Mining Foundations, Trusts and Funds - World...

Mining Foundations, Trusts and Funds

The World Bank June 2010

A Sourcebook

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Table of Contents

EXECUTIVE SUMMARY .................................................................................................................... 7

INTRODUCTION ...............................................................................................................................13

PART 1 ................................................................................................................................................15

1) THE MINING SECTOR AND FOUNDATIONS, TRUSTS AND FUNDS ..........................17

A) AN INTRODUCTION TO FOUNDATIONS, TRUSTS AND FUNDS ...................................................19 B) A GROWING PHENOMENON .........................................................................................................21 C) HOW DOES THE MINING SECTOR USE FTFS? ............................................................................22 I) COMMUNITY INVESTMENT ........................................................................................................................ 23 II) GOVERNMENT PAYMENTS ........................................................................................................................ 24 III) COMPENSATION ......................................................................................................................................... 26 D) INFLUENCE OF POLITICAL ECONOMY ..........................................................................................27 E) KEY ATTRIBUTES ..........................................................................................................................28 I) PROGRAMMATIC APPROACH ..................................................................................................................... 28 II) FINANCING .................................................................................................................................................. 31 III) GEOGRAPHIC REACH ................................................................................................................................. 38 IV) PARTICIPATION ......................................................................................................................................... 41 V) GOVERNANCE AND INFLUENCE ................................................................................................................ 44 VI) PROGRAMMING FOCUS ............................................................................................................................. 45 VII) TIMING ....................................................................................................................................................... 47

2) A SNAPSHOT OF THE EXPERIENCE FROM PART II CASE STUDIES ........................49

A) THE IMPORTANCE OF CONTEXT .............................................................................................................. 49 B) THE USE OF FTFS ...................................................................................................................................... 50 C) PROGRAMMATIC APPROACHES ................................................................................................................ 51 D) FINANCING .................................................................................................................................................. 51 E) GEOGRAPHIC FOCUS .................................................................................................................................. 52 F) PARTICIPATION ........................................................................................................................................... 53 G) GOVERNANCE AND INFLUENCE ............................................................................................................... 54 H) PROGRAMMING .......................................................................................................................................... 56 I) TIMING .......................................................................................................................................................... 56

3) IDENTIFICATION OF LEADING PRACTICE ......................................................................59

A) POINTS TO CONSIDER - FTF PURPOSES .....................................................................................59 I) USING AN FTF FOR COMMUNITY INVESTMENT ..................................................................................... 60 II) USING AN FTF FOR COMPENSATION ...................................................................................................... 60 III) USING AN FTF FOR GOVERNMENT TRANSFERS AND PAYMENTS ..................................................... 61 B) POINTS TO CONSIDER - STAKEHOLDER GROUPS .......................................................................62 I) COMMUNITIES .............................................................................................................................................. 62 II) GOVERNMENTS ........................................................................................................................................... 63 III) COMPANIES ................................................................................................................................................ 65

PART TWO .........................................................................................................................................69

INTRODUCTION ...............................................................................................................................71

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CASE STUDIES ..................................................................................................................................73

A) PERU .............................................................................................................................................73 I) FONDO SOCIAL LA GRANJA ........................................................................................................................ 76 II) ASOCIACIÓN LOS ANDES DE CAJAMARCA (ALAC) ............................................................................... 80 III) FONDO SOLIDARIDAD CAJAMARCA......................................................................................................... 88 IV) ASOCIACIÓN ANCASH ............................................................................................................................... 93 V) FONDO MINERO ANTAMINA .................................................................................................................. 100 B) SOUTH AFRICA, MOZAMBIQUE AND NAMIBIA ........................................................................ 107 I) ANGLO AMERICAN CHAIRMAN’S FUND ................................................................................................. 110 II) IMPALA BAFOKENG TRUST ..................................................................................................................... 117 III) GREATER RUSTENBURG COMMUNITY FOUNDATION ........................................................................ 122 IV) PALABORA FOUNDATION ....................................................................................................................... 126 V) MOZAL COMMUNITY DEVELOPMENT TRUST ...................................................................................... 135 VI) RÖSSING FOUNDATION .......................................................................................................................... 140 C) PAPUA NEW GUINEA ................................................................................................................. 147 I) OK TEDI FLY RIVER DEVELOPMENT PROGRAMME (OTFRDP) ....................................................... 151 II) PAPUA NEW GUINEA SUSTAINABLE DEVELOPMENT PROGRAM LTD (PNGSDP)........................ 158 III) LIHIR SUSTAINABLE DEVELOPMENT PLAN TRUST ........................................................................... 164

BIBLIOGRAPHY ............................................................................................................................. 167

APPENDIX 1 INTERVIEWS CONDUCTED .......................................................................................... 173 APPENDIX 2 FOUNDATIONS REVIEWED (DESK BASED) ................................................................ 175

ACKNOWLEDGEMENTS .............................................................................................................. 177

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List of Figures

Figure 1 Channels for Social and Economic Contributions and Payments .................................................... 18 Figure 2 Potential Applications of FTF Model in the Mining Sector................................................................. 22 Figure 3 Relationships Between Geographic Reach and Ownership ................................................................ 40 Figure 4 Programming Trends ....................................................................................................................................... 46 Figure 5 Use of FTFs in Case Studies ............................................................................................................................. 50 Figure 6 Comparison of Development Budgets Across Community Investment FTFs ............................... 52 Figure 7 Influences over Geography ............................................................................................................................. 53 Figure 8 Time Elapsed Between Mineral Production and FTF launch ............................................................ 57 Figure 9 Categorisation Model for Case Studies....................................................................................................... 73 Figure 10 Map of Poverty in Peru .................................................................................................................................. 74 Figure 11 Structure of Fondo Social La Granja ........................................................................................................ 78 Figure 12 ALAC Structure ................................................................................................................................................. 81 Figure 13 Yanacocha Area of Influence and ALAC's Priority Areas ................................................................. 83 Figure 14 ALAC Governance Structure ........................................................................................................................ 84 Figure 15 ALAC Co-Funding Mechanisms ................................................................................................................... 85 Figure 16 Other Sources of Financing for ALAC (to December 31 2008) ....................................................... 86 Figure 17 Fondo Solidaridad Cajamarca Structure ............................................................................................... 89 Figure 18 Distribution of Fondo Solidaridad Cajamarca Within Programme Lines ................................. 90 Figure 19 Intervention Areas for Fondo Solidaridad Cajamarca ...................................................................... 91 Figure 20 Government Transfer Payments 2006-2009 ......................................................................................... 94 Figure 21 Canon Received by each Regional Government ................................................................................... 95 Figure 22 Regional Government Expenditure of Canon ........................................................................................ 95 Figure 23 Governance Structure for Asociación Ancash ....................................................................................... 98 Figure 24 Structure of FMA ........................................................................................................................................... 101 Figure 25 Ancash Department – Definition of Local and Regional Interventions for FMA.................. 103 Figure 26 Anglo American Chairman's Fund Focus Areas by Value in 2008 ............................................. 113 Figure 27 Provincial Giving by Value (2007) ......................................................................................................... 114 Figure 28 Bojanala Region ............................................................................................................................................ 118 Figure 29 IBT Resource Allocations per Programme Area ............................................................................... 119 Figure 30 IBT's Geographic Allocation of Financial Resources ...................................................................... 120 Figure 31 Total Budget per Area for Palabora Foundation for 2009........................................................... 129 Figure 32 Palabora Foundation Areas of Operation - 50 Km Radius ........................................................... 131 Figure 33 Rio Tinto Palabora Mining Company Donations to the Palabora Foundation .................... 133 Figure 34 Mozal Smelter and MCDT Location ....................................................................................................... 136 Figure 35 MCDT Staffing Structure ............................................................................................................................ 138 Figure 36 Mining Regions in Namibia ....................................................................................................................... 140 Figure 37 Areas of Operation for Rössing Foundation ....................................................................................... 145 Figure 38 Papua New Guinea Mines and Potential Project Map .................................................................... 148 Figure 39 CMCA Regions and District Boundaries ............................................................................................... 154 Figure 40 Governance Structure for OTFRDP ........................................................................................................ 155 Figure 41 PNGSDP's Western Province Programmes ......................................................................................... 161 Figure 42 PNGSDP Ltd Board Composition............................................................................................................. 162 Figure 43 Simplified PNGSDP Management Structure ....................................................................................... 163 Figure 44 LSDP Governance and Approvals Structure ....................................................................................... 166

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List of Tables Table 1 Drivers of Community Investment by Mining Companies .................................................................... 23 Table 2 Comparative Staffing Levels ............................................................................................................................ 51 Table 3 Participation through FTF Governance Structures ................................................................................ 54 Table 4 Governing Body Composition .......................................................................................................................... 55 Table 5 Basic Infrastructure Programmes ................................................................................................................. 56 Table 6 Relationships between Purpose of FTF and Attributes of Leading Practice ................................. 60 Table 7 FMA Financial Summary (as at 30 April 2009) ................................................................................... 105 Table 8 FMA Projections (in USD Millions) ............................................................................................................. 105 Table 9 Scorecard for the BBSEE Charter ............................................................................................................... 108

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Executive Summary Mining operations increasingly exist in remote parts of developing countries, and with the combined challenges in public services delivery and development assistance, this is drawing the mining sector further into catalysing development at local, regional and national levels. Responding to this multifaceted trend, the mining sector has increasingly turned to foundations, trusts and funds as vehicles to share the benefits derived from mineral production with communities. This Sourcebook reviews the developing country experience of mining sector foundations, trusts and funds to date, identifies aspects of leading practice in this field and provides detailed examinations of fourteen case studies from Peru, Southern Africa and Papua New Guinea. It approaches this analysis from the perspectives of the three sets of key stakeholders: communities, companies and governments. Foundations, trusts and funds (FTFs) have different structures and vary considerably in different legal jurisdictions. Recognizing these differences, this study refers to FTFs as a group representing independent entities with options for governance to be shared amongst a number of stakeholders. The question of whether to use an FTF structure, as compared to other models for benefit sharing, is outside the scope of this study. The Sourcebook assumes readers are interested in FTF structures and highlights the key attributes associated with these structures and the benefits and traps mining sector experience has identified. This study does not advocate the use of FTFs, but rather provides a review of experience from the mining sector to better inform decisions in the future. There are three main purposes for which the mining sector uses FTF structures:

community investment – voluntary actions or contributions by companies beyond the scope of their normal business operations;

compensation – payments made by mining companies to mitigate the impacts generated by projects; and

government payments – taxes and royalties as well as other payment schemes, including voluntary contributions, which exist between mining companies and various levels of government which are intended for redistribution to communities through some form of benefit sharing mechanism.

The reasons for undertaking these three activities are well covered in other texts and this study is concerned with how FTF structures can be and have been used by different stakeholders to achieve these ends. The adoption of an FTF structure is not always within the control of the implementing party, with some cases now being seen where the establishment of an independent entity to deliver funding is a legal requirement (the Peruvian

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Aporte Voluntario scheme is based on this approach). Over and above legal requirements, FTF structures can present a number of advantages, such as an increased sense of independence; a clearer path towards sustainability through the endowing of funds and potentially through sourcing alternative financing; and opportunities for community participation through representative governance structures, co-financing and project generation. To allow comparison ofmining sector FTF experiences, seven key parameters were identified: programmatic approach; financing; geographic reach; participation; governance and influence; programmatic focus and timing. There is no “one size fits all” approach to FTFs for the mining sector, and different applications of these parameters are to be expected and are seen depending on the purpose of the FTF, the geographic and political economy context and the implementing party. The review of developing country experience conducted as part of this study identified the use of the following options within these parameters:

Programmatic Approach – There are two broad programmatic approaches used by FTFs: grant-making and operational implementation. Grant-making FTFs tend to have smaller staff complements, as seen with the Impala Bafokeng Trust which currently has two employees. The Palabora Foundation, by comparison, uses a predominantly operational approach, and has a staff of 100 people. Both approaches are used within the mining sector, with many FTFs using both in the one entity.

Financing – FTFs vary according to three main financing aspects: funding structure, sourcing and management. FTF funding structures use either endowed funds or annual/periodic budget allocations. This financing can be sourced from companies, communities, governments or a combination of sources. Funding derived from companies is often based upon an annual calculation, such as: percentage of revenue (seen in the Freeport Partnership Fund for Community Development (LPMAK)); percentage before profit (BHP Billiton use this approach in the Minera Escondida Foundation); percentage of capital or operating expenditures; or through an annual negotiation. Community funding often varies significantly and depends upon the community’s capacity and willingness to contribute as seen with the Greater Rustenburg Community Foundation. Governments can draw upon payments made by the mining sector as part of either a) payments for concessions, licences or land access (as seen in the Las Bambas and La Granja Social Funds) or b) government accessed royalties, taxes or fees (as explored in Madagascar). Mixed funding approaches can see multiple companies donating to the same FTF, or collaboration between tri-partite stakeholders. The desk based review of mining FTFs indicated that the majority are initiated and funded by companies.

Geographic Reach – While the purpose of the FTF is clearly critical in defining the geographic reach of its programmes, the ownership or influence exerted upon the FTF may also influence these decisions. Five levels of geographic focus were identified: mine’s area of influence; special focus groups; regional; national and international. Where FTFs are responsible for delivering community development programmes for a

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company, their geographic reach is closely linked to the mine’s area of influence. Approximately half of the FTFs reviewed through the desk based assessment (33) are directly related to individual mine sites. Government involvement in an FTF, either through regulation or influence, tends to increase the geographic scope of the entity to a regional basis, as has been seen in the Peruvian aporte voluntario FTFs. Corporate philanthropy FTFs can be seen to operate at a broader geographic level, such as the nationally focussed Anglo American Chairman’s Fund.

Participation – Community and stakeholder participation within an FTF can be achieved through a number of avenues. An extensive stakeholder engagement process has been used to develop both the Asociación Los Andes de Cajamarca (Peru) and the Newmont Ghana Development Trust. Participation can also be achieved through participation in governance structures (such as IDAP in Mali), including the appointment of a chairperson from a beneficiary group. Integration of community beneficiaries into the process of project generation provides another avenue for participation, as does co-financing.

Governance and Influence – While the governance structure is often seen as the primary control over an FTF, external influences, unrepresented in the governance structure (such as Government) can hold the greatest “influence” over the FTF’s activities.

Programming Focus – FTF structures are being used to implement any number of different projects, with the basis for programme choices grounded in the needs of the beneficiaries.

Timing – The establishment of FTF structures to manage benefit sharing from mineral projects is normally linked to the project development cycle. Examples are now emerging where FTFs are being developed earlier as part of the license approval process (Las Bambas Social Fund and La Granja Social Fund in Peru) and later as part of mine closure planning (Anum Lio Foundation at Kelian, Indonesia).

To better convey the experiences with FTFs in the mining sector, fourteen case studies were undertaken in Peru, Southern Africa and Papua New Guinea (PNG). In each of these areas, mineral production accounts for a considerable proportion of the national Gross Domestic Product (GDP) and pressure has been exerted on both governments and companies to generate more than economic growth alone and to achieve poverty reduction through this sector. The case studies, while dominated by company foundation models, also include a community foundation. They cover the different purposes for which FTFs are typically used, with community investment, compensation and government payments all being channelled through various cases. The importance of context cannot be overstated when considering these case studies and for this reason, a summary of the national setting is provided for each study. The case studies are highlighted below:

Peru: o Fondo Social La Granja – Developed as a Government condition of

the license purchase process for the La Granja copper project, this

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Foundation was established during the exploration period for the project;

o Asociación Los Andes de Cajamarca (ALAC) – Established, after a two-year consultation process, as part of Minera Yanacocha’s social responsibility programme to promote sustainable human development for the Cajamarca region. Predominantly using a grant-making approach, the Asociación has developed sophisticated methods to monitor and evaluate the development impacts of its projects and has had considerable success in seeking external financing;

o Fondo Solidaridad Cajamarca (FSC) – The FSC was developed by Minera Yanacocha to meet the Peruvian Aporte Voluntario commitment. Using ALAC as its administration agent, the FSC has brought significant amounts of additional financing into the Cajamarca region and has facilitated an increase in Government spending of canon minero payments;

o Asociación Ancash – Established shortly after commencement of mining operations, the Asociación was developed to maximise the sustainable development contribution of the Antamina mine. With the development of the Fondo Minero Antamina (FMA) to meet Antamina’s Aporte Voluntario commitment in 2007, the Asociación was forced to change its role significantly. Following extensive strategic visioning exercises, the Asociación has developed an operational niche in tourism, conservation and preservation of local culture and heritage;

o Fondo Minero Antamina (FMA) – Holding resources of over USD160 million (as at January 2010), the FMA is channelling significant funding into the Ancash Department. The FMA has a large team (over 90 staff) most of whom were recruited from non-government organisations;

South Africa, Mozambique and Namibia: o Anglo American Chairman’s Fund – A corporate philanthropic

grant-making trust, the Chairman’s Fund has been in existence since the 1970’s and operates at a national level (which makes it significantly different from others more directly related to a mine site or area). The Chairman’s Fund is managed by a not for profit company (Tshikululu Social Investment), originally established by Anglo American;

o Impala Bafokeng Trust (IBT)–Developed following a significant black economic empowerment transaction between Impala Platinum and the Royal Bafokeng Nation, the IBT was established in part to ensure that non-Bafokeng historically disadvantaged South Africans (HDSA) also received development benefits from this transaction;

o Greater Rustenburg Community Foundation (GRCF) – After ten years of operation, the GRCF is now the oldest community foundation in Africa. Operating within a region dominated by platinum mines, it is a grant-making organisation which is using “asset based community development” techniques in its projects;

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o Palabora Foundation – This operational foundation has been implementing projects in the Ba-Phalaborwa communities for over 23 years. It’s focus has shifted considerably over this timeframe reflecting the changing needs of beneficiary communities, a dynamic socio-political context and variations in the profitability of the Palabora mine;

o Mozal Community Development Trust (MCDT) – Established as the community development arm of the Mozal smelter in Mozambique, the MCDT is an operational FTF which undertakes all aspects of community engagement and development for the company. Ownership and governance of the MCDT remain within the control of the company;

o Rössing Foundation – Structured as a Trust, the Rössing Foundation was established in 1978 to provide greater education opportunities for Namibians. The history of the Foundation is closely linked to Namibia’s evolving political independence. This operational Foundation develops programmes all over the country and more recently has placed significant focus on the mine town of Arandis;

Papua New Guinea o Ok Tedi Fly River Development Programme (OTFRDP) – While the

development of OTFRDP has been ongoing for a period of over ten years, its independent structure was launched in 2010. It is an operational not for profit company committed to managing and implementing compensation payments on behalf of the 152 recipient villages, as agreed as part of the Community Mine Continuation Agreement for the Ok Tedi mine;

o Papua New Guinea Sustainable Development Program Ltd (PNGSDP) – Created as part of the exit agreement between BHP Billiton and the Government of PNG, PNGSDP is a not for profit limited liability company mandated to minimise the impacts of the Ok Tedi mine closure, which receives 52% of the dividends of the continued operation of the Ok Tedi mine. High mineral prices in recent years have generated an endowed fund of over USD1billion within PNGSDP; and

o Lihir Sustainable Development Plan Trust – The Trust is intended to deliver the integrated benefit package (IBP) agreed between Lihirian landowners and Lihir Gold Limited in 1995. The IBP includes compensation payments, royalties and community investment projects.

There is no ideal structure for an FTF within the mining industry as each FTF must respond to the context in which it is established, its purpose and the interests of its stakeholders. Acknowledging this, ten areas of leading practice for FTFs have been identified:

A clearly defined strategic vision, outlining its role as a development actor in the local environment;

A single purpose, ie, either community investment, compensation or government payments, but not a combination;

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A representative multi-stakeholder governing body; An endowed fund to enable sustainability; High levels of co-financing and collaboration; Transparent practices and associated accountability; Efficient administration structures to maximise development delivery; Flexibility to adapt to changing development practices and operating

conditions; Incentive schemes to retain high calibre staff; and Impact based monitoring and evaluation.

