In January 2023, the federal government of the United States issued landmark decisions affecting two controversial projects to exploit mineral resources on public lands. One was an industrial-scale copper mine, the Pebble Mine in south central Alaska, and oil drilling program in the Willow Concessions on the North Slope of Alaska. The Environmental Protection Agency (EPA) vetoed the Pebble Mine citing its potential impact on an economically important population of salmon, while the Interior Department approved the environmental impact assessment (EIA) for drilling in the Artic Petroleum Reserve that will, coincidentally, prolong the useful life of the Trans Alaska Pipeline System.

In each these decisions, the Biden administration balanced the advice of environmental scientists with the economic and political power of corporations, while taking the pulse of disparate stakeholder groups via a consultation process influenced by regulatory provisions and public relations campaigns. The veto was catalyzed by a fight for Indigenous rights, while the oil drilling permit will favor a well-established industry that pays hundreds of millions of dollars in tax and royalty revenues to local and regional governments. If this type of regulatory and public relations confrontation is common in an advanced economy, such as the United States, then no one should be surprised that similar battles are being waged in the Pan Amazon. The specifics are different but the outcomes will probably be similar. Some will move forward and some will not.

Industrial minerals and corporate mines

The investments most likely to proceed will occur in jurisdictions where corporations already have a large spatial and economic footprint. The Carajás Mining District, for example, is clearly the domain of corporate miners and it will remain so for the foreseeable future. The local population is dependent upon the industry for their livelihoods and elected officials at the state and local level unequivocally support brownfield mining investments. The mineral resources are so vast that mining will continue to expand over the short term and, in all likelihood, will remain the dominant economic activity for decades or, perhaps, a century or more.

Corporate miners can be expected to prosper in other municipalities in Pará, as well as in states with significant mineral resources such as Mato Grosso and Amapá. Elsewhere, particularly in Peru and Ecuador, the need for export revenues to support foreign exchange policies will place enormous pressure on central governments to favor an industry that is increasingly dominated by international giants.

Environmental and social advocates will oppose many (most) extractive investments, but they will confront corporations armed with abundant technical information provided by environmental specialists pursuing mitigation and compensation strategies devised by astute legal advisors. Regulatory systems are designed to allow projects to move forward after (allegedly) addressing impacts that critics argue should actually terminate a project. Nonetheless, opponents to industrial-scale mines have one, increasingly powerful, regulatory tool: The obligation to have the free prior and informed consent (FPIC) of communities with long-established customary rights as a precondition for obtaining an operating license.

The full impact of FPIC on the regulatory process is still unfolding. Governments argue that mineral resources belong to the nation and should be monetized to finance economic development that benefits all sectors of society. In contrast, social advocates hope to expand the FPIC concept to include all types of local communities, including Indigenous communities who have yet to obtain legal recognition of their territories, as well as traditional communities whose livelihoods depend on renewable resources but whose identities are not explicitly ethnically Indigenous. Societies have yet to decide which communities have the right to FPIC and governments are maneuvering to maintain control over the consultation process. This is a major source of contention and it will be adjudicated in regulatory agencies, the courts and on the streets (and highways) of the Pan Amazon.

The other major factor that will influence corporate sector is the emerging concept of ESG investing. Publicly traded mining companies are particularly exposed to this risk management framework because of their need for financial capital, particularly for greenfield projects that do not benefit from the cash flow from an existing operational asset. All three components of the acronym weigh heavily on the industry. Environmental and social programs are obvious components in the current system of ‘responsible’ mining, while legitimacy of their claims depends on transparency, a core criteria of corporate governance. In contrast, private companies, particularly closely held domestic companies, are non-transparent by design, while Chinese companies have demonstrated, repeatedly, they have minimal concern for mitigating social and environmental impacts. ESG investing will not change the behavior of these types of corporations, which highlights the importance of robust regulatory oversight.

The success of the corporate sector to organize greenfield projects will be determined, increasingly, by their ability to adequately compensate the communities impacted by their operations. This should include more generous royalty regimes and, in nearly all cases, a less corrupt distribution of royalty revenues and taxes (e.g., the Canon in Peru). Some companies have tried to overcome these systemic deficiencies by directly compensating communities without the mediation of the state; all too often, however, these efforts fall short, because the improvement of health and educational services, the most common programs, alleviate but do not address the underlying grievances.

If companies would actually listen to communities, they might learn that opposition to their projects are rooted in a deeply held resentment of the state. The most common complaint is usually about land. Corporate mines may exploit a below-ground resource but they also appropriate an above-ground landholding. A corporation’s ability to obtain legal title lies in stark contrast to hundreds of thousands of families who lack formal recognition for their family landholdings. If the mine is a massive open-pit and tailings pond that infringes on what they perceive as pertaining to their community, the unfairness is provocative in the extreme. Companies that recognize this injustice have succeeded in advancing their projects; in contrast, companies that resort to divide-and-conquer tactics, or intimidation, often suffer from regulatory fights that delay their project. Projects overwhelmed by public protest and civil unrest have been canceled after their promoters have invested tens of millions of dollars.

Although mine start-ups attract the most attention, mine closures can reveal if corporations have fully embraced the concepts of responsible mining. Current regulations and ESG criteria obligate companies to develop an integrated closure plan; however, executives often underestimate the true cost of effective remediation.

This practice, which some describe as creative bookkeeping, is actually a breach of corporate governance, because those obligatory future expenditures are a long-term financial liability that should be reported on corporate balance sheets. Most companies did not make mine closure a priority, nor did regulatory agencies pay close attention — until the tailings pond disasters at Mariana (2015) and Brumadinho (2019). Those two events demonstrated the very real financial risk of inadequate mine closure and, in the process, illustrated why ESG is good for business. Environmental activists would be well-advised to critically dissect the financial models associated with remediation and closure plans.

Peru is the only Pan Amazonian country that requires corporate miners to set aside funds to finance mine closure. Referred to as ‘financial assurance,’ these can be bonds, insurance policies, or other forms of financial securities. Their value, however, is based on cost estimates reported by the company in its periodic filings to the government. Thus, if the company underreports the true cost of mine closure, they have every incentive to walk away from both their commitment to execute a responsible mine closure and their financial guarantee. When that happens, the state must assume the cost of remediation and, if the state refuses, communities near the mine will pay the price.

Banner image: Sumaco volcano at sunset in Ecuador. Image by Rhett A. Butler.

“A Perfect Storm in the Amazon” is a book by Timothy Killeen and contains the author’s viewpoints and analysis. The second edition was published by The White Horse in 2021, under the terms of a Creative Commons license (CC BY 4.0).

To read earlier chapters of the book, find Chapter One here, Chapter Two here, Chapter Three here and Chapter Four here.

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Mayra Editor

Topics

Amazon MiningCorporate ResponsibilityCorporate Social ResponsibilityEnvironmental PoliticsGold MiningGreenhouse Gas EmissionsIndigenous CommunitiesIndigenous PeoplesIndigenous RightsLand ConflictMiningTropical ForestsBrazilEcuadorLatin AmericaPeruSouth America

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