Lafayette: (under) mining goodwill

Australian mining company, Lafayette, operator of the Rapu Rapu mine on the small island of the same name in the Philippines, has just entered into voluntary administration. The news may raise eyebrows given the current mining boom, however, not everyone is surprised.

The story of Lafayette's mining operation and the company's financial failure resonates with a lesson that Oxfam Australia has long observed; a company that fails to obtain and retain a social licence to operate, in other words one that operates without community approval, is not viable. Other Australian mining companies operating in the Philippines and elsewhere should pay heed to Lafayette's rise and fall and take note of this cautionary tale.

Initially lauded as the darling of the Philippines' mining revival program, Lafayette quickly turned sour for local fisherfolk. Just months after commencement of mine operations in 2005, two cyanide-laden spillages into the sea led to fishkills and consumer fear. People refused to buy the fish from the island. Local communities on the island and in the surrounding bay whose livelihoods depend on the sale of fish struggled to feed their families.

A government-established fact finding commission accused the company of gross negligence for its failure to establish appropriate environmental safeguards.

Following the request of community members, Oxfam Australia's Mining Ombudsman has been investigating community complaints about the operation of the Rapu Rapu mine.

The result of our investigations, which included interviewing over 130 stakeholders in the Philippines in the past week, is impossible to ignore. From fisherfolk whose livelihoods have been affected by fishkills associated with the mine's operation, to local councillors who are tired of waiting on empty promises for the social development projects Lafayette said would come, to the Provincial Governor who complains bitterly that the mine pays no taxes that would benefit the region; few people who are not paid directly by the company expressed any desire to see the mine continue.

Meanwhile, the ANZ and other "Equator Principle" Banks who have signed onto a set of social and environmental benchmarks that should govern their lending decisions, had continued to prop up the company.

After another fishkill in recent months that affected a community which had previously experienced the earlier fishkills, over 150 protestors stormed the Provincial Government building last week and demanded the closure of the mine. Before Lafayette, they claimed, there were no fishkills. Despite national regulatory agency attempts to convince locals that the latest fishkill was not associated with the company, they said enough was enough.

So too, it would appear, have the banks who are now owed approximately $250 million by Lafayette.

The real question now will be what happens to those communities on Rapu Rapu in the wake of the financial failing of Lafayette. Will the mine be abandoned as so many other mines have been in the Philippines, leaving the local communities to deal with the legacy of continued pollution of their waters and fisheries? Will the administrators start a fire sale of the mine to try to pay off the company's debts to ANZ and others, which may result in another speculative operator without a commitment to social or environmental responsibility?

Or will the ANZ and the other banks that have signed the Equator Principles use this opportunity to demonstrate their commitment to social and environmental responsibility?

To date, the company has not been required by Philippine regulators to set aside money for the final rehabilitation of the mine. ANZ and the banks that had supported Lafayette should show the communities of Rapu Rapu who will live with the consequences of the failed investment what “corporate social responsibility” means in practice. They can demonstrate this by ensuring that sufficient funds are set aside for the environmental rehabilitation of the mine and a sustainable development program for the communities of Rapu Rapu.

There is much to be gleaned from the Lafayette experience.

The fundamental lesson for Australian mining companies operating in developing countries, as well as their financiers, is that mining projects that do not have and retain community approval ought not be pursued or financed.

For the Australian mining industry and government, the case demonstrates that an official complaints mechanism should be established within Australia to inquire into community dissatisfaction abroad. Doing so would ensure that Australian mining companies act in accordance with internationally accepted human rights and environmental standards. Compliance with these standards could have benefited all those who have missed out in the Lafayette case - communities, shareholders, mine workers and governments.