Foundations, trusts and funds can be used as mechanisms for the distribution of social and economic contributions and payments from companies and governments to communities. They are highly flexible instruments and can be adapted to suit a variety of situations. Establishment of an FTF can facilitate co-financing and act as a strong development commitment to beneficiary communities. Use of an FTF can provide opportunities for representative governance structures which may not be possible under different conditions. They also provide opportunities to develop sustainable community development programmes from the mining sector. When they are applied with a clear vision and clarity of purpose, with transparency and accountability, and are managed by highly skilled staff, they can become the success story of a mining operation. While FTFs are not appropriate in all situations, this Sourcebook provides examples from a vast variety of experience to assist communities, governments and companies to consider the role of FTFs within their mining benefit sharing approaches.

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Introduction This research was initiated by the Oil, Gas and Mining Policy Division (COCPO) of the World Bank to capture the substantial experience in the mining sector with foundations, trusts and funds as mechanisms for enhancing positive impacts from mining operations on local, regional, national and international development. Philanthropic foundations first emerged in the mining industry in the 1930s and there are now over sixty of these institutions in the developing world alone1. Despite their prevalence, there have been few efforts to document and synthesize the experience of these institutions to inform decision-making by governments, companies and community stakeholders. Foundations, trusts and funds (FTFs)2 are the vehicles through which community investment, compensation and government payments related to mining are increasingly being channelled. While the legal structures of foundations, trusts and funds can vary considerably; FTFs in general provide a structure independent of a mining operation with opportunities for governance to be shared amongst a number of stakeholders. Foundations and trusts are legal constructs in most jurisdictions, often with specific tax rules. Funds, however, do not carry specific legal status and typically require either a Foundation or Trust structure to become independent. This Sourcebook reviews the range of FTFs currently in use in the mining sector in developing countries. It includes detailed case studies on FTFs in Peru, Southern Africa and Papua New Guinea, which highlight the spectrum of approaches taken when using these structures. The lessons learned from the detailed case studies are combined with insights gained from existing development, corporate social responsibility and community investment literature to provide a summary of the leading practice from global experience to date. These practices are reviewed from the perspectives of communities, governments and companies, each of whom can either implement an FTF model themselves or facilitate their establishment. Structured in two parts, Part I examines FTFs in the context of the mining sector, drawing upon a literature review conducted on over 40 mining related FTFs in the developing world and the experience gained from the case studies conducted as part of this study. Part II presents detailed case studies on fourteen FTFs in Peru, Southern Africa and Papua New Guinea. Decisions taken by companies, governments and communities on benefit sharing mechanisms for the mining industry raise the question of the role of the mining industry in achieving broader development goals. The contribution of the mining industry to development is addressed in other texts, however where significant role changes are apparent through the use of FTFs these are noted in this Sourcebook. 1 BSR (2010) 2 Referred to as FTFs henceforth to refer collectively to these types of institutions.

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Foundations, trusts and funds provide distinct opportunities for mining companies, governments and communities to better share the benefits accruing from mining projects. Mining companies, governments and communities approach this topic from very different perspectives and the opportunities afforded to one may represent challenges to another. This Sourcebook will provide useful context and examples for companies, governments and communities considering the management of social contributions and payments from the mining industry. There is no “one size fits all” when taking decisions in this field and through this Sourcebook, interested stakeholders will be able to better consider the use of an FTF structure and the attributes of that structure for delivering development through mineral wealth.

The future generation living near an exploration site in Guinea (Wall, E)

Examining Foundations, Trusts and Funds (FTFs)

in the Mining Sector

Part 1

The World Bank

Executive Summary

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1) The Mining Sector and Foundations, Trusts and Funds On a global scale, the overall increase in the number of multinational corporations3 has led to a greater presence of private corporations in communities around the world. This factor, combined with a global decline in public sector development assistance4 has cast the private sector as an important player in social and economic development. Increasingly located in remote areas of impoverished countries, mining operations are highly exposed to this changing development dynamic. Beyond geography, the mining industry has a number of characteristics which draw it into the delivery of development at local, regional and sometimes national levels:

Operations often exist in environments where government institutions may be absent, weak, lacking in capacity or corrupt, leaving gaps in essential public service provision;

The social and environmental footprint of mining operations often has impacts on local communities, requiring compensation and mitigation programmes;

The remote location of many operations accentuates the expectation for employment and economic development within host communities; and

The enclave nature of the mining industry can limit the “trickle down” of benefits unless specific social investment programmes are undertaken.

In addition to the factors above, a series of changes in the mining industry have also caused an increase in the level of and approach towards benefit sharing from mineral projects in recent years:

Sectoral Changes - Between 1989 and 2001, more than 75 countries liberalised their investment regimes for mining, oil and gas exploitation and privatised state mining companies5. This had the dual effect of increasing foreign investment by multinational mining companies in developing countries and reducing the provision of “social wages” for workers in state-owned companies such as subsidized housing, education and healthcare. Coupled with technological improvements reducing the labour needs of mining projects, and an increase in fly-in fly-out operations, many of the traditional benefits received by communities have diminished over time and pressure has risen to replace them with new benefit sharing instruments;

Operational Drivers – Improved communications access across the world and an increase in the number of advocacy groups focused on the mining sector have led to increased community expectations from mineral developments. These expectations then inform the benefit sharing

3 Warhurst (2001) 4 ibid 5 ibid

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approaches required from a company in order to gain and retain its social license to operate. Employees have also raised their expectations of the companies they work for, increasing the focus on corporate social responsibility within operations;

Corporate Social Responsibility (CSR) Expectations – The growth of CSR across all industries has led shareholders and affected stakeholders to review the social contribution of private industry in far more detail than in the past. Peer performance has also raised the bar for more strategic and effective community investment with a long-term view of sustainable development6, and commercial investors also review these commitments and contributions. These expectations have been captured in a number of voluntary codes and commitments endorsed by stakeholders in the mining industry, such as the ICMM Sustainable Development Principles and the UN Global Compact; and

Mineral Prices – Escalating mineral prices have focussed the attention of both communities and governments upon the benefit sharing arrangements in place. Countries with multinational mining corporations using ad valorem taxation and royalty schemes have in many cases observed the majority of windfall profits exiting their national borders, causing a re-assessment of the means by which both production and profit can be shared.

The mining industry makes social and economic contributions and payments to communities and governments through a number of channels, as illustrated in Figure 1. This figure highlights contributions and payments necessary due to the impacts generated by the project (compensation), those payable as part of the mineral lease conditions (government payments including taxes and royalties), direct benefits (employment, procurement, beneficiation (eg diamond industry) and project infrastructure) and community investments. Figure 1 Channels for Social and Economic Contributions and Payments7

Implementing employment, procurement and project infrastructure programmes are within the day-to-day business of a mining company, and are typically kept within the operational control of the business. Similarly, taxes and royalties typically follow a specified format, with transactions occurring between companies, communities and various levels of Government. Greater variation

6 ICMM (2005) 7 Adapted from IFC (2010)

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exists in the manner through which companies (and increasingly Governments and communities) manage community investment and compensation programmes. Four implementation mechanisms for community investment (some of which can also be applied to compensation) have been defined by the International Finance Corporation (IFC)8:

Third party implementation – where a company engages a partner, such as a local or international NGO, to work with local communities in designing and implementing projects, or a company supports an existing initiative being implemented by others;

Company Foundation – where a company establishes a separate legal entity (foundation or trust) to carry out the community investment or compensation programme;

Internal community relations department – where a company works directly with communities to design and implement projects using its own staff; and

Hybrid model – a model that either uses two or more of the other models together, or combines elements of both of them.

Identification of the appropriate implementation model depends on a range of considerations, including: the sustainability of the model chosen, participatory structures for decision making and governance, multi-stakeholder mechanisms and partnerships, the building and development of local capacity and ongoing owner involvement and oversight. The International Finance Corporation’s Community Investment Strategies Good Practice Handbook provides detailed guidance to assist businesses to take this decision. Potential reasons for businesses, Government or communities to choose a foundation model may include the need for independence between the funding party and the organisation, the desire to seek alternative external financing, long time horizons for operation of the organisation or the desire to serve a broader population than would strictly be defined as the project affected community.

a) An Introduction to Foundations, Trusts and Funds In general trusts are employed in countries using common law and foundations are preferred in countries adhering to civil law. Funds can occur in virtually any jurisdiction as the designation “fund” does not confer a separate legal status, but is rather a general term which can be used to describe a trust, foundation or a company budget item. Other relevant distinctions between FTFs include:

The term “foundation” applies to an institution “used for charitable or family purposes, while a “trust” is one form such an institution can take”9;

Foundations, trusts and funds may be closely associated with the founding actor or actors (such as a mining company) or in the case of trusts and foundations, may be deliberately established as stand-alone entities with independent status;

8 ibid 9 Warhurst (2002)

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The terms foundation, fund and trust are often used loosely in vernacular conversation, and even in the names given to particular institutions: the Anglo American Chairman’s Fund, for example, is legally incorporated as a trust, and the Rössing Foundation is also legally incorporated as a trust.

Recognizing that the attributes of funds, trusts and foundations vary from country to country, a series of typical characteristics for each mechanism are defined below: Trusts – Representing a legal relationship between the settler of assets, the trustee, and the beneficiaries that give

a trustee specific responsibilities, which can make this mechanism less flexible than a foundation approach. Attributes include:

Trusts are governed by a Board of Trustees. Trustees can be held liable for their management responsibilities and are

required to exercise “all reasonable care” which is a stronger concept, legally, than other instruments.

This model often has lower public domain information requirements than other mechanisms.

The establishment of a trust is a juridical act, and a trust only secures ‘absolute certainty’ when a court proclaims the trust to be valid.

A trust may conduct profit-making activities. Foundations – Often incorporated as legal entities, foundations are relatively flexible in the activities they are able to undertake to fulfil their objectives. Attributes include:

Foundations are separate legal entities that own the assets under their control although unlike a trust, assets do not need to be transferred to a foundation.

The duty of care of a foundation council member is to act in accordance with the regulations and the law and to act in the “best interest” of the foundation (less legally onerous than a Trust).

For a foundation to exist, its Charter must be registered at the Public Registry thereby establishing it as an entity with juridical personality.

Typically a foundation will have a management board or some other form of committee governing its activities.

Two main types of foundation structure exist: company/corporate foundations and community foundations:

Corporate/company foundations – Created by companies as separate legal entities with the purpose of delivering social development projects. The level of involvement of the company within the foundation structure varies significantly;

Structural Elements of Foundations, Trusts and Funds Commonly Addressed in Legal Frameworks

Legal processes for establishment; Purpose for which the entity may be

established; Permissible economic activity; Provisions for supervision and management; Provisions for accountability and auditing; Provisions for amendment of statutes or article

of incorporation or dissolution; Tax status of donors; and Tax status of the foundation, trust or fund.

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Community foundations – “An independent, nonprofit, philanthropic organization working in a specific geographic area which, over time, builds a collection of endowed funds from many donors in the community. It provides services to the community and its donors, makes grants, and undertakes community leadership and partnership activities to address a wide variety of needs in its service area. A community foundation is a vehicle for local donors who wish to contribute their cash, trusts, bequests, or real property to create permanent endowments that will benefit the community in perpetuity. Using the investment earnings on each endowed fund, a community foundation makes and builds capacity within the community to address local needs and opportunities. Their task is to build substantial, permanent funds from which grants are made to local charitable and community organizations”10

While the majority of foundations used by the mining sector are company-based foundations, there are a number of community foundations being developed either by mining companies or within mining areas. Funds - Used as a term to describe a mechanism which may be legally defined as a trust or foundation, or can be used to refer to a designated line item within a company budget. Using the general descriptions provided, foundations arguably provide greater flexibility than trusts, and funds require an implementation vehicle of some sort to be actioned. The inconsistency in definitions of foundations, trusts and funds globally, however, illustrates the point that the specific type of instrument is less important than the defining attributes of the FTF instrument.

b) A Growing Phenomenon Over the past 20 years, FTFs have become increasingly prevalent in the mining industry. While philanthropic foundations have existed in the mining sector since the 1930s11, most FTFs reviewed for this Sourcebook were established between the late 1980s and the present (2010). Between 1950 and 1980, approximately five foundations, trusts or funds were in operation, and this had increased to sixty-one in the developing world alone by 200812, twenty-seven of which were established since 2000. Furthermore it appears that the growth of foundations, trusts and funds in the mining industry has exceeded that of other industries13. FTFs in the mining industry have not only grown in quantity, but have also evolved their structures and programme execution tactics. The Alcoa Foundation and Phelps Dodge Foundation (now closed) were both established in the 1950s and used a corporate foundation model to support philanthropic

10 Wings (2010) 11 Yakovleva (2005) 12 An additional 20 foundations related to mining operations in developed countries are known to be in existence but were not included in this study. 13 BSR (2010)

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donations to local initiatives across their global operating locations. The foundations formed in the 1970s in Southern Africa, by contrast, became major actors in national development initiatives, in some cases displacing the government as the dominant social institutions in some areas, as can be seen in the Rössing Foundation and the Palabora Foundation case studies in Part II of this Sourcebook. In the 1980s, locally managed funds with targeted objectives were created, such as the Fundación Montelibano in Colombia which focussed on providing scholarships for the education of employees’ children. The last two decades have seen the emergence of a sustainable development philosophy within foundations, trusts and funds. They have also heralded the use of FTF models by a broader audience in the mining sector, including the emergence of community foundations (such as the Greater Rustenburg Community Foundation case study in Part II) and government mandated corporate foundations (used extensively in Peru and highlighted in the case studies in Part II). The past two decades have also seen an increase in the use of FTF models to manage a greater range of social and economic contribution and payments channels, in particular compensation and benefit sharing arrangements with governments (the Papua New Guinean integrated benefits package approach and Fondo Social La Granja in Peru highlight these trends in Part II).

c) How Does the Mining Sector Use FTFs? Based on analysis conducted as part of this study, the vast majority of foundations, trusts and funds are initiated by companies. Governments, however, have also played significant roles in facilitating FTF creation and influencing FTF attributes and management structures. The mining charter in South Africa, for example, has had considerable influence in stimulating the large number of trusts within the national mining industry, whereas licensing and land access agreements have been significant factors in Peru, the Philippines and indigenous communities in Indonesia, Australia and Canada. To determine the rationale behind the increased use of FTFs in the mining sector, it is worth revisiting the channels for social and economic contribution and payments from mining companies to communities. Figure 2 highlights the areas of potential applicability for the FTF model and in this section a review of the benefits of using the FTF model for community investment, government payments and compensation is conducted. Figure 2 Potential Applications of FTF Model in the Mining Sector

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i) Community Investment While growth in the use of FTFs has been seen in a variety of applications, the most significant rise is in the use of the model for community investment. The IFC define community investment as “voluntary actions or contributions by companies, beyond the scope of their normal business operations, intended to benefit local communities in their area of operations”14 and note that this is distinct from a company’s obligations to mitigate or compensate local communities for environmental and social impacts cased by the project. The overall company goals of community investment can be summarised as:

“To establish and maintain positive, mutually beneficial long-term relationships with local stakeholders;

To contribute to long-term improvements in quality of life; and To help create an environment conducive to investing”.15

The drivers for mining company community investment depend on the stakeholder, as represented in Table 1. Table 1 Drivers of Community Investment by Mining Companies16

MINING COMPANY COMMUNITIES GOVERNMENT

Social License to Operate

Access to Land Risk and Reputation

Management Productivity Gains Positive Legacy Company of Choice (for

next project)

Long-term improvements in quality of life

Access to opportunities Community better off

due to company presence

Greater benefit sharing from private sector

Reduced pressure on Government for local community investment

Utilisation of effective implementation system held by company

Retained support at local level for industry responsible for generating significant GDP contribution

The choice of FTFs, as compared to the other models of benefit sharing, to implement community investment programmes in the mining sector is based upon on a number of advantages identified with this model. While individually these advantages are not limited to FTFs, the combination can present a significant benefit to different stakeholders. The use of FTFs can:

Signal commitment and establish a formal, professional and systematic approach to development which can in turn help to win and retain social licence to operate.

Support long-term, multi-year development projects without necessarily being tied to annual company budgeting cycles.

14 IFC (2010) 15 ibid 16 Adapted from IFC (2010)

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Foster stakeholder participation in the management and operation of community investment programmes. Independent foundation and trust management and governance structures can provide a more formal approach to shared decision making and community, NGO and government inclusion.

Build bridges to other development actors, including the formalisation of collaboration between a company and other stakeholders through providing a “neutral” facilitator. This role as a neutral party can also increase the likelihood of being able to source external funding.

Separate legal liability for the actions of community development programmes from those of a mining company, thereby minimising company risk.

Where funds are endowed, FTFs can provide a guarantee of financial support for development independent of the boom-bust cycle of mining investments.

Provide financial benefits, such as tax advantages, which may not be available through other mechanisms of community investment.

Develop long-term institutional knowledge and attract and retain specialised expertise from the development sector, which can be more challenging for programmes run internally by mining companies.

Represent a participatory, transparent and accountable mechanism for investment of revenues in development, particularly in situations where there may be high levels of corruption or distrust of public and private institutions.

Provide a clear definition of the types of projects a company is prepared to invest in, the criteria and components of project financing, the locations where it will invest and the service providers for implementation.

Foundations, trusts and funds will not be appropriate in all community investment situations in the mining sector. Negative repercussions for companies from poor governance or financial controls within an FTF can be significant, and the application of an FTF model does not in and of itself reduce opportunities for corruption especially given the potential requirement for significant up front costs and time investment in developing these structures.

ii) Government Payments In this Sourcebook, “government payments” refers to taxes and royalties as well as other payment schemes, including voluntary contributions, which may exist between mining companies and various levels of government which will be redistributed to communities through some form of benefit sharing mechanism. Governments may establish their own FTFs or promote the use of FTFs within the sector for a variety of reasons, including:

Bypassing existing structures, processes and politicians to establish direct channels to beneficiaries;

Managing mandatory or voluntary funds received from companies through royalties, taxes or fees;

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Stabilizing economic contributions from the mining sector to weather severe fluctuations in commodity prices; or

Transitioning communities/regions towards a sustainable development path beyond the life of the mine.

There is a wide array of taxes (including royalties), which are used by governments to derive benefit from the mining industry for the nation. The two main groups of taxes are in rem and in personam taxes17. In rem taxes include taxes on fixed costs of production (such as property taxes and import taxes) and taxes on variable costs of production (such as unit based royalties and sales taxes). In contrast in personam taxes are charges against some definition of net revenue, and as such, are tightly linked to the profitability of the mining project. This distinction in forms of taxation can become critical for a government, and a host community, when attempting to stabilise the benefits gained from the mining industry and ensure the host country receives a “fair share” of the benefits during boom times. Taxation arrangements for mining projects are agreed in the contract negotiation period, and typically form part of the legislation permitting the project to proceed. As such, any changes to the taxation and royalties scheme generally requires existing contracts with companies to be re-negotiated. Re-negotiation of contracts can, however, have negative consequence for investor confidence in the country. Given these considerations, governments are increasingly using and promoting FTF models under a variety of conditions:

Governments may find that investing a portion of the taxation and royalties received from mining into a stabilisation fund can help to balance annual budget and allow the government to plan for longer-term projects. This approach is particularly relevant where taxation is strongly based upon in personam taxes, upon which the government can exert little or no control, and where mining constitutes a significant portion of the national GDP. Examples of this approach have been seen in both Chile and Papua New Guinea18.

Where benefit sharing is predominantly based on in rem taxation, governments and communities can derive little additional benefit from windfall profits during mining boom times, potentially raising community and national discontent with the industry. Rather than renegotiating contracts to change the taxation basis, some governments have turned to the implementation of “voluntary contributions” from companies, and the use of FTF models to manage these contributions for immediate implementation at the community level.

Mining projects often exist in areas where government capacity may be weak or the government may simply be absent. When public services are inadequate, governments may promote the establishment of a company FTF model to provide complementary resources to fill in gaps in public

17 Otto et al (2006) 18 The Mineral Resource Stabilisation Fund in Papua New Guinea has subsequently been dismantled.

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service or extend the scope of services being provided. These programmes are increasingly being targeted towards capacity building for local governments. The use of FTFs in this situation may allow a beneficiary to experience more rapid development than would otherwise have resulted from government distribution of revenues or infrastructure due to resource limitations, capacity, political factors and corruption. Implicit within this model, however, is a blurring of the roles between the private sector and government, with the potential that governments may cease to provide support to areas where company foundations have been established.

