Capital and Reputational Risk Management through the Development and Permitting Curve in the Extractive Sector
Over the last 10 years, the surface risks associated with developing and permitting a mine have grown in scale and complexity so that the development costs, both capital and reputational, can be very significant and the likelihood of success has been declining. Three important surface risks include: (1) effectively identifying and engaging with stakeholders (most notably Indigenous Peoples), (2) growing resource nationalism, and (3) capital costs uncertainty. The failure to proactively address the first two of these risks can lead to projects being stranded and/or abandoned along the steepening development curve as capital costs escalate. A consequence of this is that equity financing for development projects has already become very scarce and lenders are shying away from providing debt financing for new mining projects. Proper on-the-ground due diligence and a proactive stakeholder identification, engagement and social management strategy are all key to addressing these three growing risks. The benefits from the project must be shared equitably with shareholders, affected communities, and local and national governments. A key factor in the permitting and mine development process is that it is a relationship building exercise and ethical behavior by all participants is critical to ensure success and minimize risks.