnerable to flooding and earthquakes. Cyanide can also spill out from 
trucks transporting it to mine sites. Even when it is diluted, cyanide 
exposure can kill fish, cause skin rashes in humans and sicken farm 
animals and wildlife.

In the world’s most infamous spill, 50-100 tons of cyanide flowed into 
the Danube, Tisza and other rivers when the tailings dam broke at the 
Baia Mare gold mine in Romania in 2000. Large numbers of fish died, and 
24 municipalities were cut off from water supplies. Since then, cyanide 
spills have been routinely reported around the world, including in 
Ghana, Australia and Alaska.

Though highly toxic, cyanide is relatively short-lived, posing 
environmental and health risks primarily in the operating phase of the 
mine, some 20-50 years. An even worse risk to water is heavy metals 
pollution caused by acid mine drainage (AMD), which results from the 
exposure of sulfide-rich crushed rock, both tailings and waste rock, to 
rainfall. Heavy metals such as mercury, arsenic, cadmium, lead, nickel 
and zinc that would otherwise remain buried in intact rock leach into 
surface and ground water. Through AMD, mine sites can continue leaching 
heavy metals for decades, even centuries. In South Africa, the world’s 
largest producer of gold, AMD is the country’s most significant 
environmental threat. In the United States, toxic releases associated 
with AMD make the mining industry as a whole the nation’s top industrial 

Given its long-lived and perhaps irreversible nature, water 
contamination caused by AMD is the greatest source of long-term risk 
from mining operations. According to a study published by Environmental 
Science and Technology, air and soil pollution can be readily addressed 
by re-vegetation and landscaping. But even where mine sites have been 
restored to high standards, “pervasive and persistent” water quality 
problems can develop.

Heavy metals contamination is especially risky in poor locales where 
water-supply infrastructure is lacking. In the indigenous communities 
surrounding Goldcorp’s Marlin gold mine in Guatemala, for example, 
drinking water is drawn directly from wells, and cattle and other 
livestock are watered from streams. Increased levels of arsenic have 
been found in people living close to the mine (.pdf), likely caused by 
the depletion of surface waters which pull arsenic-rich ground waters to 
the surface.

Climate change will exacerbate water risks. Global warming will further 
stress water supplies, increasing the competition for water between 
mining and other uses, while increasing the intensity and frequency of 
storms. Greater rainfall means more risk of overtopping of tailings 
ponds or changes in interaction of ground and surface water with waste 
rock, with associated AMD risk.

In a press interview in February 2012, Peru’s former vice minister of 
the environment, Jose de Echave, underscored the centrality of water in 
Latin America’s mining conflicts. "The number of conflicts is 
increasing, over water, over extensions of mining rights, over pollution 
of rivers, over the displacement of populations,” de Echave said. "But 
above all, it's over water.”

Changing Norms?

The resource boom has wrought not only intense conflict but also 
feverish innovation in mining norms. Governments, which typically own 
subsurface mineral resources, have pressed companies, often 
successfully, for a higher share of mining revenues. Ghana, for example, 
increased its royalty rate from 3 percent to 5 percent. South Africa is 
currently revising mining and tax rates, in part in response to 
pressures to nationalize mines. In 2011, Ernst & Young found that 
“resource nationalism” was the No. 1 global business risk for mining 

National environmental regulation is slowly increasing, usually in the 
form of increased requirements for companies to undertake and make 
public an environmental impact assessment (EIA) as a condition of 
obtaining a mining lease. However, there is often a gap between legal 
frameworks and on-the-ground enforcement. In Mongolia, for example, the 
failure to enforce strict environmental standards has led to widespread 
environmental damage of fragile steppes and waters. Moreover, the scope 
of an EIA tends to be narrow. Cumulative and interrelated impacts on 
water, biodiversity and health are typically not included, while social 
and cultural impacts are ignored. Mine protesters often view EIAs as 
box-checking exercises designed to facilitate mining projects.

A major gap in regulation is credible and transparent impact monitoring 
and amelioration. During the operation phase, it is common for mining 
companies themselves, rather than independent third parties, to monitor 
and report environmental impacts to governments. After mine closure, 
companies are often required to fill in and re-vegetate open pits, but 
not to monitor and ameliorate impacts such as AMD.

While national governments are slowly being dragged into stronger 
regulation, extractive industry norms are evolving rapidly at the 
international level. Some 35 gold mining companies, for example, have 
signed up to the International Cyanide Management Code, a voluntary 
“responsible management” framework developed via a multi-stakeholder 
process under the guidance of the United Nations Environment Program.

The International Council on Mining and Metals (ICMM), a voluntary 
association of the world’s largest mining companies, has developed a 
“Sustainable Development Framework” based on 10 broad principles, 
including requirements to “uphold fundamental human rights” and 
“continually improve environmental performance.” The ICMM’s 22 members, 
which include mining giants such as Barrick, Newmont, Rio Tinto, BHP 
Billiton and Xstrata, are required to demonstrate that they are 
implementing the framework in corporate policy, public reporting and 
independent assessment of company practice.