In some jurisdictions the negotiation of mineral licenses identifies the whole “package” of benefits and payments due to communities. This integrated benefits approach can generate large lumped sums of money, payable to communities over an extended period of time. This model is discussed further in the next section, however there are clear advantages for governments to support an FTF model in these cases to ensure transparency between government, company and communities.

Where FTF models are being adopted or promoted by governments as part of improved management of existing payments, significant efficiencies can be realised. The situation becomes less clear when governments use the establishment of company FTFs as a means to fill in gaps in public service provision, or to change the benefit sharing arrangements contractually agreed with companies.

iii) Compensation Payments made by mining companies as compensation for social and environmental impacts can be of considerable size. This is particularly relevant when compensation payments include both direct cash compensation to individuals and financing for development projects at the community level over an extended period of time. Effective management of the financing for these community projects and time lag compensation payments often lends itself to the use of a trust structure. In these cases, the compensation payments are typically kept separate from community investment projects a company may be undertaking, to ensure there is no confusion between the origins of the financing amongst the beneficiaries. The range of payments and contributions received by communities as part of the agreement for a project to proceed can be vast. The integration of all benefits and compensation into a single package, known as an “integrated benefits package” has been applied in some jurisdictions, making it clearer for community members and landowners to determine the balance of impacts, compensation and benefits expected from a project. Integrated packages often have components which require investment over a period of time and again trusts are often used to facilitate this investment in a transparent manner. The combination of compensation and community investment in a single trust vehicle can have unintended consequences, however, as seen in Papua New

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Guinea where there is a widespread belief that all monies paid as part of the integrated package are for compensation alone19.

d) Influence of Political Economy Foundations, trusts and funds vary widely in their specific characteristics and attributes. In part this is due to differences in the legal and regulatory frameworks of the jurisdictions in which they are incorporated as described earlier, however the political economy in which they are created has an even greater impact. Beyond establishing their own FTFs, governments provide the regulatory framework determining the need for and primary attributes of FTFs instituted by companies, civil society and other stakeholders. The regulatory environment can shape choices of foundations, trusts or funds, governance structures, funding approaches, stakeholder participation, programme objectives and geography and programme execution tactics. Not all government influence on FTF selection and application is through regulation, as can be seen in the examples in the box below.

19 Imbun (2007)

Government Actions to Encourage Use of Foundations, Trusts and Funds In South Africa, the Broad Based Socio-Economic Empowerment Charter has been a key driver behind company social investment initiatives. A considerable number of trust funds have been established to fulfil social obligations as part of the conversion of ‘old order’ mining rights. The Philippines Mineral Law of 1995 requires that companies obtain consent from indigenous cultural communities for use of their ancestral lands and that royalties be paid into a trust fund “for the socio-economic well-being of the indigenous cultural community”. In 2007, 40 companies and the Peruvian Government signed an agreement to make a voluntary contribution (Aporte Voluntario) to local and regional funds for the poorest provinces and regions of Peru. The payment addressed perceived inequities, emerging from rising commodity prices, between project revenues and anticipated royalty and tax benefits. The agreement also included company commitments to good management of these funds to help circumvent bureaucratic difficulties in disbursement and management of royalties to provinces and municipalities. Xstrata, Rio Tinto and Vale have also established ‘social trusts’ as part of their payments to secure the Las Bambas, La Granja and Bayovar development projects in Peru. In Papua New Guinea, land rights agreements, such as those established between landowners and Lihir Gold have included the creation of trust funds for development purposes. The Papua New Guinea Sustainable Development Program was created as part of a divestiture agreement with the PNG Government. The new Laotian Minerals Law will make Community Development Funds a standard requirement for investors.

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e) Key attributes The key attributes of mining foundations, trusts and funds lie not in their legal structure, but rather in their approach to a number of parameters outlined below:

Programmatic Approach; Financing; Geographic Reach; Participation; Governance and Influence; Programming Focus; and Timing.

In this section, each of these considerations will be addressed and examples from both the global literature review and detailed case studies included where relevant.

i) Programmatic Approach The decision on whether to run community development projects internally within a company or externally is well addressed in the IFC Community Investment Strategies Good Practice Handbook (2010) and will not be further addressed in this Sourcebook. Instead this section assumes a decision has been taken to pursue an FTF model and provides guidance on the approaches available within this framework. There are two main programmatic approaches within FTFs: grant making and operational or implementation approaches. Grant making organisations provide grants to other organisations whereas operational or implementation based organisations use their funds or endowment to achieve goals directly. It is useful to consider these approaches as endpoints on a spectrum as many organisations use a mixture of both approaches.

(a) Grant making Grant making foundations provide funds to other development initiatives already in place or support new initiatives to develop. Grant making is particularly applicable when there are other development actors already working – or able to work – with beneficiary communities or when resources are too limited to support permanent staff. Grant making can help to avoid the duplications of effort and can support capacity building within civil society to develop projects themselves. There is no limit placed upon the geographic focus of grant making FTFs and these decisions are typically influenced by the broader purpose and goal of the

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FTF. For example, regional networks as seen with the Greater Rustenburg Community Foundation (focussed on the Greater Rustenburg region in South Africa) are applicable given its community foundation basis; while national approaches used by the Anglo American Chairman’s Fund (operating across the nation in South Africa) are more appropriate given its corporate philanthropy role. Grant making FTFs can transfer financial resources directly to development projects to support development organisations (sometimes referred to as the Donor Foundation approach). In most cases grant applications are competitive and grant making FTFs apply a rigorous process of project selection and oversight.

Grant making FTFs Advantages Disadvantages

Approach can be applied at any level

Can become a conduit for funds from a variety of sources and beneficiaries potentially improving the sustainability of the FTF

Requires a smaller number of employees

Encourages community ownership/initiation of projects

Creates opportunity for capacity building (depending on skills held by FTF staff)

May increase project sustainability

Unless strong transparency approach, disbursements may be opaque and may not reach the correct beneficiary

Can result in high percentage of failure unless there are strong project evaluation and monitoring criteria and capable staff

No direct contact at project level

Significant administrative time for small amounts of investment

Size of grants budgets needs to be appropriate for number of grant applicants

Reputational benefit for company can be diluted

Mitigation Actions

Pairing financial and technical assistance, especially in communities where local organisations have limited capacity and experience

Automated systems for grants evaluations Provision of assistance with grants applications Partnership with third party for monitoring and oversight of grant

projects Clear delineation of funding parties objectives from grant making.

(b) Operational or Implementation FTFs

On the other end of the spectrum of programmatic approaches lie FTFs which use their funding to implement projects directly. “Operational” FTFs can be preferable when operated in a region with few development actors and where the FTF is expected to have a presence for a number of years. Many rural

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communities where “mining is the only game in town” present situations in which the operational FTF approach may be applicable, as seen with the Rössing Foundation (Namibia). This approach requires more staffing than the grant making approach and ideally staff will have specific expertise in the development projects being implemented. It is also more applicable to FTFs focussed on local or regional development, as staff will need to be able to gain access to all project locations. Where operational FTFs operate across a broader geographic region they typically need to establish multiple offices, raising the overhead costs for the FTF. The development of an operational FTF often requires significant start-up costs, including the hiring of a range of development specialists. A company or community’s ability to absorb these costs at the start of a project may be limited, leading to a number of operational FTFs being established after the first few years of project operation.

Operational FTFs Advantages Disadvantages

Can develop significant experience of their own

High degree of interaction with communities

Clearer opportunities for company branding and connection to social license to operate

Opportunities exist to seek external financing if a good reputation is developed

Higher overhead costs and initial start-up costs

Time lag from decision to establish FTF to delivery of first project

Risk of dependency and/or potentially viewed as replicating the role of Government

Mitigation Actions

Funding commitments should be made in advance to allow longer term projects to be developed;

Focus to be placed on capacity building and spinning-off successful programmes (as has occurred with mixed success at the Palabora Foundation (South Africa));

Facilitate community input into project selection and implementation. Within both the grant making and operational approaches, FTFs may pursue partnerships with other development actors with similar objectives or with designated beneficiaries. Potential partners can include government agencies, local and international NGOs, community based organisations, and other mining operations. Partnerships can add specific value by a) addressing regional or national issues that impact and influence local conditions, b) bringing resources or complementary skills to programmes or, conversely, c) expanding the scope of successful programmes.

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Partnerships with local organisations can be distinct from those with large established national and international development agencies (such as the implementation partnerships between Fondo Minero Antamina and Caritas and ADRA in Peru). Partnering with local organisations to build their capacity requires more resources and a longer timeframe for implementation where a more experienced partner may have immediate impact.

ii) Financing There are three key aspects to the financing of an FTF within the mining sector: structure, sourcing and management. Funding structure, in this context, refers to the means by which the FTF is financed, be it annually, or through an endowment fund. There are a number of sources of financing for mining sector FTS, including company financing, community funding, government funding and mixed funding. The management of the finances of FTFs can “make or break” them, incorporating both considerations around corruption and the comparison of administrative costs to development spending. All three aspects of financing are addressed below:

(a) Funding Structure The funding structure for an FTF has significant implications for its long-term sustainability and its ability to commit to multi-year projects. There are two main approaches to structuring the funding of an FTF (with a combination of both often employed):

Endowment; and Annual budget allocation.

Broadly speaking, endowment funding favours FTFs seeking to exist beyond the period of a mining operation, and budget cycle allocations are better suited to FTFs established to deliver benefit while a mining project is operational. The endowing of funds in an FTF supports the long-term sustainability of an FTF, although for this model to be effective a sufficient sum needs to be endowed and the time between endowment and total reliance upon the interest cannot be too short. In endowed FTFs, administrative budgets are often sourced from the interest derived from the endowed investment while additional annual contributions are made from a mining operation or other funding parties to support development projects. Ideally, by the time annual contributions from a company cease, the endowed fund is of sufficient size to support the administrative and development project budgets of the FTF for a number of years post mining. The Papua New Guinea Sustainable Development Program (PNGSDP) employs both an endowed fund (the “long term fund”) and a development fund intended for immediate use with the ultimate goal of continuing to use the long term fund for a minimum of 40 years post closure of the Ok Tedi mine. Even where the capital of an endowed fund is used as part of the annual budget for the FTF, having such a fund can make it easier for FTFs to contribute to or support multi-year projects by providing a funding guarantee.

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Endowed FTFs are also better protected from price fluctuations and external influences on the mining industry which can cause annual budget allocations to vary considerably. Both the Rössing and Palabora Foundations, following periods of financial difficulty within the mining companies causing a cessation of payments to the Foundations, instituted endowment funds to increase their protection from market vagaries. However, for an endowment to be most effective it should be set up as early as possible, at a time when the cost of money is highest for companies.

Endowment Funding Advantages Disadvantages

Greatly enhances the sustainability of an FTF where administrative costs are sourced from the interest generated on the endowment

Facilitates multi-year project commitments

Can protect FTFs from fluctuations in mineral prices affecting mining operations

Potentially provides an exit strategy for companies when mining operations cease

Ideally requires investment of development funding early where possible, when money is most expensive

Large sums of money can attract corrupt practices and/or poor financial management

Mitigation Actions

Financial management for the endowed fund should be handled professionally

Transparent management of the funds invested and appropriate reporting of the financial management should be undertaken

Endowment funds can be established after the first few years of profit generation from a mining operation, reducing the cost of the money

Financing FTFs through annual budget allocations is common practice and allows FTF financing to be run through existing budgeting structures for companies and some NGOs. Providing funding on an annual or budget cycle basis allows funding to be scaled and modified depending on external factors affecting the source of the funding. For example, political changes can significantly alter the allocation of funding to local and provincial governments, affecting their ability to contribute to FTFs (either at the project or structural level). Similarly, companies facing adverse mineral prices have the flexibility of changing their contribution to development projects using this approach. An annual budget allocation approach can provide a strong driver for effective monitoring and evaluation programmes as decisions on the success of programmes are typically reviewed prior to committing the next year’s budget. The close dependency between the funding source (especially if this is the mining company) and the FTF can enhance collaboration between the two parties, although it can also create tension when funding is unavailable.

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Annual Budget Allocations Advantages Disadvantages

Can drive the development of a strong monitoring and evaluation programme

Can foster close collaboration between funding source and FTF

Retains flexibility for funding sources to moderate their contributions based on external influences

Allows funding to be managed through existing accounting systems

Potential limiting factor for multi-year projects as commitments can only be made per budget cycle

Threatens the long-term sustainability of the company funded FTFs as entirely new funding source would need to be found when operation closes.

Mitigation Actions

A proportion of budget cycle allocations can be retained to act as a reserve, allowing FTF to commit to multi-year projects

Long-term sustainability can be improved through employing capacity building approaches in all projects, and supporting projects to seek alternative financing

Alternative financing sources can be sought and pursued from FTF inception to reduce dependence on any one project

(b) Source of Financing

An FTF can have a variety of sources of financing, each of which is addressed in this section: Company Funding The most common source of financing for FTFs in the mining sector is from mining companies themselves. Company funding may be provided through a number of different mechanisms:

Centralized corporate budget that makes portfolio decisions to support operating assets or beneficiaries in various locations;

Localized company funding that is derived from business or operating unit budgets; and

Voluntary or mandatory contributions via the local fiscal system. For both central and local contributions, one of the key challenges faced by companies is the determination of the ‘appropriate’ amount to invest. A common method of addressing this dilemma is the application of set percentage of revenue payment, as seen in the Mozal Community Development Trust’s 1% approach. Percentage of Revenue – Companies typically prefer payments or fees that are on a before/after tax basis rather than assessed directly on revenues. From a government or community perspective, production based payments are often

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preferred as they offer a guarantee of financial contribution regardless of company profit. Linking contributions to revenue is likely to cause significant variations in funding as commodity prices swing. To make this model successful, an FTF needs to employ financial discipline to invest during the boom times to support operations during the bust. “Corrections” on floor and ceilings on payments can be introduced to minimise these risks to communities and companies. Company Foundation Funding Strategy Management

Structure Freeport McMoran Copper

Freeport Partnership Fund for Community Development (LPMAK)

Fund receives 1% of mine revenues. Total contributions since inceptions: $242 million. Funds in excess of Foundation approved budget placed in provident fund for future investment ($45.5million as of end 2006). Commitment to invest 10% of all future receipts in long-term fund.

Fund is administered and disbursed by an organisation called the Lembaga Pembangunan Masyarakat Amungme dan Kamoro (LPMAK). LPMAK is managed by Board of Commissioners consisting of representatives from the local government, Papuan regional leaders, leaders from the Amungme and Kamoro communities and PT Freeport Indonesia.

Percentage Before Profit (EBITDA) – As with most companies, it is normally preferable for companies to fund their mining project expenses before committing to other financial obligations. By assessing fees on a before profit basis and allowing companies to deduct their contributions as an expense, this model can effectively create a burden sharing arrangement between companies and governments for each dollar spent. The disadvantage of this approach is that if there is no profit then there are no FTF contributions (unless a minimum floor is established). Company Foundation Funding Strategy Management

Structure BHP Billiton Minera Escondida

Foundation Percentage of Minera Escondida’s community investments totalling 1% of pretax annual profits based on 3 year rolling average. Total contributions; over USD 9 million.

Citizen Advisory Council comprising community representatives in the public and private sectors and civil society determine foundation investment with Board of Directors consisting of representatives from community and

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Minera Escondida

Percentage of Capital or Operating Expenditures – By determining the community investment value through a percentage of expenditures, this helps to assure that contributions are forthcoming, and provides a degree of predictability for companies and FTFs. The contributions can then be treated as expenses or depreciated in the case of capital. The disadvantage to this approach is that cost overruns by the company can create an exponential cost if the percentage is directly applied to the total amounts. Annual Negotiations – Rather than using a “percentage” calculation, another approach is to determine the annual contribution from the company to the FTF based upon an internal company assessment of funding availability. This approach retains almost complete control within the company, however it can be seen to be highly opaque, especially in tight financial times. A compromise approach is to agree a fixed yearly sum as a contribution, however this also risks raising tension if windfall profits are received and no additional contributions are made. Combining a number of the approaches outlined here can “correct” disadvantages in a specific approach. An example of a combined approach from Newmont is illustrated below. Company Foundation Funding Strategy Management

Structure Newmont Community

Foundation 1% net operational profit (pre-tax) from Ahafo South mine plus $1 per oz of gold from Ahafo (estimated conservatively at USD 0.5million annually)

Ahafo Social Responsbility Forum (ASRF) participates in company decisions, deliberates on issues of mutual interest, determines allocation of Community Development Funds and elects Board of Trustee members representing the community.

Community Funding Communities or local NGOs may provide funding to company foundations, even at low levels, in order to establish their direct, vested interested in FTF outcomes. An alternative is to facilitate minority equity ownership for beneficiaries directly in the mining project or venture as has been seen in the Mining Scorecard requirements in South Africa described in more detail in Part II. One of the benefits of an equity approach is that it puts the beneficiaries on the same financial footing (proportionately) as the project developer. The funds (or portions thereof) that they receive can in turn be invested in, or managed by, the FTF for channelling to local community needs. The disadvantage of this approach is that the onus of risk is placed directly on the beneficiaries who in this situation will be subject to the same risks as any investor. Notwithstanding

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this concern, equity based approaches may offer interesting alternatives for long-term capacity building, local accountability and development. Rather than contributing funding to existing FTFs, communities can choose to use their own funding to develop a community foundation. Community foundations rely upon community members to donate to a shared foundation to advance social development projects within their local area. The community foundation model is very popular in the United States20 and increasingly is spreading to other countries with similar philanthropic giving characteristics. The model has potential application in mining regions due to the often significant differential in wealth between those receiving mining salaries and the rest of the community – a differential in wealth is normally necessary for this model to show success. The Greater Rustenburg Community Foundation (described in detail in Part II) provides an example of a community foundation in a developing country mining region. Interestingly, one of the biggest challenges it faces currently is competition for securing financing amongst other development actors, including company foundations.

Government Funding Governments normally draw upon payments made by the mining sector as part of either a) payments for concessions, licences or land access or b) government accessed royalties, taxes or fees, to contribute to development projects. Governments can use these funding sources as an opportunity to initiate a new government FTF or channel them through an existing FTF mechanism (as a co-founder). In addition, governments can establish fund mechanisms that require direct company contributions, such as closure bonds and trusts. Finally

20 Graddy et al (2009)

Community Foundations In 1996, PT Freeport Indonesia (PTFI) committed 1% of annual revenues to Papuan development via the PTFI Partnership Fund for Community Development. The Amungme and Kamoro Community Development Organisation (LPMAK) is a Papuan community organisation formed to manage and implement these funds and uses a community foundation model. While PTFI has representation in the LPMAK governance structure, the balance of control rests with nominated community leaders and representatives. Freeport McMoran Copper and Gold Inc (FCX) is planning A similar community foundation for its Tenke Fungurume project in Democratic Republic of Congo and supports a community foundation at its Cerro Verde mine in Peru. Fundación Sierra Madre (FSM) is the community development foundation for the Goldcorp owned Marlin mine in Guatemala. FSM was established as a company foundation with plans to transfer it to a community foundation over time. While FSM was launched in 2003, the transition has not yet occurred. The Greater Rustenburg Community Foundation (GRCF) is a community developed foundation located in platinum rich area of Rustenburg in South Africa. There is no direct company involvement in the GRCF.

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government can use purchase payments made through privatisation acquisitions by private sector mining companies to invest in social development.

Mixed Funding A well-established FTF may enjoy funding from a number of sources, and in many cases this is used as a criteria of success of FTFs associated with the mining sector. Such diversity can help to minimize the boom and bust effects associated with funding derived from mining profits or revenue alone and can be a key step in developing a sustainable future. Potential funders include NGOs, governments (as highlighted in the examples above), communities, other FTF organisations and in some cases other mining companies. Asociación Ancash (Peru) is now sourcing up to 12% of its financing from external sources. While co-financing is often set up as an operational goal, it can have unintended consequences as the individual reputational benefit associated with projects can be diluted when shared with through multiple partners. This concern is most relevant when different mining companies work together to support a single project, as has been the case with Grupo Norte contributing funding to ALAC projects in Peru (as described in Part II). Finally, funding may also be derived from activities of the FTF itself where it is allowed to invest in profit generating activities on the condition that profits are reinvested in FTF programmes or to sustain its operating and administrative costs.

(c) Financial Management

EXAMPLES OF GOVERNMENT FUNDING MECHANISMS Government Operated - The canon minero royalty payment in Peru directs a large percentage of the Government’s royalties to the region hosting the mineralisation for development projects. Government Directed – The Namibian Government is now requiring that all mining companies establish an Environmental Trust Fund (ETF) to accumulate over the lifespan of the mining project of a scale sufficient to conduct all environmental obligations associated with mine closure (Mesik 2009). Payments for Concessions – 50% of the purchase price of the Rio Tinto La Granja concession payable to the Government of Peru as part of the privatisation process is to be invested in an FTF to be used to provide development programmes in the La Granja area while the project progresses from purchasing to potential operation. Government Co-Financing – Again in Peru, canon minero financing is being used to support Aporte Voluntario projects effectively increasing the implementation record of canon minero monies and at the same time expanding the reach of the Aporte Voluntario commitments.

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Establishing and running FTFs involves transaction and operating costs. In the rush to capitalise on the advantages of company FTFs in particular, there is a risk of imbalance in the level of transaction/operational costs and direct spending on social investment projects. A number of the FTFs impose limits on the “administrative” proportion of spending, for example, ALAC (Peru) limits its administrative costs to 15%, and the Palabora Foundation (South Africa) has a limit of 20%. In determining the appropriate level for administrative expenses, FTFs should consider the comparative “development impact” of a dollar spent through other mechanisms. Corruption Risks – In many locations where the mining industry works, the potential for corruption related to the handling of funds employed in socio-economic development is present. A number of safeguards can be employed to minimise this potential as highlighted below:

Development of clear requirements in the FTFs Charter or Deeds requiring annual independent third party financial audit by a competent party and Board of Trustees/Directors review of the resulting report;

Mandatory incorporation of formal monitoring and evaluation programmes representative of development sector best practice along with independent third party evaluation;

Detailed line item costing for all proposals submitted; Deployment of internal company expertise (in the case of corporate

foundations) to review particular aspects of projects/proposals, eg, using the engineering manager at a mine site to review a proposal for construction of a school block, including review of materials and labour quantities and a visit to the construction site during the process of building the facility;

Established minimum of two bids for most projects/proposals; Incorporation of specific prohibitions on types of projects that will not be

funded by the FTF in the Charter/Deeds of the FTF; Frequent field monitoring of funded projects by company personnel who

are competent to observe and investigate these sorts of projects; and Prohibition of grants being made to individuals.

iii) Geographic Reach Defining the geographic reach of the FTF is typically linked directly to defining the purpose or goal of the FTF and the type of the FTF (company based, community based or Government mandated). In general, five potential levels of geographic focus for FTFs can be defined:

Area of Influence – This is the area defined as being influenced by a specific mining operation, and is normally identified during a project’s social and environmental impact assessment. Mapping FTF activities across a mining project’s area of influence is particularly relevant when the FTF has been established to implement the company’s community investments programmes. The Palabora Foundation (South Africa) in its current format is a good example of this approach;

39

Special Focus Groups – In some situations, FTFs are established to benefit a subset of the mine’s impacted population or to benefit a specific group who may not otherwise have received benefits from the project but who are considered to need special assistance. Examples of this approach have been seen in the Philippines with the establishment of trust funds for indigenous groups impacted by mining projects.

Regional – Expanding the focus of FTFs

and mining sector benefit sharing mechanisms to the regional level was traditionally the remit of governments. Over and above royalty payments to regions, governments have also set up FTFs to better coordinate social and environmental issues in regions, such as the Mineral Foundation of Goa (India). The Peruvian Government has also been instrumental in expanding the impact of FTFs to cover broader regions, through the Aporte Voluntario scheme. A few companies have now also begun to experiment with regionally focussed FTFs. Some companies have created foundations that support all or a portion of their mines within a specific geographical region. The Rio Tinto Western Australia Future Fund, for example, organises long term partnerships that address regional development needs in a region where Rio Tinto operates a significant number of iron ore mines. On a smaller scale, the Goldfields Ghana Foundation is intended to benefit communities impacted by the company’s Tarkwa and Damang mines, while also including support from key suppliers and a separately owned mine nearby. Finally, regional approaches can suit community foundation approaches, as seen with the Greater Rustenburg Community Foundation (South Africa).

National – Mineral wealth is often ascribed to the nation, and as such it

should not be surprising that a number of national FTF organisations exist. From a company perspective, national FTFs are typically employed when a company has a very significant national footprint, and seeks to contribute (often at a philanthropic level) to national development issues, outside of the immediate influence areas of its operations. The Anglo American Chairman’s Fund (South Africa) is a dedicated instrument through which Anglo American’s Southern African businesses channel additional grant making in South Africa. Namdeb (Namibia) is a 50:50 venture between the Namibian Government and De Beers which allocated 1% of its profits after tax for donations and grants and is currently streamlining its corporate grants into a single FTF model called the Namdeb Foundation. The Namdeb Foundation will utilise a “section 21 company” (not for profit) format and will provide grants across the whole

THE DEFINITION OF “LOCAL” Mining companies often struggle with the definition of “local”, whether it be related to community investment, compensation payments, employment preferences or procurement sources. Under the Peruvian Aporte Voluntario scheme, companies were to use existing definitions of local and regional communities within their Department to whom different levels of project financing would be directed. “Local” communities were to receive the majority of the financing, so to ensure the poorest regions in the Department received as much new financing as possible Fondo Minero Antamina revised their definition of “local” to includes these regions regardless of physical location.

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country21. National FTFs are also pursued by governments, as was seen in the Papua New Guinean Mineral Resource Stabilisation Fund (no longer in existence).

International – Utilised by companies with a large global footprint,

international FTFs can provide mining companies with a means to support charitable organisations in the countries hosting their headquarters where those countries don’t contain any mining activity. The Anglo American Group Foundation, established in the United Kingdom (UK), is now one of the key conduits for Anglo American’s social investment, representing approximately 4-5% of total group spending on social programmes, and directing a proportion of this spending to the UK. The Alcoa Foundation is another example of a foundation serving global interests. It is governed by the corporate centre with a set of guidelines, focus areas/strategic themes, and criteria for local activity. Alcoa also directs all proposals for funding to local Alcoa Foundation representatives, leveraging global resources and portfolio decisions while integrating local needs. Alcoa’s portfolio of social investments are developed with input from regional and business unit teams and community advisory groups worldwide.

Approximately half of the FTFs reviewed (33) as part of the literature review are directly related to individual mine sites. Of the remainder, a large number are trusts which have been created to support broad based black economic empowerment in South Africa, or to serve either national or global interests. An additional six FTFs serve more than one mine site, whether regional clusters or the entirety of global operations. The experience to date would seem to indicate that the zone of interest for an FTF is defined in part by the ownership structure of the FTF, as highlighted in Figure 3. Figure 3 Relationships Between Geographic Reach and Ownership

21 Mesik (2009)

International

National

Regional

Area of Influence and Special Focus Groups

•Private Sector

•Public Sector

•Public/Private Partnership

•Private Sector and Community Foundations

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iv) Participation Community and stakeholder participation within an FTF can be effected through a number of avenues ranging from formal governance structures through to the process for project generation. Highly participative models are typically considered leading practice for FTFs, however the method of participation remains at the discretion of the owner. High levels of participation can ground the FTF within a community, enhance its sustainability through a sense of shared ownership and build capacity amongst its stakeholders. Participation can also bring with it considerable time constraints, potentially delaying FTF processes. Five avenues for participation have been identified in this Sourcebook: FTF design, governance, project generation, co-financing and public reporting. The participation aspect of each of these avenues is discussed below, with further detail on the broader considerations around governance provided the next section.

(d) FTF Design A collaborative process engaging with a wide range of stakeholders to firstly identify the needs of the beneficiary community and then develop approaches to address those needs provides a solid basis for the design of FTF structures. Depending on the size of the stakeholder group and the group’s experience with FTF structures in the past, collaboration of this form can take considerable time. Newmont has undertaken highly participative design processes for both its ALAC foundation in Peru and in the development of the forthcoming Newmont Ghana Development Trust. In both cases the design phase has extended over a two-year period, and has been made possible in part through the pre-existence of community investment which continued to operate during this design phase (Yanacocha’s community relations activities and the Newmont Ahafo Community Development Funds in Peru and Ghana respectively). This timing consideration may limit the applicability of a highly participative approach to FTF design to situations where a company or government is already providing community investment programmes through another mechanism.

Collaborative Forums to Design an FTF Advantages Disadvantages

The greater the participation of beneficiaries in the design of the FTF, the greater the sense of ownership amongst the beneficiary community

Through engaging stakeholders in design discussions the design is likely to better represent the needs and desires of the community

Cannot be undertaken with “speed” or necessarily according to the timetable of the owner organisation

Slow “start-up” of an FTF, most critically in project delivery, can generate discontent amongst communities

Can be inappropriate in situations where “quick runs on

42

the board” are considered critical

Mitigation Actions

Rather than developing an FTF design in isolation to minimise delays, owner groups may be able to implement an interim community investment structure, reducing the pressure on the organisation for immediate implementation and allowing space for collaborative discussions.

(e) Participation in Governance

Governance is discussed more fully in the next section, however participation considerations in governance deserve specific attention. FTF governance at its most simple can be described by the membership of the Board of Directors or Trustees. The level of participation, ie, inclusion of stakeholder representatives derived from groups other than the owning entity, on these governing bodies varies widely. The most participative governance structures are seen in community foundation approaches, however with the exception of the Greater Rustenburg Community Foundation (South Africa), LPMAK (Indonesia), and Cerro Verde Fundación (Peru) there is relatively limited experience of using this model in the mining sector. Within corporate or company foundations, participation is evidenced through the composition of the governing bodies. It is important to note that community and/or government representation does not necessarily equate to representation of beneficiaries. For example, the Papua New Guinea Sustainable Development Program Board while comprising four independent Directors does not specifically include representatives of beneficiaries from the planned and delivered projects within the Board structure. Participation can be further enhanced through the appointment of a community representative as the Chairperson of the governing body of the FTF, as is described in the Fondo Social La Granja (Peru) case study in Part II.

Expanding the representativeness of a governing body can have an impact on the level of control exerted by the owning body. Control and potential time and resource implications are typically cited as the most common reasons for companies to resist greater community and government participation in their FTF governance structures.

Participation and Capacity High levels of participation of community members in FTF governance structures is generally considered to be a positive attribute of an FTF. The benefit of this participation may be compromised, however, by the capacity held by community representatives to contribute to the governing of the FTF. The Integrated Development Action Plan (IDAP) of the Sadiola and Yatela mines in Mali employs a highly participative independent governance structure. This approach has allowed programmes to achieve considerable grounding in local communities, but has proved challenging when developing strategic plans and planning for mine closure.

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(f) Project Generation The generation of projects for consideration by an FTF can provide good opportunities for a participative approach. Regardless of whether the FTF employs a grant making or operational approach, projects can be generated either internally or externally or using a combination approach. Where FTFs seek applications either for grants or projects from community members, ideally guidelines for areas of interest relevant to the FTF will be made available. Where project selection is undertaken largely internally, decisions may be informed by social impact and needs based assessments conducted by a mining company as part of their licensing process. Involving representatives of beneficiaries in the review process for proposed projects (possibly through a technical review committee) can help to build understanding within communities of the strategic interests of the FTF and applicability criteria for FTF support. The more transparent the review ad evaluation process is, the more likely decisions taken by the FTF will gain community support.

(g) Co-Financing The trend towards co-financing of projects with beneficiaries is evident across the development sector. Co-financing can be undertaken at the project or FTF level, although is more likely to be seen at the project level when working with beneficiary communities. The contribution from communities is more often in kind (such as labour or supplies) rather than a strict financial contribution.

(h) Reporting to Stakeholders Building upon the notion of transparency, community participation can also be achieved through interviewing beneficiaries as part of the monitoring and evaluation process used and incorporating some of this feedback in an annual report to stakeholders. Annual reports for FTFs can also generate significant reputational benefit for companies, however both of these benefits need to be weighed against the administrative demands of generating the report when determining its length and presentation.

Paying for Participation Marlin’s Fundación Sierra Madre (Guatemala) provides some fully funded development activities, but for others it requires participants to pay a small fee for participation. Through co-investing it is felt that participants gain a sense of ownership of the activity and place greater value upon it.

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v) Governance and Influence The governance structure of an FTF is often seen as the primary control over the FTF. A strong governing body can provide clarity of vision and mission for the FTF and exert control over all processes to ensure they are undertaken in accordance with FTF principles. FTFs require a governing body of some form to be considered separate legal entities. The composition of these bodies varies from representation from the owner group only, through to multi-stakeholder bodies representing beneficiaries, civil society, government authorities and technical experts. Greater diversity within a governance structure can support a system of checks and balances with complementary roles played by different partners. Companies developing FTFs with these multi-stakeholder governance structures can find they have multiple benefits including the visible demonstration of corporate responsibility and engagement with stakeholders and potential for leveraging additional resources in the community via other donors. A summary of the advantages and disadvantages of a multi-stakeholder representative governance structure are provided below.

Multi-Stakeholder Representative Governance Structures Advantages Disadvantages

Can retain some level of company control or influence – alignment with the corporate agenda and reduced risk

Enhances relevance, effectiveness and sustainability of foundation by creating beneficiary ownership

A consistent approach and centralised administration can be retained

Provides a means of holding beneficiaries accountable particularly if they participate in decision making

Provides local stakeholders with a “voice”

May provide enhanced platform for attracting additional or more diverse sources of funding

May not necessarily result in true ownership of entity or agenda for beneficiary/stakeholder

With clear governance protocols, can result in conflicting agendas and priorities

Typically requires substantial time for capacity building to ensure community participation is effective

Link to company objectives can be diminished unless overall participation in FTF already has broad business case “buy-in”

Can be more expensive in the short term to set up and run given administrative and training costs associated with additional participants

Good will credited to FTF may not attributed so clearly to a company sponsor

Interests of supporting donor agencies are not always compatible with company’s business interests.

At the opposite end of the spectrum from multi-stakeholder governance structures are those governing bodies comprising representation from the owners alone. These FTFs may be simpler to govern, and in the case of company FTFs, can often fall within company oversight, almost as an additional company department. High levels of company control can be beneficial when there is a lack of local capacity and this structure can improve the flexibility to react to changed environments, in particular the changing economic situation of a mining

45

company. The “owners” approach however allows little or no room for stakeholder input into governance, unless alternative participation structures are developed, such as community advisory groups, or technical advisor teams providing input to governing body decisions. This style of governance is less likely to support an FTF to become sustainable beyond the closure of the mine. While the governance structure often conveys the relative influence of different stakeholders over the FTFs activities, it may not present a complete picture of “influence”. The best examples of this distinction between governing power and influence are seen where an FTF’s structure, mandate, vision and existence have been controlled through regulatory processes however no governmental representation is evident on the FTFs governing body.

vi) Programming Focus The mission, vision and objectives of an FTF should be grounded in a deep understanding of beneficiaries’ needs, owner priorities and gaps in existing development activities, all of which will guide the programme choices made. Understanding a beneficiaries’ needs can require a considerable investment of time up-front, however well targeted programmes, meeting community expectations and needs are likely to make the investment cost effective over time. The timing and location of FTF establishment and implementation can be a critical variable in determining objectives and programming choices. Common programming areas focussed on by FTFs in the mining sector include:

Local economic and business development; Health and wellness; Education and vocational training; Basic infrastructure; Employment and income generation; Environment; and Capacity building of local authorities and community based organisations.

A general programming trend progressing from basic infrastructure, health and education programmes at inception through to supporting alternative livelihood projects and a focus on capacity building as FTFs mature can be seen in many FTFs. The review of FTFs conducted as part of this research generated the results illustrated in Figure 4. Within the 41 FTFs reviewed, education, health and business development programmes were the most dominant, comprising over 45% of all the programmes across the FTFs (this analysis does not take into consideration the size of the programmes).

46

Figure 4 Programming Trends

As with all development programmes, monitoring and evaluation of the programmes being implemented by an FTF is an essential component of programme management. Many texts have been written focussing on this issue and in this Sourcebook only considerations pertinent specifically to monitoring and evaluating FTF programmes are included.

05

101520253035

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mb

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of

FT

Fs

Programmes

APPROACHES TO IDENTIFYING NEED Company staff knowledge of beneficiaries - For example, the AngloGold Ashanti Fund (South Africa) uses local area committees of company staff to identify community needs, and subsequent projects for funding by the centrally managed corporate trust. Partner knowledge of beneficiaries – Grant-making foundations in particular rely on the applicant’s knowledge of beneficiaries’ needs. Asociación Ancash (Peru) funds initiatives generated by local organisations, working groups or other associations. Escondida (Chile) adopted national government targets for child education as a shared priority and working closely with the Regional Government of Antofagasta and the Junta Nacional de Jardines Infantiles (JUNJI – National Kindergarten Board) to meet this previously defined need. Formal consultation with intended beneficiaries, as part of existing company consultation processes or separately – The Goldfields Ghana Foundation works with standing community committees created by the company to facilitate communication between the company and communities to generate development project ideas. The Inti Raymi Foundation (Bolivia) carried out a two-stage process involving: 1) diagnosis and characterisation of its area of action; and 2) a series of community workshops designed to identify and prioritize infrastructure needs. Baseline/needs assessment at the regional or local level sponsored by the company, foundation or government – All of the VALE Foundation’s “territorial development” initiatives are based on a thorough baseline assessment.

47

Monitoring and evaluating the impacts of development projects conducted or facilitated through an FTF will guide the FTF in recognising changes to the operational environment, and allow modifications to strategy to be made as necessary. These feedback loops may come through regular programme reports from grantees, internal tracking of key performance indicators, third party review or audit, or community feedback processes. Community participation in monitoring can be one of the most effective methods of gauging community sentiment and building community capacity.

vii) Timing The majority of FTFs are created once mining operations have already commenced. While this is unsurprising given the lack of project revenues prior to this time, earlier establishment of FTFs can lend strong support to a company’s attainment of a social license to operate.

Project Phase Number of FTFs Established

Licensing or land access agreements (aboriginal communities)

5

Licensing or land access agreements (non-aboriginal communities)

2

Pre-Operations (exploration, feasibility and construction)

7

Operations 12 Closure 1 Other (Divestiture, expansion, changes in ownership, disputes)

6

An increasing trend of early development of FTFs is being seen, often through the influence of government expectation and community development agreements signed as part of the mining contract.

Approaches to Impact Measurement

Asociación Los Andes de Cajamarca (ALAC in Peru) uses a common set of fifteen indicators which are monitored throughout the implementation of economic development grant projects and ultimately used to evaluate effectiveness; these include six impact indicators: the number of direct jobs created, the number of people who have improved their technical capabilities for production, number of new production activities, sales and value of family assets.

Fondo Minero Antamina (Peru) conducts evaluation

by focus area. Each focus area has impact goals against which projects are monitored. Goals are designed using a logical framework model. Common economic development project indicators include income generation, job creation, new sales and number of microfinance loans repaid.

The Anum Lio Foundation (Indonesia) employed a set

of community indicators which were measured in baseline and end-line surveys and could be used by community and government to continue to monitor impact after completion of closure programmes.

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Early Inception FTFs In 2004, Xstrata Copper successfully bid on the option to purchase the La Bambas copper project in Cotabambas and Grau Provinces in Peru. As a condition of this privatisation transaction (facilitated by ProInversion, the Peruvian Government’s agency for the promotion of foreign investment in Peru), USD45.5 million of Xstrata Copper’s payment to the Peruvian Government was allocated to a Social Trust Fund for the Cotabambas and Grau Provinces. The Trust Fund was managed by ProInversion and Provincial Mayors with one representative from Xstrata until 2010 when a civil entity called Las Bambas Social Fund (FOSBAM) was created to improve fund management. This social fund has been delivering programmes focussing on regional health, education, infrastructure and development throughout the exploration period for the Las Bambas project. The Social Fund is supported by Xstrata’s own sustainable development programmes in the region. More detail on this model is seen in Rio Tinto’s Fondo Social La Granja case study in Part II.