Beyond voluntary corporate guidelines, the de facto international 
standards for extractive industries are set by the International Finance 
Corporation’s (IFC) Performance Standards on Environmental and Social 
Sustainability. As the private sector arm of the World Bank, the IFC not 
only provides but also leverages a substantial portion of global finance 
for mining projects. The IFC considers the eight standards a central 
part of its approach to risk management; demonstration that governments 
and companies are adhering to them is a requirement of project funding. 
The standards concern: social and environmental assessment and 
management systems; labor and working conditions; pollution prevention 
and abatement; community health, safety and security; land acquisition 
and involuntary resettlement; biodiversity conservation and sustainable 
natural resource management; indigenous peoples; and cultural heritage.

Human rights norms for business have also evolved substantially in the 
past decade. Given their huge social and environmental impacts, 
extractive industries account for the bulk of cases involving 
allegations of human rights violations. In 2010, the U.N. “Protect, 
Respect and Remedy” Framework established for the first time that 
business organizations have an independent duty—irrespective of state 
law where they operate—to respect human rights. In operational terms, 
this means that businesses must uphold rights defined in international law.

The extension of mining projects to marginal areas during the resources 
boom means that many are located on or near the traditional lands of 
indigenous peoples. While laws defining indigenous rights vary by 
country, “free, prior and informed consent” (FPIC) is evolving as the 
international norm governing development projects in indigenous 
communities. Defined in two U.N. treaties—ILO Convention 169 and the 
U.N. Declaration on the Rights of Indigenous Peoples—FPIC grants 
indigenous communities the right to say no to a mining project.

While still far from widespread recognition or implementation, even in 
countries that are signatories to the U.N. Declaration, the defined 
right to FPIC has buoyed efforts by indigenous communities to assert 
self-determination and resist unwanted mining projects. In Guatemala, 65 
“consultas”—plebiscites—have been held on the issue of extractive 
projects on indigenous land. More than 1 million people have expressed 
their opposition, mostly out of concern over water pollution and its 
potentially devastating impact on agriculture. Despite having 
consistently argued that the votes are not legally binding, the 
government was forced earlier this month to suspend new metal-mining 
licenses for two years in order to quell massive indigenous protest.

Local Communities at the Fulcrum

International norms, national regulation and changes in company practice 
are essential in the pursuit of a more sustainable approach to mining. 
But the quest for sustainable development rests ultimately with those 
who are at “ground zero” in terms of environmental and social 
impacts—local communities. In their concern to protect their health and 
that of their children, protect and enhance their livelihoods and 
maintain their culture, local communities have a major stake in ensuring 
that “essential life support systems” like clean water are maintained. 
They are also best able to negotiate for themselves the complex 
trade-offs between economic, social, cultural and environmental benefits.

Bypassing national governments, some mining companies have begun to 
negotiate impact and benefit agreements directly with local communities, 
especially indigenous communities whose property and political rights 
are recognized in national law. According to Rio Tinto, these kinds of 
agreements are the future for all global mining companies working in 
indigenous areas.

But non-indigenous local communities as well are demanding a greater 
voice. While non-indigenous local communities do not have the right of 
free, prior and informed consent in international or national law, 
mining companies are increasingly recognizing that lack of community 
acceptance can be costly, even fatal. Earlier this month, for example, 
the Montreal-based Osisko Mining Corp. was forced to rescind a 
provincial agreement for a gold mining project in Argentina following 
widespread environmental protest.

The answer for many mining companies has been the pursuit of 
“stakeholder engagement” to identify and respond to community concerns, 
leading in many cases to greater company contributions to social 
projects such as hospitals and schools. But without legally specified 
rights to information and decision-making—including the right to say 
no—such exercises are unlikely to guarantee that mining does not destroy 
“essential life support systems” or to ensure that local economic 
benefits are maximized.

National policies can help. Beyond environmental regulation, governments 
can require companies to be transparent and accountable to local 
communities, and grant local communities negotiation and approval 
authorities. When communities have had such powers, even in limited 
ways, environmental impacts have been significantly reduced, either by 
cancellation or redesign of the project, and economic benefits have 

Despite better international norms and national regulation, the huge 
environmental impacts and lucrative opportunities for plunder mean that 
the search for sustainable development in mining remains elusive. 
Reducing impacts, increasing benefits and evaluating trade-offs are 
complex and dynamic processes, conditioned by national legal 
requirements and global company policies. Local communities, however, 
are at the fulcrum. If there are sustainable development paths for 
mining, they will best be found by increasing the political weight of 
the people they impact most deeply.

Lyuba Zarsky is associate professor of business and international 
environmental policy at the Monterey Institute of International Studies. 
With Leonardo Stanley, she is the co-author of “Can Extractive 
Industries Promote Sustainable Development? A Net Benefits Framework and 
a Case Study of the Marlin Mine in Guatemala” (Journal of Environment 
and Development, June 2013).

Photo: Oyu Tolgoi copper and gold mine, South Gobi Desert, Mongolia 
(photo by Brücke-Osteuropa).

Jamie Kneen, Communications & Outreach Coordinator, MiningWatch Canada
MiningWatch <>MiningWatch