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2) A Snapshot of the Experience from Part II Case Studies Part II of this sourcebook presents fourteen case studies drawn from South Africa (4), Mozambique (1), Namibia (1), Peru (5) and Papua New Guinea (3). While mining investment plays a significant role in the national, regional and local economies of each of these countries, the purposes for which FTF structures have been applied and the parties implementing them vary significantly. Some of this variation is related to the company, project and the era of development of the FTF vehicle, however another part of this divergence relates to the national setting and the influence of government policy. In this section, the experiences of these fourteen FTFs are considered using the framework of key attributes described earlier in Part I.

a) The Importance of Context To compare the FTF experience of Peru, Papua New Guinea and Southern Africa, it is necessary to first consider the different histories and political economies in which these FTFs have developed. While these three areas have long histories of mining activity, the role that mining is expected to play in development has changed significantly over time within each region and varies across the regions. The political economy surrounding these three regions is described in Part II, with a summary of the different experiences indicated below. In both Peru and South Africa, the influence of government policy on social investment in the mining industry is evident. The conditions outlined in the Peruvian Aporte Voluntario explicitly required companies to establish an independent entity to manage the new funds and the South African Mining Scorecard, while not requiring companies to establish an independent investment entity, is directive in its expectations of social and economic development deliverables from mining companies. By comparison, the foundations, trusts and funds in Papua New Guinea were developed in an environment with limited formal policy and were responding to changing stakeholder expectations. The large-scale mining industries in Peru and South Africa have had considerable time and experience through which to mature and for society’s expectations to have risen with regard to the contribution the sector makes to community development. These expectations are seen in the politicization of mining projects in Peru in particular. By comparison, Papua New Guinean citizens have high expectations around compensation payments and these payments often overshadow or obfuscate community development projects being undertaken. It is interesting to note that two of the three case studies from PNG have the management of compensation monies as one of their core responsibilities. In contrast, in Peru and South Africa the model appears to have been to minimise

50

the inclusion of compensation within foundations, trusts and funds so as to maintain a strict development role.

b) The Use of FTFs The case studies in Part II illustrate FTFs being used, to some extent for all three of the channels described previously: community investment, government

payments and compensation (Figure 5). The majority (9) of the case studies are using FTF models for community investment purposes. The government requirement for establishment of FTFs to facilitate benefit sharing has only been seen in Peru to date, although significant government influence was used to establish one of the FTFs in Southern Africa. The notion of mixed purpose FTFs, as seen in PNG through the integration of benefits and compensation into a single package, presents a different approach to FTF use. While an integrated package is likely to significantly improve a communities understanding of the full suite of benefits and impacts generated by a new mining investment, the experience from PNG suggests that it also blurs the

Figure 5 Use of FTFs in Case Studies

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distinction between compensation and community investment. Blurring this distinction in these cases has resulted in development projects and spending being assumed to be compensation based, loosing the reputational and stakeholder benefit normally attributed to a company for its community investment programmes. While explicit expectations of delivering compensation projects through the FTF are limited to the PNG case studies, a number of the other case studies also noted challenges faced when they were established and needed to differentiate themselves from existing company compensation programmes, as is described in the Asociación Ancash example. There are no purely compensation focussed FTFs within the case studies included in Part II, however a number of advantages of FTF frameworks could be useful in managing compensation funds in future projects. These advantages include the ability to endow funds payable at a later date through staggered compensation payments; the independence of an FTF structure from a mining company; transparent management of funds; and joint governance of those funds.

c) Programmatic Approaches The decision between grant making or operational delivery of projects typically has significant impacts on the staffing size of the FTF. Nine (9) of the case studies primarily employ grant making approaches, with five (5) primarily implementing projects directly, although it should be noted that both approaches are seen within a number of the case studies. The comparative difference in staffing levels is evident in the examples highlighted in Table 2. While it might be expected that operational implementation approaches would be more prevalent in more remote sites where implementing partners are absent, there are no obvious trends within the case studies linking the selection of a grant making or operational model to project location (remoteness). Table 2 Comparative Staffing Levels

Staffing Complement Grant Making FTF Operational FTF Asociación Los Andes de Cajamarca and Fondo Solidaridad Cajamarca (combined)

20

Asociación Ancash 6 Palabora Foundation 100 Ok Tedi Fly River Development Program

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d) Financing Three aspects of financing were discussed in Part 1: funding structure; sources; and management. The financial structure of an FTF can play a critical role in its long-term sustainability. Within the case studies developed, four (4) have established endowment funds, five (5) rely on budget cycle contributions and the

52

remaining five (5) operate with funding commitments over an extended period. Interestingly, of the four with endowed funds, only one started with this approach from FTF inception, while the rest have developed an endowment over time to better manage variable company contributions and to support the future sustainability of the FTF. The development budgets of the fourteen FTFs reviewed in Part II vary significantly. This variance reflects their different objectives and the “channel” of investment which the FTF is serving. Figure 6 provides an overview of the relative scale of the FTF budgets (for FTFs which have variable expenditures, rolling averages were used) for community investment based FTFs. Figure 6 demonstrates that “greater FTF spend” does not necessarily equate to greater reputation or benefit derived from the FTFs activities, with both ALAC and the Rössing Foundation enjoying strong reputations. Figure 6 Comparison of Development Budgets Across Community Investment FTFs

The third arm of financing relates to the management of the finances held by the FTF. While the importance of limiting administrative overheads was recognised by many of the case studies, only ALAC and Palabora Foundation formally apply an administrative cap of 15% and 20% respectively.

e) Geographic Focus In a number of the case studies, an external party or factor played a major influence in the selection of the geographic focus of the FTF. For example, the focus of the Fondo Social La Granja is dictated within legislation associated with the mineral lease, and the project areas included within the Ok Tedi Fly River Development Program’s mandate are linked to community agreements made with Ok Tedi Mining Limited over compensation payments. Using the model developed earlier in Part I, Figure 7 reviews the range of geographies across which the fourteen case studies operate. It was been proposed earlier that Governments would likely play the key role in nationally focussed FTFs, however

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53

the experience gathered in Part II demonstrates a stronger connection between government influence and regional development initiatives. It is also interesting to note that while company foundations are often assumed to operate at a local level, focussing on their direct area of influence, five of the nine company foundations reviewed here operated at either regional or national levels. It should be noted that the purpose of these FTFs has likely had a far stronger influence over their geographic reach than their basic structure. Figure 7 Influences over Geography

The discussion on geography earlier also suggested that the geographic focus of an FTF would be influenced by its type (community foundation, company foundation or government mandated contribution). For example, a community foundation would be expected to operate within a limited area of influence, while a government mandated contribution may extend to a broader region. These assumptions are well supported by the experience from the case studies.

f) Participation

Focussing specifically on the governance aspects of participation, Table 3, illustrates the variation seen within both the size of the governing body and the representativeness of that body across the fourteen FTFs. The chairmanship of the governing body, often ascribed considerable power, has been handed to an external party in three of case studies, and in only two of the case studies is the governing body comprised solely of representatives of the owning entity. As noted earlier however, multi-stakeholder governance structures do not necessarily imply that development beneficiaries have been included in the structure.

International (0)

National (3)

Regional (6)

Area of Influence (3) and Special Focus Groups (2)

•3 x Company

• 3 x Government Influence

• 1 x Community Foundation

• 2 x Company

• 4 x Company•1 x Government

Influence

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Table 3 Participation through FTF Governance Structures

FTF Country Number of Governing

Body Members

Number of Community/Govt

Representatives on Governing Body

External Chairmanship of

the Board

Fondo Social La Granja

Peru 3 1 (33%) Yes

Asociación Los Andes de Cajamarca (ALAC)

Peru 7 3 (43%) No

Fondo Solidaridad Cajamarca (FSC)

Peru 7 3 (43%) No

Asociación Ancash

Peru 8 4 (50%) No

Fondo Minero Antamina

Peru Antamina Board

0 (0%) No

Anglo American Chairman’s Fund

South Africa 9 Not Available No

Impala Bafokeng Trust

South Africa 8 2 (25%) No22

Greater Rustenburg Community Foundation

South Africa 6 6 (100% Yes

Palabora Foundation

South Africa 5 3 (60%) No

Mozal Community Development Trust

Mozambique 11 0 (0%) No

Rössing Foundation

Namibia 10 7 (70%) Yes

Ok Tedi Fly River Development Programme

Papua New Guinea

4 Currently 2 (50%) No

Papua New Guinea Sustainable Development Program

Papua New Guinea

7 3 (43%) No23

g) Governance and Influence A more detailed breakdown of the governing body composition is seen in Table 4 where the relatively low level representation of government bodies is evident. This low level representation is interesting given the significant influence

22 While the Chairperson is the Queen Mother of the Royal Bafokeng Nation (RBN), RBN are 50% owners of the Impala Bafokeng Trust. 2 23 The chairmanship is held by one of the BHP Billiton appointed representatives.

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attributed to the government in the establishment of these FTFs (four FTFs were established primarily through government requirement or insistence). Table 4 Governing Body Composition

FTF Number of Governing Body

Members

Number of Government Reps

Number of Civil Society / Community Reps


3 1


7 3

Fondo Solidaridad Cajamarca (FSC)

7 2 1

Asociación Ancash

8 4


Antamina Board


9

Impala Bafokeng Trust

8 224


6 6

Palabora Foundation

5 3


11

Rössing Foundation

10 7

Ok Tedi Fly River Development Programme

4 2


7 2 2

24 Another 3 members of the IBT Governance Structure are from the RBN, however as joint owners of the IBT they are not considered independent in this case.

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h) Programming The programming choices seen in the case studies were largely in line with common practice in community development projects, however the most interesting aspect of these choices has been their evolution over time. The development industry has moved away from “bricks and mortar” to capacity building projects over the last decade or more. As such, it would have been expected to see a dominance of “basic infrastructure” programmes in the historical or current programmes undertaken by the older FTFs with a lower presence in the more recent FTFs. This trend was not supported by the case studies in Part II, as highlighted in Table 5, with basic infrastructure programmes making an appearance in even the most recent FTFs. This trend can be explained in part by the different backgrounds of the FTFs, with some of those influenced by government being provided with clear directions on the types of projects which should be undertaken (eg choice of electrification projects for Fondo Social La Granja). Similarly, FTFs implementing compensation programmes may be directed towards infrastructure projects as part of the agreed compensation packages. In addition to these specific cases, the construction of basic infrastructure may form an essential stepping-stone for FTFs when starting to operate in remote and otherwise under-serviced areas. The Palabora Foundation suggest that it is only through having completed many infrastructure projects in their past and meeting basic needs that they are now able to focus on capacity building and more participative approaches to development. Table 5 Basic Infrastructure Programmes

FTFs Start Date Basic Infrastructure

Programmes/Support25

AACF 1974 No

Rössing Foundation 1978 No

Palabora Foundation 1986 Yes

GRCF 2000 No

MCDT 2000 Yes

PNGSDP 2002 Yes

Asociación Ancash 2002 No

ALAC 2004 No

Fondo Social La Granja 2005 Yes

FMA 2007 Yes

FSC 2007 Yes

IBT 2007 No

OTFRDP 2008 Yes

LSDPT 2009 Yes

i) Timing

25 A “yes” was recorded where FTFs have supported infrastructure projects during some period and does not necessarily indicate they continue to support infrastructure projects.

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The vast majority of the FTFs reviewed in Part II were established within the last decade (eleven of the fourteen case studies). The time delay between commencement of mineral production and the launch of an associated FTF was also investigated. Interestingly, there is no real trend evident between the era of the FTF and the speed with which it was launched after mineral production commenced, as seen in Figure 8, although the biggest delays were seen in older FTFs. The increasing trend of launching FTFs in advance of mineral production was not captured in these case studies. It is also interesting to note that the three oldest FTFs included in this review are all located in Southern Africa. This is likely to be both a comment on the historical importance of the mining sector in this region and a reaction to government policies in place during that time. Figure 8 Time Elapsed Between Mineral Production and FTF launch26

26 Only 11 of the 14 case studies were included in this analysis as the starting dates for 3 were externally controlled. Those FTFs which were prompted by Government requirement or legislation have been included.

0

10

20

30

40

50

60

1950

1960

1970

1980

1990

2000

2010

Ye

ars

Ye

ar

of

FT

F L

au

nch

FTF Start Date Years between Production Commencing and FTF Launch

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3) Identification of Leading Practice This Sourcebook makes it apparent that there is no “one size fits all” approach to FTFs in the mining sector, and that the ideal structure for an FTF will vary depending upon the purpose of the FTF, its operational context and the specific interested and implementing stakeholder. However, drawing upon the experience presented in Part I and further detailed in Part II, ten attributes of leading practice for FTFs in the mining sector have been identified. At a generic level, leading practice and experience indicates that FTFs should have:

A clearly defined strategic vision, outlining its role as a development actor in the local environment;

A single purpose, ie either community investment, compensation, or government transfers, but not a combination;

A representative multi-stakeholder governing body; An endowed fund to enable sustainability; High levels of co-financing and collaboration; Transparent practices and associated accountability; Efficient administrative structures to maximise development delivery; Flexibility to adapt to changing development practices and operating

conditions; Incentive schemes to retain high calibre staff; and Impact based monitoring and evaluation.

Before addressing each of these attributes from the perspectives of the three key stakeholder groups (companies, communities and government), the applicability and importance of these attributes is first considered within the context of the purpose of the FTF. As discussed earlier in Part I, FTFs are used for three main purposes in the mining sector: community investment, payment of compensation, and government payments. Table 6 portrays the relative importance of the aspects identified as leading practice to the specific purpose for which the FTF is intended, with a deeper shade of red indicating greater importance. While these lessons are derived primarily from the experience of company foundations, they are equally applicable to community foundations (as seen in the Greater Rustenburg Community Foundation case study in Part II).

a) Points to Consider - FTF Purposes A number of the attributes of leading practice identified above can be considered to be “good management principles” for FTFs and should be applied to FTFs independent of purpose. Companies, communities and governments often select FTFs because of the transparency and efficiency of administration their structures can provide. Impact based monitoring and evaluation systems are

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widely accepted as an integral part of development programming and ensure FTFs can measure their progress in delivering development impact. Table 6 Relationships between Purpose of FTF and Attributes of Leading Practice27

i) Using an FTF for Community Investment As can be seen in Table 6, all of the aspects identified as leading practice are considered highly applicable to FTFs used to channel community investment from mining companies to communities. This is possibly unsurprising as the majority of FTF mining experience globally has been derived from community investment focussed FTFs.

ii) Using an FTF for Compensation

27 The deeper the shade of red the greater the importance of the attribute of leading practice to the specific FTF purpose.

Asociación Ancash, Peru (see case studies in Part II) undertook a strategic visioning exercise and defined three lines of specialisation: sustainable tourism, local culture, and conservation of natural resources of the Ancash region. Through clear communication of this strategic vision, Asociación Ancash has carved out a niche area of specialisation in which they have had considerable success. This vision has also assisted them to assert independence from the activities of the company and the Fondo Minero Antamina.

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FTFs used for the management and delivery of compensation payments should draw on these areas of leading practice in a different manner. It would be unlikely for a compensation based FTF to have success in seeking financing from other sources. Likewise, FTFs used for compensation alone would be less likely to need to plan for sustainability and develop an endowment. Compensation based FTFs would, however, benefit greatly from having a governance structure incorporating representation from the compensation beneficiaries and from third party observers. The experience captured in this sourcebook has highlighted the challenges associated with FTFs seeking to achieve mixed purposes, such as delivering community investment and compensation payments. No examples of a pure compensation based FTF were reviewed in Part II, however the benefits afforded by FTF structures (such as transparency, independent governance and the capacity to disburse funds over an extended period) may lead towards this use in the future.

iii) Using an FTF for Government Transfers and Payments The use of FTFs for government payments and transfers is closely connected to the political economy context within a host country. For this reason, the relevance of the attributes of leading practice identified above will depend upon the underlying goal for the government transfer and will vary significantly case by case. The “good management practices” of transparency and efficient administrative structures are often cited as the grounds for channelling government payments through FTF structures. The use of FTF structures for government required contributions or payments can also encourage co-financing and has been seen to be a successful means of improving the implementation record of government funding.

The Fondo Minero Antamina (FMA) and Fondo Solidaridad Cajamarca (FSC) Peruvian case studies (see Part II) have significant development budgets, as laid out in the Aporte Voluntario legislation. The funding contributed by Antamina and Yanacocha (respectively) has enabled significant progress to be made in key development areas such as child malnutrition and other basic needs. This success has been amplified through the pairing of FMA and FSC funds with previously unspent cannon minero funding available at the provincial level. In this manner, these FTF structures have contributed significantly greater value to provincial development than the sum of their contributions.

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b) Points to Consider - Stakeholder Groups Foundations, trusts and funds provide distinct opportunities for mining companies, governments and communities to better share the benefits accruing from mining projects. These three stakeholders approach this topic from very different perspectives and the opportunities afforded to one may represent challenges to another. The perspective of each of these stakeholders is played out with regard to the ten attributes of leading practice below:

i) Communities Strategic Vision: Clear enunciation of an FTF’s strategic vision can ensure communities understand the role it will play in development in their region, and conversely the gaps which will remain. Communities are better able to generate projects, proposals or grant requests when this vision is expressed clearly. Where communities establish their own community foundations, the direction expressed in the strategic vision may be critical to seeking and accessing support from community members. Single Purpose: Community investment, government transfer payments and compensation can all lead to development projects in a community. Recognizing which project is derived from which source and more critically which projects are entitlements (such as compensation) and which are voluntary (community investment) is made almost impossible if an FTF is providing both at the same time, leaving communities unsure of what they are “owed”. Representative Multi-Stakeholder Governing Body: This is one of the key means by which communities can participate and gain some level of control over the FTF. For communities to benefit from a multi-stakeholder governing body approach, capacity building programmes for community representatives may be needed. To ensure the position is truly “representative”, either an existing communication system or one custom built for this purpose needs to be used to pass community considerations up to the representative and pass responses back to interested community members. Endowment Funds: Where communities establish their own foundations, the establishment of an endowment can minimise the foundation resources required to secure new financing on a regular basis. Endowed company FTFs provide the potential for sustainability beyond the lifespan of the mining project within a community, paving a way for community adjustment post mining. Endowing of funds can however mean a reduced annual development budget to allow the fund to grow in the early years of an FTF. Co-Financing and Collaboration: Improved collaboration between development actors is of significant benefit to beneficiary communities. Co-financing and co-contribution to projects are increasingly being expected from community

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groups, and this can build the sense of ownership for the implemented project amongst community members. Excessive expectations in this regard however may have the opposite effect, turning communities against FTF projects. Transparent Practices: The monetary value held within some government and company FTFs can be very significant and transparent practices are expected by communities to ensure these external actors are managing the money they are expecting to receive as development projects appropriately. This is particularly important when FTFs are managing compensation payments. Expectations of community foundations should be no different, highlighting the importance of accountability within community foundation structures for financial management. Efficient Administrative Structures: Beneficiary communities often see high administrative costs as “wasted” money, with some believing they could achieve greater development impact if the resources were passed to them directly. Communities often see excessive administration costs as mismanagement. Flexibility: As mining projects develop the development needs and expectations of communities change, as does their ability and desire to engage in discussions over FTF strategy. Community forums to re-assess the objectives of the FTF on a periodic basis will help to maintain community engagement.

Incentive Schemes: Personal relationships between FTF staff and community members often develop over time and in some cases are key to the success of development programmes. High staff turnover from FTFs minimises the opportunities for these relationships to occur, and can result in community members feeling disconnected from the FTF. Impact Based Monitoring and Evaluation: M&E programmes addressing impacts rather than activities provide a superior picture of the success of a project. The better project success is understood by FTFs, the better the development impact for beneficiary communities.

ii) Governments Strategic Vision: Where governments are using FTF frameworks to manage revenues derived from the mining sector, a clear vision for the use of these funds can minimise the potential for criticism over benefit sharing from the mining industry. Clear communication of the intended purpose of the funding can also

The role played by the Palabora Foundation (see Part II) in the surrounding Ba-Phalaborwa communities has changed significantly since it commenced operation in 1986. Flexibility has been needed to reflect and accommodate changing population needs, changing political economy context in South Africa and economic conditions at the Palabora mine. Through working with community representatives and traditional leaders, the foundation has maintained its connection to communities throughout these changes.

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deter reallocation of the funding within the government and may reduce the risk of corruption. Single Purpose: Combining government mandated FTFs funded by company payments with government royalties and taxes to improve implementation levels can be a wise move by governments and can generate positive results for community beneficiaries. In contrast, combining benefits and compensation awarded to communities from land access agreements can lead to confusion within communities over the distribution of benefits from government to landowners. Representative Multi-Stakeholder Governing Body: Opening up the governing structure of a government FTF to external parties may build community goodwill, but can also threaten the control exercised by the government, and may potentially expose under-spending or poor financial management if these problems exist. Governments may also be wary of taking a seat on company or community foundation governing bodies to minimise their accountability for another body’s actions. Endowment Funds: The endowing of revenues from periods of windfall gain can protect governments’ capacity to implement public service needs independent of the mining cycle. Governments are also likely to support the endowing of company FTFs to the extent that this mitigates the risk of social collapse in a post mining community.

Co-Financing and Collaboration: Collaborative projects can be of great benefit to governments where they assist governments to implement their own programmes. Governments are also likely to be supportive of combined approaches amongst different development actors to streamline and increase the effectiveness of their projects. Transparent Practices: Seen as both the champion and potentially the downfall of government FTFs, transparent practices are necessary for government managed mineral revenues. Tracking revenue flows between different levels of governments can also improve financial accountability and reduce opportunities for corruption. Efficient Administrative Structures: Tolerances for high overheads may be greater within a public sector FTF if a considerable proportion of the overhead is linked to public sector salaries. By comparison, governments are likely to be critical of company FTFs with excessive administrative structures.

Mandated to minimise the impact of mine closure, the Papua New Guinea Sustainable Development Programme (PNGSDP) is the largest mining FTF in existence. Developed as part of the exit arrangements of BHP from the Ok Tedi mine, PNGSDP receives 52% of the dividends paid by the continued operation of the mine, with the vast majority of these dividends being invested for future use. The bulk of the funds will only be released post mine closure and are to be used to support development for the next forty years.

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Flexibility: Political changes and other developments in the country will affect a government’s priorities and how these are reflected in a government FTF or supported through a company FTF. Governments use FTFs, in part, because of the greater flexibility they provide compared to regulatory approaches to benefit sharing. Incentive Schemes: To the extent that staff leave company FTFs to join the public service, this transition would likely be supported by governments, however, the transfer normally works in the reverse direction. Incentivising staff to remain at company FTFs can minimise job vacancies developing in company FTFs, thus reducing the opportunity and demand for government capacity to move to fill this gap. Impact Based Monitoring and Evaluation: The scale of programmes implemented or facilitated through government FTFs can make comprehensive impact M&E programmes challenging. Simplified impact assessment processes applied to a subset of projects would yield equivalent information to inform government priorities.

iii) Companies Strategic Vision: Clear communication of a strategic vision can assist companies to establish that which they will and will not support, while also potentially earning early reputational benefit from commitments made to their host community. The vision should be reviewed on a regular basis as the operational context changes around the FTF. Single Purpose: Combining community investment programmes with compensation obligations is likely to reduce the value attributed to the community investment programmes and potentially raise expectations for new additional programmes.

Representative Multi-Stakeholder Governing Body: The most efficient means of deciding on projects and implementing them is often through an owner’s governance structure. Expanding the governance structure to include representatives from multiple stakeholders, including project beneficiaries, is likely to reduce the speed of decision making and implementation, but long term will yield more appropriate, more sustainable and replicable projects. Using a

The Integrated Benefits Package approach in Papua New Guinea (described in Part II) groups together compensation, royalties and community investment benefits in a single package for host communities. While this approach provides a clearer picture of the total benefits for communities, it risks diluting community investment initiatives in the eyes of beneficiaries as the distinction between compensation and community investment is lost.

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multi-stakeholder governing body can also build goodwill amongst stakeholders and vastly improve the company’s understanding of development considerations in their geographical focus area. Endowment Funds: The biggest challenge facing companies when seeking to endow funds is timing. Ideally funds would be endowed as early as possible in the project lifecycle, however this is also when money is most expensive to a company. Endowed funds can protect company FTFs when revenues from mining projects decline in periods of economic downturn, with operation budgets potentially being sourced entirely from the interest accrued. Co-Financing and Collaboration: Seen less as a source of funding and more as a means to facilitate community engagement, companies are often strong supporters of community co-financing/co-contribution in their company FTF programmes. Collaboration with and co-financing from other parties is often set as one of the goals of company FTFs, however success in this field can dilute the reputational benefit attributed to the specific company. Companies may need to consider the administrative costs of seeking co-financing from major development organisations compared to the development and financial benefit. Transparent Practices: The financial size of company FTFs can be significant and as they are often effectively guardians of community funding, it is essential that they operate using transparent practices. Transparency is considered even more important when companies contribute to government supported or mandated FTFs to ensure that funds are being used for their intended purposes and to minimise any speculation of bribery or corrupt practices between the two parties. Efficient Administrative Structures: Highly effective administrative structures are needed to manage community requests, monitor programmes and train and retain staff. Flexibility: Too much flexibility can result in an unpredictable operating environment for company FTFs and can encourage requests for support from all quarters. As such a balance between flexibility and vision is often formed through periodic review of the vision, mission and objectives of the FTF. Incentive Schemes: Mining companies typically have well developed career progression maps for engineers and accountants. The career progression for development specialists working in a company FTF is less straightforward and needs to be incentivised through exchange programmes with other FTFs, annual workshops bringing together FTF teams from around the world and opportunities for training in relevant fields. Impact Based Monitoring and Evaluation (M&E): A company’s social license to operate is often supported through demonstration of community development impact. Impact based M&E programmes can assist companies to explain and demonstrate this development impact.

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Asociación Los Andes de Cajamarca (ALAC) has been at the forefront of impact based monitoring and evaluation for a number of years. ALAC use the M&E indicators to determine the relevance and impact of activities performed. Feedback is provided to implementing partners (ALAC is a grant making FTF) periodically so that necessary changes can be made to project design and implementation.

The World Bank

Mother and Child Illustrating their New Kitchen in Shiqui, Peru, through FMA-ADRA Programme(Wall, E)

Case Studies from Peru, Southern Africa and Papua New Guinea

Part 2

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Introduction Companies, governments and communities have been using mining foundations, funds and trusts since the 1950s. The drivers for the establishment of these social investment instruments has varied widely, from altruistic community development driven by mineral profits through to means of managing large sums of money in a transparent and professional manner. The case studies presented in this second part of the Sourcebook present a diversity of experience from three regions: Peru, Southern Africa and Papua New Guinea. In each of these areas, mineral production accounts for a considerable proportion of the national Gross Domestic Product (GDP) and pressure has been exerted on both governments and companies to generate more than economic growth alone and to achieve poverty reduction through this sector. Communities in each region have witnessed massive changes to their way of life during the operational period of mining projects, and in some cases equally massive changes after closure. Mining is a significant political issue in Peru and the move towards foundations or associations, both at company and government levels, has been driven in part by this politicization. The foundation model is being used to implement a “voluntary contribution” from companies derived from high mineral prices. In the absence of this model, such a contribution would otherwise likely have been implemented as a state tax, and while the management of the funding is different, its eventual use is in line with the government social agenda, as can be seen in the Fondo Solidaridad Cajamarca and Fondo Minero Antamina case studies. The Fondo Social La Granja illustrates a different approach, with the foundation structure being used by the company and the government to provide development funding for host communities during the project exploration and feasibility period following privatisation. Both Asociación Ancash and Asociación Los Andes de Cajamarca grew out of operating mines and by the decision of their operating companies to address social development considerations in a different manner. The South African experience highlights the historical context in which social investment instruments exist. During the discriminatory period within South Africa, funds, trusts and foundations were seen by some companies as a means to support disadvantages groups while operating in line with national policy. This approach can be seen in the Anglo American Chairman’s Fund, the Palabora Foundation and the Rössing Foundation (Namibia only gained independence from South Africa in 1991). Democratization has brought with it a strong social agenda in South Africa, with national government placing explicit social investment requirements on companies through legislation and through the negotiation of black economic empowerment transactions. The Impala Bafokeng Trust resulted from one such transaction, with significant government influence over the identification of beneficiaries for the Trust. Government and companies are not the only groups reacting to social investment needs

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surrounding mining communities, as seen in the story of the Greater Rustenburg Community Foundation. While located in Mozambique, the Mozal Community Development Trust provides an insight into more recent approaches to Trusts in the region. Mining has formed the economic backbone of Papua New Guinea since its independence in 1975. Its impact on the national economy is evident, however in a number of cases this has come with significant social and environmental costs. Both the Ok Tedi Fly River Development Program and the Papua New Guinea Sustainable Development Program have their origins in the response to these challenges. Breaking from global experience, the Ok Tedi Fly River Development Program and the in-formation Lihir Sustainable Development Plan Trust are being used or plan to be used to manage compensation and community investment funding in an integrated manner. Each of the fourteen case studies presented here highlight the importance of understanding their operating context in order to understand why they have developed the way they have. With this context in mind, and drawing on the overview provided in Part I, a simple analysis against six criteria has been provided at the beginning of each case study to provide assistance to the reader. The six criteria, as seen in Figure 9, are intended to provide a guide to the reader to the type of foundation, trust or fund they are reviewing, and in no way imply an evaluation of the institution itself. Mining foundations, trusts and funds can only be evaluated against the goals they were set to meet, and these vary in each case and for each of their stakeholders. The six spectrums that have been used cover:

- The programmatic approach taken by the entity, ie does it make grants or are the officers of the foundation operating programmes on the ground;

- How is the entity financed? Annual operational budgets present different options for investment from endowed funds;

- Where does the entity operate? Within this spectrum, mining foundations, trusts and funds can target specific communities, such as indigenous or vulnerable peoples within the mine’s area of influence, or they may operate across a broader area than the mine affects directly;

- How involved are communities/beneficiaries in the governance structure of the entity?

- How much influence does the mining company exert over the activities of the entity?

- How much influence does the Government (at all levels) exert over the activities of the entity or did it exert over the establishment of the FTF?

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Figure 9 Categorisation Model for Case Studies

Case Studies

a) Peru With minerals accounting for over 62% of the country’s exports (just under 7% of GDP) in 200628, Peru is one of the world’s major mineral producing countries. The Peruvian mining industry has been significantly shaped by the political history of the country, both through the nationalisation period under Velasco, and subsequently through neoliberal economic reforms under Fujimori29. The neoliberal reforms placed great value upon creating an attractive environment for foreign direct investment (FDI) and included the provision of tax-stability packages for foreign mining companies for periods of ten to fifteen years, which brought significant new investment to the country. Peruvian law requires that 50% of income taxes and taxes paid by mining companies to the national government be channelled back to regional (25%) and municipal (75%) governments. The distribution of mining royalties among municipalities is defined on the basis of where the minerals have come from, rather than where the areas of impact exist. Rising mineral prices and increased production in the last decade have seen exponential increases in the value of canon minero and royalty transfers rose from S./67 million (USD 23.4 million)in 2001 to S./4150 million (USD 1.45 billion) in 200730. The tax stability packages applied to the majority of the large-scale mines gained significant attention in the past decade as mineral prices rose with company profits rising with them. The Government of Peru considered implementing a windfall tax on operations to ensure the Peruvian state also benefited from the high mineral prices, however after extensive consultation it was agreed that companies would pay a “voluntary contribution” (Aporte Voluntario) for a five year period (starting in 2007) valued at 3.75% of turnover. The combination of high mineral prices generating significant taxes through the canon minero and the aporte voluntario contribution has had a large impact on the social investment being carried out by mining companies in Peru.

28 Stratos Inc. (2008) 29 Bury, (2005) 30 Arellano-Yanguas (2008)

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While Peru is host to great mineral wealth it is also a land of widely varying levels of poverty, as can be seen in the Poverty Map from 2006 included in Figure 10. This map highlights the poverty at departmental level, but within each department there is wide variation across the coastal, urban and mountainous regions. Most mining projects in the country operate across a range of poverty environments, with the majority of the minerals being located in the mountainous regions and infrastructure corridors connecting these often isolated areas to the coast and major cities. Equitable distribution of the benefits of mining within Peru has been and remains a highly contentious and challenging topic, not aided by weak provincial government mechanisms for implementation of canon minero received. Figure 10 Map of Poverty in Peru31

Five case studies have been compiled in Peru. They are the Asociación Los Andes de Cajamarca (ALAC), supported by the Newmont owned Yanacocha mine, Fondo Solidaridad Cajamarca (also supported by Yanacocha), the Fondo Minero Antamina and Asociación Ancash connected to the Antamina mine and the Fondo Social La Granja connected to the Rio Tinto owned La Granja pre-feasibility

31 Foncodes (2010)

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project. Each of the Peruvian case studies included in this Sourcebook have been strongly influenced by the social and economic history of Peru’s mineral sector. The Government of Peru has played a key role in the formation of each of the foundations, either directly through legal requirement or indirectly through low implementation rates of government expenditure in provinces.

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i) Fondo Social La Granja

The La Granja copper project is located in the district of Querocoto, in the Province of Chota in the region of Cajamarca. The 3,900 ha La Granja mining lease is held by Rio Tinto Minera Peru Limitada SAC, which is a wholly owned subsidiary of Rio Tinto32. The deposit was acquired by Rio Tinto from the Peruvian Government through a privatisation process in late 2005 and is currently undergoing pre-feasibility studies. Establishment, Structure and Purpose of the Fund Peruvian law requires that companies acquiring so-called “privatisation” projects pay fifty percent of the purchase price of the project to a social fund (fondo social) in order to manage the gap or delay between project purchase and mineral production generating wealth for host communities33. The social fund is intended to support impacted communities during the exploration and feasibility stages of a project’s development, with the goal of maintaining/building the company’s social licence to operate by the time of production. The creation of a structure where communities and the mining company are partners is intended to provide experience in working together in a transparent manner. For each of the major stakeholders, this model presents significant advantages:

Peruvian Government – Effective expenditure in a mineral rich region, increasing the likelihood of gaining community support for future development of the resources. This model effectively transfers payments from the central government to the regions, supporting the decentralisation move being undertaken by the government. One of the key challenges facing the Peruvian Government is the lack of implementation capacity within municipalities, making it difficult to invest resources effectively to undertake public work projects without support from other implementation parties. Through requiring private sector companies to work with municipalities in order to meet their lease conditions, this model enhances the implementation capacity of government at a local level.

32 Rio Tinto (2010) 33 El Peruano (2008)

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La Granja (Rio Tinto Peruano) – Under this model, Rio Tinto is able to expand the geographic range of community investment the project can make during the pre-feasibility and feasibility periods, and in this case it allows the project to invest in all of the communities within the Choto District (approximately 12,000 people). This model boosts the likelihood of achieving and maintaining social license to operate by directing half of the value of the lease to the local communities, and minimises the risk of companies becoming overwhelmed by community investment demands in excess of company capacity during the feasibility stage.

Impacted Communities – The definition of impacted communities is undertaken by Proinversion and typically the label is applied at a municipality level. In effect this would be expected to increase the size of the “impacted population” during the feasibility period, where the impacts are comparatively minor, and more critically, allows for social investment from mining projects to commence prior to the commencement of productive mining. It also moves the risk of unsuccessful exploration or feasibility studies from the host communities, to the government, ensuring that communities benefit independent of the final outcome of the studies.

Programmes The original legislation mandating the fondo social was unclear on how this money could be spent and the structure of the management of the fund provided very limited opportunities for involvement of impacted communities and was highly constrained by Government process. These constraints and the lack of capacity within district governments led to very low levels of project implementation (no projects were implemented during the first three years of the original structure) and drove a group of mining companies, led by Rio Tinto, to design and propose a different structure for the Fondo Social, represented in Figure 11 below. Within this new structure the State gives money directly to the Civil Asociación, with annual auditing from external groups monitoring this process. The Civil Asociación includes representation from the directly impacted stakeholders and the mining company.

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Figure 11 Structure of Fondo Social La Granja

Identification and Geography of Beneficiaries Identification of the directly impacted stakeholders was undertaken by Proinversion with impacted districts defined in the contracts signed between the government and exploration companies. Any changes to the beneficiaries of the Fondo Social La Granja would require a modification to the existing law. Those districts defined as directly impacted are then incorporated into the Associated Assembly structure through representation on the Board. This basis for identifying impacted communities is often quite different from the process that companies undertake as part of their own social impact assessment processes. In the case of La Granja, the Fondo Social La Granja targets the district of Querocoto, with a population of approximately 10,000 people, which is considerably larger than the communities defined as directly impacted by the current exploration activities undertaken by the company. In this regard, the Fondo Social La Granja provides an opportunity for Rio Tinto to vastly increase the region it is supporting, with projects being targeted to all communities in the District. Over and above the Fondo Social, Rio Tinto La Granja maintain their own social investment programmes in the communities immediately surrounding their exploration activities. Governance and Ownership The Board of the Associated Assembly has three members, comprising one representative from the Municipality (currently the Mayor in the case of La Granja) who is the President of the Board, and two representatives from Rio Tinto (this is required by the law). To ensure neither group has dominance in the Board, an informal agreement has been reached between La Granja and the

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Municipality whereby the second Rio Tinto representative does not vote. The President of the Board is elected by the Board’s members on an annual basis. Financing and Sustainability The Fondo Social La Granja is financed through the payment of 50% of the value of the project acquired by Rio Tinto from the Government. The La Granja project was valued at USD 22 million when Rio Tinto acquired it in 2005, resulting in financing of USD 11 million available to the Fondo Social between 2005 and 2011. Rio Tinto have applied for an extension to the feasibility period, extending it to 2016, and as such additional fees will be paid by Rio Tinto to the Government, half of which will be channelled through the Fondo Social. The Fondo Social La Granja has assured financing for the duration of the feasibility studies undertaken by Rio Tinto. It is managed on an operational budget basis, with no endowment established. Management Operations/Human Resources As indicated in Figure 11, an independent company undertakes the management of the fund. This structure was decided by the Asociación, with the intention that the management contract be awarded to a company derived from the District. Technical assistance was sought from the International Finance Corporation (IFC) to identify a company capable of taking on this role and in 2009 the management contract was awarded to LM Consultores, formed by professionals from Querocoto. The management team do not receive salaries as such, but are paid a percentage of the value of the projects which they implement. The management team have successfully proposed a strategic plan for the Fondo Social and a budget for 2010, both of which have been endorsed by the Board. The first five projects to be approved were for the electrification of communities within the District, all of which are expected to be completed by March 2010. Figure 11 also highlights the inclusion of a “control function” within the structure of the fund. This control function is responsible for controlling all of the procedures, both technical and financial. The Fondo Social La Granja is having difficulty recruiting appropriately skilled people to this control function due to salary conditions which have been kept in line with municipal salaries. The IFC is now providing additional assistance to develop procedures for proposals which can be presented to the fund. Key Challenges The timing expectations of the Rio Tinto team and those of the Municipality have not always been the same, leaving potential for tension to arise in the Civil Asociación. The model may also establish a benchmark of financial contribution from the project to communities which will be difficult to modify in the future.

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ii) Asociación Los Andes de Cajamarca (ALAC)

ALAC is a corporate organisation established as part of Minera Yanacocha’s social responsibility programme to promote sustainable human development for the Cajamarca region. Newmont Mining Company commenced construction on Minera Yanacocha in 1992 in cooperation with its Peruvian partner, Compania de Minas Buenaventura, and the International Finance Corporation. Yanacocha was the first new large foreign investment in the Peruvian mining sector since 197634. Located in Cajamarca region, Minera Yanacocha is approximately 35km from the city of Cajamarca where ALAC is based. Cajamarca region is home to over 1.5 million people, making it the fourth most populous region in Peru. Over 60% of the population live in poverty, and 73% of the population are living in rural areas, making it the most rural region of Peru. Outside of the mining activities associated with Minera Yanacocha and other developments, the major economic activities in the region are dairy cattle and subsistence agriculture. Establishment, Structure and Purpose of the Fund ALAC was launched in 2004, after stakeholder engagement and dialogue over a two-year period. At the time ALAC started, the Yanacocha mine had been operating for a period of 12 years, and the major focus of the community development activities undertaken by Yanacocha up until that time had been on the rural areas. Yanacocha had had a mercury spill in 2000 and combined with community discontent over an exploration permit for Cerro Quillish there was considerable tension between the company and some community members at this time. Within this context, ALAC was developed to increase corporate social investment within Yanacocha’s area of influence, promoting civil society, state and private sector participation in sustainable development proposals. Originally intended to be a community foundation, ALAC consulted widely with key stakeholders in its formation period seeking their thoughts for a community foundation and endorsement of the proposed model. The community foundation model had to be changed to one of a corporate foundation shortly before ALAC

34 Bury (2005)

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commenced operation due to opposition from a small group of stakeholders, however the highly participative approach was retained. The development of ALAC was seen as an addition to the community relations projects being undertaken by Yanacocha, and as such, pressure on ALAC to start implementing projects immediately was reduced and it was afforded the time and space to develop its approach in a consultative manner. The overall objective for ALAC is “to stimulate programs and projects that, taking advantage of mining benefits, will generate impacts beyond the operational lifecycle of the mine”35. The mission is:

“We are an institution that engages the community, government and private sector to provide capacity building, opportunities generation and resource mobilization so as to enable Cajamarca’s sustainable development”

ALAC has a horizontal structure, with four key programme areas, as illustrated in Figure 12. In addition to the programme areas, ALAC also acts as the management and implementation body for a number of other projects, such as the PREDECI36 programme and notably the Programa Minero de Solidaridad con el Pueblo Cajamarca (PMSC), known as the Fondo Solidaridad Cajamarca. The Fondo Solidaridad Cajamarca has a different mission from ALAC and is described separately below. Figure 12 ALAC Structure

35 ALAC (2010) 36 For more information see www.predeci.org.pe

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Programmes ALAC develops initiatives and projects along four programmatic lines:

Institutional strengthening; Education and health quality and equity; and Entrepreneurial capacity building.

Each of the programme lines, plus ALAC’s stakeholder relations and management role for other projects have indicators for success against which they are measured on a regular basis. ALAC manages these programmes and uses NGO’s with skills in the appropriate areas to implement them. This approach supports the network needed to strengthen collaborative approaches to sustainable development. Under the entrepreneurial capacity building programming line, ALAC have supported agribusiness, development of local suppliers, a jewellery training college (Koriwasi), housing funding (PROGRESO), medicinal plants for bio-commerce, textile handicrafts, and various food products. Until 2008, these projects had generated over 16000 new jobs, adoption of best practices and new technologies by over 14,000 people, and 2,000 people had developed new productive activities. This progress has combined to produce increases in sales of USD 47 million and USD 20million worth of business and family assets. The institutional strengthening programmes include close working relationships with Regional Government and local municipalities, including assisting with them with institutional modernization, strengthening the Grupo Impulsor (Driving Group) for Cajamarca’s development, establishment of a strategic alliance between ALAC and USAID/Peru ProDecentralización and the development of the Governance and Political Management Programme. Support for these activities and groups often involves the provision of training for regional stakeholders with a strong focus on regional planning. These activities focus on the improving the efficiency of public spending by local and regional government. The majority of the financial resources available to local and regional government come from the canon minero, where 50% of the income tax paid by mining companies is directed to the region (only Yanacocha is contributing at present in Cajamarca). Since 2008, ALAC has also been working with grass roots organisations to improve their leadership and empower them. ALAC contributes to the development of human capital through supporting the Cajamarca schools network, scholarships and bursaries, an education emergency project and development of youth entrepreneurs. Within the emergency education project alone, over 16,000 children received school supplies, 8000 children benefited from school furniture, 200 schools networks received support for their school libraries and 500 teachers were trained. Identification and Geography of Beneficiaries ALAC now supports projects in many urban and rural zones in Cajamarca, although in the early days it predominantly supported productive development

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projects in the rural zones. Figure 13 illustrates the scope for ALAC, with the green circle representing Yanacocha’s area of influence (predominantly rural), and ALAC’s focus being indicated by the six red circles, indicating the districts of: Cajamarca, Baños del Inca, La Encañada, Sorochuco, Huasmín and Celendín. The broader blue circle indicates the implementation focus of the Fondo Solidaridad Cajamarca. Figure 13 Yanacocha Area of Influence and ALAC's Priority Areas

Governance and Ownership The governance structure for ALAC illustrates a high level of community participation. At present the owners of Yanacocha retain the decision making power on the Board (4 votes compared to 3, as indicated in Figure 14). It is anticipated that this power may shift as ALAC prepares for an independent future after mine closure.

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Figure 14 ALAC Governance Structure

Financing and Sustainability While supported by Yanacocha, co-funding has been a core element of ALAC since its inception. Yanacocha provides start-up funding for projects, and ALAC seeks partners to develop and expand successful projects. It is one of the few mining foundations which has succeeded in diversifying its income sources. Within the annual budget of approximately USD 1.5million, USD 400,000 is added to an endowment fund annually, and this will continue until 2022, with an expected investment of USD 8-10million by this time. ALAC is one of three social investment mechanisms supported by Yanacocha: ALAC (USD 1.5million p/a), Fondo Solidaridad Cajamarca (USD 63million over a five year period) and Yanacocha community relations (approximately USD 3million). ALAC monitor their administration costs as a proportion of the budget expenditure, with no more than 15% of expenditure being devoted to this activity. This close monitoring is likely a factor in their success in receiving co-funding from a variety of sources. Co-funding occurs at the project level and follows one of the formats outlined in Figure 15. Where funds are made available through projects awarded through a tender process, ALAC will provide no more than 50% of the financing. Civil society and regional government, who partner with ALAC in the financing, typically propose these projects. Under the direct funding approach, projects are proposed by ALAC staff and alternate financing is actively sought as part of the

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project review process. Approximately 100 projects are proposed each year of which on average 10 receive support from ALAC. Figure 15 ALAC Co-Funding Mechanisms

The success of ALAC in seeking alternate sources of financing is evident in Figure 16. Co-funders include the Newmont owned development project, Conga, which is anticipated to commence operations in 2014 in close proximity to Yanacocha’s operations, and the Fondo Solidaridad Cajamarca (referenced as PMSC in this figure). Both of these financiers have close associations with Yanacocha and their support for ALAC could be anticipated. More strikingly, GoldFields, a competitor mining company also operating in Cajamarca Region, had contributed over 12% of financing for ALAC projects by the end of 2008. This collaboration between ALAC and other mining companies has been fostered through support from Grupo Norte37.

37 Grupo Norte is a Peruvian organization dedicated to working with regional governments to allocate tax monies generated by mining for community infrastructure. Members include Buenaventura, Yanacocha and GoldFields.

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Figure 16 Other Sources of Financing for ALAC (to December 31 2008)38

Management Operations/Human Resources The team who developed ALAC were drawn directly from Yanacocha’s external affairs department. This transfer of personnel allowed for a continuity and understanding of both the company’s interests and the business case for the foundation while also recognising the external need for a participative organisation which allowed stakeholders to discuss development in a “neutral space”. This goal is also evident in the branding of the Association which does not highlight its connection to Yanacocha. This being said the connection between Yanacocha and ALAC is widely known and understood, although some opportunity for confusion exists as Yanacocha and ALAC start to implement in more overlapping areas and more project funding comes from the Grupo Norte. ALAC have invested considerable resources in the development of a comprehensive monitoring and evaluation process which is now considered one of the leading M&E systems for development projects in Peru39. Key Challenges One of the key successes of ALAC may also present one of its key challenges: the management of co-funding without losing reputational benefits attributable to Yanacocha. From a sustainability perspective, expanding the source of financial support is a great achievement, however, it raises the question of whether reputational benefits for the company will be diluted by sourcing funds from other sources, including competitor companies working in the same region. ALAC ‘s role is also under continual evolution as Yanacocha change their approach to community relations and the Fondo Solidaridad Cajamarca makes

38 Adapted from ALAC (2010) 39 See ALAC (2007) for more details.

GoldFields13%

IDB15%

Fondoempleo2%

Ferreyros3%

BISA0%

PMSC28%

Yanacocha15%

Conga24%

Total External Contribution: USD 747, 288.50.

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such a significant contribution to the local economy. This changing environment requires flexibility within ALAC, while also making it all the more important for ALAC to remain focussed on those activities on which it has specialist knowledge.

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iii) Fondo Solidaridad Cajamarca

The Fondo Solidaridad Cajamarca is the fund developed by Minera Yanacocha to meet the Aporte Voluntario commitment. Established in December 2006, it is intended to invest in a strategic public-private alliance to promote participation from a wide range of actors in the development of Cajamarca. Establishment, Structure and Purpose of the Fund The Fondo Solidaridad Cajamarca receives its financing from Yanacocha, and uses ALAC as the administration agent, while holding its finances in a trust (fideicomiso). The structure is shown in Figure 17 where MPC refers to the Provincial Municipality of Cajamarca, the GRC is the Cajamarca Regional Government, and SC refers to civil society. The CTC defines the operational direction of the fund and identifies priorities for investment both regionally and locally. This commission also reviews and validates the eligibility of projects seeking financing and takes decisions on financial support. The CTC selected ALAC as the administration agent for the funds and was responsible for establishing the monitoring and evaluation framework for projects. Of key importance is the CTC’s role as a facilitator of coordination between public authorities, Yanacocha and the community for the management of the fund. The Technical Secretariat (ST) supports the CTC through the management of financial, legal and administrative matters for the fund. ALAC as the Administration Agent is responsible for the administration of the implementation of the projects and programmes supported through the regional and local funds.

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Figure 17 Fondo Solidaridad Cajamarca Structure

Programmes All of the programmes supported by the Fondo Solidaridad Cajamarca are aligned to the priorities and investment plans of the local, regional and national Government. To receive support programmes need to be able to demonstrate positive impacts, effective investments and sustainability both in terms of operational expenditure and maintenance. Figure 18 provides an overview of the programming priorities for the Fondo Solidaridad Cajamarca. Investments in complimentary projects, basic infrastructure and institutional strengthening are supporting an increase in the implementation of projects using Canon Minero in most of the cases.

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Figure 18 Distribution of Fondo Solidaridad Cajamarca Within Programme Lines

The relationship between the Fondo Solidaridad Cajamarca and Yanacocha continues to evolve. The fund has now started to invest in some of the programmes implemented by the community relations team at Yanacocha, and pressure exists for this investment to be formalised into a recurring budget line item for Yanacocha. Identification and Geography of Beneficiaries In keeping with the structure of the Aporte Voluntario funds, the Fondo Solidaridad Cajamarca has two funds: local and regional as highlighted in Figure 19. The areas highlighted in red are supported under the Local Fund, while those in green are part of the regional programme. The Fondo Regional receives 26% of the contribution, with the Fondo Local receiving 73%.

Health18% Institutional

Strengthening5%

Production13%

Basic Infrastructure10%

Complimentary Projects (Regional

and Local)32%

Nutrition15%

Education6%

Truth Commission1%

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Figure 19 Intervention Areas for Fondo Solidaridad Cajamarca

Governance and Ownership The governance structure is best seen in Figure 17. All decisions are consensus based and the CTC meets on a bi-monthly basis.

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Financing and Sustainability The Fondo Solidaridad Cajamarca is financed through 3.75% of Yanacocha’s gross income before tax. This is expected to amount to approximately USD 81 million between 2007-2011, the period of the agreed Aporte Voluntario contribution. Through aligning these funds with social programmes prioritised by the Central Government, and partnering with canon minero projects supported by the local and regional governments, it is estimated that the resources of the Fondo Solidaridad Cajamarca have generated additional investment of USD 193million. Management Operations/Human Resources The fund is managed by the ALAC team, as noted in the structure in Figure 12. Over half of the ALAC staff (20 people) work on the Fondo Solidaridad Cajamarca. Both the Fund and ALAC more generally apply a model of identifying grass-roots organisations to implement projects, with the ALAC staff providing a management and monitoring and evaluation role. Key Challenges The Fondo Solidaridad Cajamarca has brought a very significant amount of additional funding into the Cajamarca Department for a five-year period. The long-term sustainability of this funding is unknown. Changes to the Aporte Voluntario scheme could have significant repercussions for the stakeholder relationships Yanacocha has built both with beneficiary groups and with the Provincial Government. The Aporte Voluntario is required to be “new funding”, over and above commitments already made by Yanacocha and ALAC. Within this approach there is a lack of clarity however over the extent to which funds allocated within the Fondo Solidaridad Cajamarca can be used to support projects in line with Yanacocha’s social licence to operate.

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iv) Asociación Ancash

The Antamina mine is located in the San Marcos District, in Ancash region and commenced operation in October 2001. It is a polymetalic operation, with copper, zinc and molybdenum the major products and silver and lead as by-products. The mine is located between 4300-4700m above sea level, with a port located at Punta Lobitos. Owned by four companies (BHP Billiton (33.75%), Xstrata (33.75%), Teck Resources (22.5%) and Mitsubishi (10%)), the Compania Minera Antamina is a Peruvian company. In 2009, over 1800 workers were employed directly, with another 35,000 estimated to be employed indirectly. Within a year of operation, Antamina had increased the national GDP by 0.8% and produced more than 30% of the mineral production in the country. During the past nine years, the GDP of the Ancash region has grown by 6% annually, with the biggest increases seen in 2001 and 2002 where GDP rose 16 and 17% respectively due to the commencement of the Antamina mine. The role of mining (not just that of Antamina) within the Ancash Department is seen in Figure 20. Figure 20 also highlights the incredible divergence in Government transfers across provinces depending on their mineral wealth and the overwhelming dominance of the canon minero within government transfer payments.

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Figure 20 Government Transfer Payments 2006-200940

The effectiveness of very significant government resources available to Ancash through the mining royalty and transfer payments are hampered by the poor implementation record of provincial governments, as is highlighted in the following figures. Ancash received the highest level of canon payments in Peru (as seen in Figure 20), and has the lowest implementation percentage of all provinces (Figure 22). It should be noted however that even with a poor implementation rate, the overall value of implemented projects in Ancash still exceeds that of all other provinces (valued at S/. 310 million (USD 108.2 million) in 2009)41.

40 Antamina (2010) 41 MEF, (2010)

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Figure 21 Canon Received by each Regional Government

Figure 22 Regional Government Expenditure of Canon

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Establishment, Structure and Purpose of the Fund Asociación Ancash was established in 2002 to maximise the sustainable development contribution of the Antamina mine. Community relationships had been challenging during the early years of development and production for Antamina, hence the Asociación was intentionally separated from the company in order to better secure external financing and to provide a distinction between compensation and mitigation actions associated with the mining operation (undertaken by the community relations team) and community development activities. This independence was challenged as the Asociación inherited all of the community development projects (and their tensions), which had been undertaken by Antamina. As the ownership of Antamina changed, the approach to the Asociación also changed. It was semi-reintegrated in 2005 when the payroll for the Asociación was taken over by Antamina, and has subsequently regained financial independence. The role of the Asociación underwent a major change with the establishment of the Fondo Minero Antamina (FMA) in 2007. Prior to this time the Asociación had invested in all development activities within the area of the mine’s influence. Following the establishment of the FMA, the Asociación underwent a strategic visioning exercise and defined three lines of specialisation:

Sustainable Tourism; Local Culture; and Conservation of the Natural resources of the Ancash region.

Programmes The overall vision for the Asociación is “Ancash, important tourism destination and promoter of its own development”. This targeted and relatively narrow approach to sustainable development has been made possible through the establishment of the FMA, with its focus on improvement of basic living standards in the region. In the absence of the FMA it is unlikely that the Asociación would have been able to operate in such a targeted fashion. The FMA financed a Market Study for the Destination Conchucos, and following on from the findings of this study the Asociación supported activities to improve facades and roofs in the main squares of a number of towns to improve their tourist potential. They have also developed literature supporting the tourism potential in the area, and provide assistance for various tourism festivals. The Asociación has supported initiatives to revalue local culture through working with the National Institute of Culture. Projects have included assisting artisans to present their products at different summits in Peru and hosting competitions for sculpture. The most significant contribution to Ancash culture came with the organisation of the first regional Festival of Ancash Dances “Tushukushun, gatswakishun, tanikushun 2008” which aimed to preserve, promote and disseminate the original and traditional dances of the Ancash

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region. The event included dancers from 15 different provinces, with over 340 dancers and musicians involved in the performances. The Asociación has supported an array of natural resource projects, all with the hope of increasing tourism in the region. Projects have included supporting a paleontological study which to date have identified 21 species of reptiles in the region and work continues to study the remains which have been found. Studies are also ongoing investigating the puya raimondii flower species which is endemic to the high Andean areas in Ancash and is found in both the black and white ranges. Identification and Geography of Beneficiaries Asociación Ancash has a broader geographical reach than the community relations team of Antamina, and this was one of the principals on which the Asociación was established. Approximately 5000 people live within the mine’s area of immediate impact (the focus of Antamina’s community relations programmes), with approximately 12,000 living in the San Marcos District. The new vision for the Asociación has refocussed the activities and projects across a broader area, with projects across Ancash Province now being supported to the extent that they fit within the three lines of activity outlined above. Governance and Ownership When Asociación Ancash was established, the Board was entirely made up of representatives of Antamina. As the ownership of Antamina changed, so too did the governance of the Asociación Ancash to introduce external society onto the Board structure. The Board now comprises four external and four internal directors (Figure 23), with the President of Antamina acting as the Chairperson for the Board.

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Figure 23 Governance Structure for Asociación Ancash

The interests of the Asociación are represented on the Board through the Corporate Affairs Manager of Antamina. The individuals selected as external directors were included for their specialist knowledge to improve the technical capacity of the governing body. Financing and Sustainability The Asociación has a budget of approximately USD 800-900,000 per annum. It has guaranteed financing from Antamina for a 20year period and is actively seeking financing from other groups. In 2009, approximately 12% of the funds available to the Asociación were sourced from groups external to Antamina. The Asociación has a relatively limited budget when compared to the FMA (described below) and the Antamina community relations budget (approximately USD 5million/annum). Through focussing the activities of the Asociación on just three lines of investment, the Asociación has been able to achieve significant progress with this budget. Management Operations/Human Resources The Asociación employs six people, with a staff member managing each of the three lines of activity and the remainder undertaking logistics and support roles. At its inception, most of the staff were drawn from the community relations team from Antamina, which while providing good continuity and transfer of

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knowledge, also led to some confusion within communities around the independence of the Asociación from the company. Projects are implemented by implementation partners, with the staff of the Asociación providing strategic guidance and management oversight of the projects. Projects are typically discussed with local authorities, with the goal of involving them in the projects, but this involvement is not critical for the approval of the project. Likewise, the Asociación staff discuss projects with the FMA staff, and in some cases the Asociación has received financing from the FMA where projects overlap mutual interests. The Asociación Ancash has developed an automated Institutional Information System (AIIS), which monitors and tracks the progress of its projects and activities. Within this system strategic targets and key performance indicators have been defined and progress against these targes and indicators is reported publicly through the Asociación Ancash annual report. Also included within these annual reports are testimonials of recipients of projects from the Asociación, such as this one from 2008:

Agripino Guerra – Artisan of Carhuayoc – San Marcos “ … as an artisan, I have had the opportunity to receive support of the Ancash Association in December and in the 2008 Independence Day; at the Fair held in the National Museum, I had good sales; they helped us commercialise our textiles at the national level in the National Museum. I would ask my colleagues for a little more determination; people believe that everything falls from heaven, but you have to make the effort… ”

Key Challenges Two significant challenges have faced the Asociación Ancash since its inception: independence and identification of an operational “niche”. Independence from a company is difficult to maintain if new associations inherit projects from the company’s community relations function. This is a challenge faced by many social investment instruments when they start operations. The second challenge is more specific to the Peruvian experience where the Aporte Voluntario scheme has added considerable sums to the social investment budgets for all companies. Within this environment smaller organisations have in some cases needed to redefine their focus to ensure they weren’t competing or duplicating the activities of the larger foundations. The niche which has been formed however may need to be adapted again if the Aporte Voluntario scheme is discontinued.

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v) Fondo Minero Antamina

The Fondo Minero Antamina (FMA) was established in 2007, following negotiation between companies and the Government over windfall profits and the agreement on Aporte Voluntario. It is intended to contribute to sustainable development in the local and regional zones of influence for the mine, working in a complimentary fashion with the State. As noted earlier, Ancash Department receives high levels of canon transfers from mining, but has a poor implementation record for these transfers. The FMA brings together private sector experience in implementing projects and new money to work with local and regional authorities to improve living conditions in the Ancash Department. FMA, with the guidance of the Peruvian Government, are directing their investments towards those development issues which can be challenging to finance through public finance initiatives, such as child malnutrition and capacity building of local authorities. Establishment, Structure and Purpose of the Fund The Voluntary Contribution (Aporte Voluntario) required companies to commit between 1% and 3.75% of gross profits to independent social investments, managed within an independent entity. In 2007, using their voluntary contributions, Antamina Mining Company established the Antamina Mining Fund which “now holds resources of USD 163.9 million that are being invested in projects in the areas of health and nutrition, economic development, infrastructure, education and institutional capacity building”42. The finances invested in the FMA remain private finances, with government exerting only a control function over the FMA on an annual basis. The government audit comprises a review of a) money spent by the fund, and b) a check to see that the money spent is broadly in line with Government directed terms of reference for the fund. Antamina was the first company to enter into the voluntary contribution agreement with the Government. From the outset, they established four programmatic priorities: health and nutrition, education, productive

42 Kilgour (2010)

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development, and institution strengthening. The FMA reports through to the company through the Vice President of Corporate Affairs (Figure 24). Figure 24 Structure of FMA

Programmes FMA undertook a baseline assessment of the Ancash Department to identify five sectors which had the potential to become sustainable competitive industries. Those identified included: Agriculture, Mining, Manufacturing, Fishing and Tourism. Following this identification, the FMA assessed each industry and the obstacles preventing it from developing and gaining private sector investment at present. This assessment identified the importance of improved road, electricity and transportation networks as well as the need for improved education, increased education infrastructure and additional health infrastructure. This assessment, in coordination with the Peruvian Government and the Municipal Governments led to the identification of the five programme areas defined earlier. The FMA has developed five-year objectives for each of its programmes, a selection of which are shown below:

Health o Reduce chronic malnutrition in 20,000 children less than 3 years

of age from 35% to 28%

Vice President of Corporate Affairs Antamina Mining

Company

Legal Community RelationsFondo Minero Antamina

(FMA)

Director FMA

Manager FMA

Finances, Logistics and Legal

Programmes: Health and Nutrition, Education,

Productive Development, Institution Strengthening

and Infrastructure

Monitoring and Evaluation

Asociación Ancash Communications

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o Reduce the prevalence of anaemia within children less than 3 years of age by 10%

Education o 20% of students in 150 primary schools improve their knowledge

of fundamentals o 30% of primary school teachers improve their classroom

performance Productive Development

o Increase income by 30% for people participating in productive projects;

o Create 5000 new sustainable jobs; Institutional Strengthening

o Formulate S/. 450million (USD 157 million) of projects for public investment, of which S/. 300million (USD 105 million) will progress through SNIP43 and S/.150milion (USD 52.4 million) will be implemented

Infrastructure o Improved access to and quality of telecommunications and

electricity services for 130,000 people o Improved irrigation infrastructure for 500 hectares of cultivated

land o Conduct studies to improve road conditions for improved mobility

across 1000km o Implement 100 social infrastructure projects across 20 provinces.

The largest programme supported by the FMA to date is the Ally Micuy (meaning “Good Nutrition” in Quechua) health programme addressing child malnutrition. After operating for two years, a reduction in chronic malnutrition amongst children under 3 years of age by almost 7% has been attributed to the programme44. Ally Micuy is being implemented by Caritas in the northern half of the department and ADRA in the southern half of Ancash. The programme includes supplements for child nutrition, education programmes for children and their mothers, provision of improved stoves and training of health promoters (all volunteers) within each province. After two years, over 31,000 children, 25,000 families and 3,200 pregnant women have benefited from this programme.

Identification and Geography of Beneficiaries The zone of activity for the FMA includes the whole Ancash Department. The Aporte Voluntario requires that the majority of the funds made available are spent in the “local” area, with the remainder going to the “region”. FMA have applied some flexibility in interpreting these definitions, and have chosen to include many of the poorest regions of Ancash Department with their “local” area. The definition of poverty levels used the UN Indicators of Human Development and the assessment was conducted as part of the baseline study undertaken at the launch of the FMA. The local and regional distinctions are

43 SNIP (Sistema Nacional de Inversión Pública) is the Government investment system. 44 Chronic malnutrition has reduced from 35% to approximately 28%.

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highlighted in Figure 25 below. The local fund has received over 70% of the finances made available to date. Figure 25 Ancash Department – Definition of Local and Regional Interventions for FMA45

Governance and Ownership The FMA comprises two private funds: local and regional (as defined in Figure

45 FMA (2010)

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25). Both funds are managed entirely by Antamina and report to the Antamina Board through the structure outlined in Figure 24. A technical advisory group provides input to the project decisions taken by the Board as required. The FMA is subject to annual audits from the Government, which reviews the rate of implementation of projects and ensures the projects being supported are broadly in line with the Peruvian Government’s “mining programme to show solidarity with the population” which generated the Aporte Voluntario. Upon commencement of the FMA (2007), Antamina established a Local Technical Coordination Committee and a Regional Technical Coordination Committee in the city of Huaraz. These committees receive information and make suggestions and recommendations on the projects supported by the FMA. Representatives of Antamina, the regional government and the municipalities of Huari, San Marcos and Huarmey comprise the membership of the Local Technical Coordination Committee, while the Regional Technical Coordination Committee includes representatives from the Ancash Regional Government, Universidad Nacional Santiago Antúnez de Mayolo (UNASAM), Universidad del Santa and Antamina. Committee members do not receive a salary, and are appointed for 12 month terms, after which time they can be renewed or replaced46. Both committees are chaired by Antamina. Financing and Sustainability Monies committed through the Aporte Voluntario have to be new money, which would not otherwise have been spent on social investment. As such, funds allocated to community relations and the Asociación Ancash could not be redirected towards meeting the FMA commitments. The FMA came into existence as a result of high mineral prices leading to windfall profits for operating companies. Rather than change the taxation stability packages under which some of the largest companies were operating, it was agreed between the Peruvian Government and the companies that a voluntary contribution would be made by companies for a period of five years unless the high prices were to drop in the interim. As such the FMA has funding committed until 2011 and its future will depend on both Government decisions regarding the extension of the Aporte Voluntario scheme beyond 2011 and the mineral prices after this time. The scale of the financing available through the FMA is very significant, as can be seen in Table 7. Also highlighted in Table 7 is the rate of implementation of funds made available to the FMA (69% up until March 2010). This rate of implementation has increased significantly over the past year, with a total of USD135.5 million invested by end of March 201047.

46 FMA (2007) 47 FMA (2010a)

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Table 7 FMA Financial Summary (as at 30 April 2009)48

Component FMA Commitment (USD millions)

% Cumulative Implementation (March 2010) (USD millions)

Implementation Progress (%)

Education 39.9 20 19.3 48 Health 43.8 22 33.5 76 Institutional Development

77.2 39 54.9 71

Productive Development

26.5 14 19.8 74

Truth Commission

0.7 0.3 0.7 100

Overhead 7.7 3.9 7.4 96 Total 195.8 100 135.5 69 Table 8 provides details of the projected cash flow for the FMA until 2012. Table 8 FMA Projections (in USD Millions)49

Investment 2007 2008 2009 2010 2011 2012 Initial 0 54.3 65.2 39.4 11.6 21.6 Antamina Contribution

64.3 60.2 39.4 43.2 45 1.5

Total Received

64.3 114.5 104.6 82.6 56.6 23.1

Total Expenditure

10 49.3 65.2 71 35.0 21.1

Balance 54.3 65.2 39.4 11.6 21.6 2

Management Operations/Human Resources Over 90 people are employed by the FMA, working on the vast range of projects they are supporting. FMA staff were recruited primarily from NGO’s, and as noted earlier the FMA is effectively a grant-making foundation, contracting out the implementation of projects to skilled partners. The FMA attributes a considerable proportion of its success to the identification of high quality partners who have experience delivering development projects in Peru. Key Challenges Given the vast resources made available through the Aporte Voluntario scheme there is considerable pressure upon Antamina to spend this money efficiently and effectively, however this may not be the most effective way of building local capacity within the Provincial Government to better implement the canon minero

48 Antamina (2010) 49 Sourced from FMA

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funding. The FMA works with local authorities to pass projects through the SNIP system to address this challenge, however the test of the skill transfer will come if and when the scheme ceases. Both the FMA and FSC are reliant upon the private sector efficiency of implementing projects ad are using this efficiency to implement projects normally within the realm of government responsibility. This raises the potential for a blurring of roles between companies and governments and may establish long-term delivery expectations of companies in communities.

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b) South Africa, Mozambique and Namibia In 2007, mining contributed R136 billion (USD18.4 billion), which equated to 7.7% of the Gross Domestic Product (GDP) for South Africa50. Over 53 different minerals were produced from 1414 mines and quarries to generate this contribution to GDP. The role of the mining industry within the South African economy extends well beyond its financial contribution, with 3% (approximately 495,000 people) of South Africa’s economically active population employed by the industry51. The mineral resources are clustered into a subset of the provinces, with five (north West, Gauteng, Mpumalanga, Free State and Limpopo) of the nine provinces hosting over 90% of the mining workforce52. The South African mining industry has undergone significant changes following the democratic changes of the 1990’s. Discriminatory policies excluded a large sector of the population from full participation in the industry prior to 199453, and the Minerals and Petroleum Resources Development Act (28 of 2002) (MPRDA) seeks in part to redress this history. The MPRDA has a number of objectives for the mining industry, including:

Promotion of equitable access to the nation’s mineral resources to all the people of South Africa;

Substantial and meaningful expansion of opportunities for historically disadvantaged persons (HDSA), including women, to enter the mineral industry and to benefit from the exploitation of the nation’s minerals;

Promotion of economic growth and mineral resources development in the country;

Promotion of environmental sustainability of the mining industry; and Enhancement of the contribution from holders of mining rights to socio-

economic development of the areas in which they are operating. The MPRDA now vests all mineral rights with the State and requires that companies convert their “old order” rights (previously granted under the now repealed Minerals Act) to “new order” rights. Within the MPRDA was a requirement that the Minister of Minerals and Energy develop a Broad Based Socio-Economic Empowerment Charter within 6 months of the act taking effect. The resulting Broad-Based Socio-Economic Empowerment (BBSEE) Charter for the South African Mining Industry was ratified in October 2002. The Charter requires both Government and companies to undertake a number of activities under the broad topics of: employment equity, migrant labour, mine community and rural development, housing and living conditions, procurement, ownership and joint ventures, beneficiation, exploration and prospecting, state assets, licensing, financing mechanisms and consultation, monitoring and evaluation and reporting. A scorecard for the BBSEE Charter was developed (and is

50 DME (2008) 51 ibid 52 ibid 53 DME (2010)

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illustrated in Table 9), and is used to review companies seeking to convert “old order rights” to new rights within a five-year conversion period. Table 9 Scorecard for the BBSEE Charter54

Description 2009 2014

Human Resources Development Has the company offered every employee the opportunity to be functionally

literate and numerate by the year 2005 and are employees being trained? Has the company implemented career paths for HDSA employees including

skills development plans? Has the company developed systems through which empowerment groups

can be mentored?

Y/N

Employment Equity Has the company published its employment equity plan and reported on its

annual progress in meeting that plan? Has the company established a plan to achieve a target for HDSA

participation in management of 40$ within five years and is implementing the plan?

Has the company identified a talent pool and is it fast tracking it? Has the company established a plan to achieve the target for women

participation in mining of 10% within the five years and is implementing the plan?

Y/N

Migrant Labour Has the company subscribed to government and industry agreement to

ensure non-discrimination against foreign migrant labour?

Y/N

Mine community and rural development Has the company co-operated in the formulation of integrated development

plans and is the company co-operating with government in the implementation of these plans for communities where mining takes place and for major labour sending areas? Has there been effort on the side of the company to engage the local mine community and major labour sending area communities? (Companies will be required to cite a pattern of consultation, indicate money expenditures and show a plan)

Y/N

Housing and Living Conditions For company provided housing has the mine, in consultation with

stakeholders established measures for improving the standard of housing, including the upgrading of hostels, conversion of hostels to family units and promoted home ownership for mine employees? Companies will be required to indicate what they have done to improve housing and show a plan to progress the issue over time and is implementing the plan?

For company provided nutrition, has the mine established measures for improving the nutrition of mine employees? Companies will be required to indicate what they have done to improve nutrition and show a plan to progress the issues over time and is implementing the plan?

Y/N

Procurement Has the mining company given HDSA’a preferred supplier status? Has the mining company identified current level of procurement from

HDSA companies in terms of capital goods, consumables and services? Has the mining company indicated a commitment to a progression of

procurement from HDSA companies over a 3-5 year time frame in terms of capital goods, consumables and services and to what extent has the commitment been implemented?

Y/N

Ownership and Joint Ventures Has the mining company achieved HDSA participation in terms of

ownership for equity or attributable units of production of 15% in HDSA hands within 5 years and 26% in 10 years?

15% 26%

Beneficiation Has the mining company identified its current level of beneficiation? Has the mining company established its baseline of beneficiation and

indicated the extent that this will have to be grown in order to qualify for an

Y/N

54 Adapted from RSA (2004)

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offset? Reporting

Has the company reported on an annual basis its progress towards achieving its commitments in its annual report?

Y/N

Companies seeking to gain or convert mining or production rights also need to submit a social and labour plan. The social and labour plan requires companies to develop:

Comprehensive human resources development programmes aimed at promoting employment and the advancement of the social and economic welfare of the workers;

Local economic development programmes focussing on how the mine or production operation will address the socio-economic needs of the area in which it operates and the area from where it sources its workforce (known as labour sending areas), with a specific focus on what will be left behind after the mine closes; and

Processes managing the downscaling or retrenchment of employees if tis should be necessary55.

Through the expectations incorporated in the MPRDA and the Mining Charter, the South African Government has exerted and continues to exert significant influence over the scope and shape of social investment programmes within the South African mining industry. This influence is evident in each of the case studies included in this chapter. Mining has been a major component of the South African economy for over a century. The approach to social investment within the mining industry has changed significantly over this time, and this evolution can be seen within the history of some of the cases presented below. Four South African cases are presented: the Anglo American Chairman’s Fund, Impala Bafokeng Trust, Palabora Foundation and the Greater Rustenburg Community Foundation. One case study from Mozambique has also been included: the Mozal Community Development Trust. While operating under a different legal regime, it provides an insight into more recent thinking within the SADC region around mineral resources and their contribution to social and economic development. The Rössing Foundation from Namibia is also included in this assessment as it was established during a time period of South African rule in the country and is often considered one of the most successful FTF experiences in the world.

55 Adapted from DME (2010)

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i) Anglo American Chairman’s Fund

Operating in 45 countries, exploring in 21, and employing 107,000 people worldwide, the Anglo American group have a large global footprint56. Every Anglo American operation supports social investments in their host communities, using the Socio-Economic Assessment Toolbox (SEAT) to determine local needs and priorities. In addition to these local investments, three dedicated foundations supporting social projects also exist: Anglo American Group Foundation, Anglo American Chairman’s Fund and Anglo Chile Foundation. In 2008, spending across the Group on social investment projects was approximately USD 76million, or approximately 1.1% of pre-tax profit57. Work is in progress in establishing new charitable foundations in Namibia and Brazil and Anglo South Africa has founded two additional trusts – Epoch and Optima – to support investment in mathematics and science teaching. The Anglo American Chairman’s Fund is focussed entirely on South Africa. Established in 1974, it was the first professionally managed corporate social investment tool in the country. A perception survey conducted amongst 100 NGOs and 100 CSI practitioners ranked the Chairman’s Fund as the top corporate social investment grant maker in the country for the eighth consecutive year in 200858. Establishment, Structure and Purpose of the Fund

56 Anglo American (2009) 57 Anglo American (2010) 58 Trialogue, (2009)

Anglo American Group Foundation The Anglo American Group Foundation is a global foundation which was established in 2006 in the UK. It aims to be an effective charitable foundation through supporting organisations which help to create sustainable livelihoods both in the UK and around the world. It is funded solely by Anglo American plc and while independent of the company, preference is given to projects from countries in which Anglo American operates. The Group Foundation supports projects along three lines: poverty alleviation; sustainable development; and capacity building in governance, health and education. Support has been extended to a number of international and national NGO’s, including: Engineers Without Borders (UK), Care International UK, Pro-Mujer Peru, The Connection at St Martins in the Field, Fairbridge, Plan and Sightsavers International.

Anglo American Group Foundation (2009)

111

A chairman’s fund was established in the 1950’s and in 1974 Harry Openheimer formalised it into the Anglo American and De Beers Chairman’s Fund. Throughout the 1970’s, 80’s and 90’s Anglo American used this Fund to engage in community development work to support mostly South Africans disadvantaged by state policy59. During this time Anglo American became the largest corporate social investor in South Africa and the largest private sector contributor to public schooling for disadvantaged children. Restructuring of the company in 1998 resulted in the establishment of 3 separate entities: AngloGold, De Beers and Anglo American. As part of this restructuring the Anglo American and De Beer’s Chairman’s Fund was separated into three independent funds and due to legal requirements, the fund became a legally autonomous trust, working under an independent board of trustee’s nominated by Anglo American. Since 1998, the Chairman’s Fund has been managed by Tshikululu Social Investment, a “Section 21” Not for Profit company founded by Anglo American. Anglo American has three main social investment approaches in South Africa: the Chairman’s Fund, corporate social investment programmes at the local level implemented by individual businesses and Anglo Zimele. The Chairman’s Fund operates largely without a direct connection between its grant making activities and its business locations. It is a national grant making fund, with its focus aligned to the needs of South Africa rather than the specific needs of its businesses. Social investment programmes aligned to business needs and within business locations are managed and funded at the individual business level within Anglo American as part of the business CSI programmes. Finally, the Anglo Zimele project, which is the Anglo American Group’s enterprise development fund, supports emerging black business in South Africa. Since its inception 20 years ago it has invested in numerous SMEs and provided loans and equity finance to support start-up or expanding businesses. The broad mandate of the Chairman’s Fund is to support development initiatives aimed at transforming the lives of South Africa’s disadvantaged communities. Its mission is:

“To be the leading corporate donor in South Africa based on an informed understanding of the country’s developmental challenges and by maximising our resources to support and add value to practical interventions, simultaneously addressing urgent social needs and creating new opportunities”

The Chairman’s Fund seeks to “back champions” through their grant making activities. As such, the Chairman’s Fund typically provides grants to NGO’s who in turn provide support to community projects. Programmes

59 Anglo American (2008)

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The Chairman’s Fund seeks to support champions in social development across the country. Within this broad goal, the expenditure patterns from 2008 (Figure 26) indicate a strong focus on education, health, HIV/AIDS and welfare and development programmes. In many cases, the Fund provides year on year financing where projects are showing success. The Rural Schools Programme and the Annual Maths and Science Awards are two of the Fund’s flagship projects. The rural schools programme, started in 1974, provides infrastructure (mostly classrooms, laboratories and ablution blocks) for schools in rural areas. Between 2003-07, the Chairman’s Fund contributed over R30million (USD 4.1 million) to this programme, which was matched by the Department of Education. The maths and science awards programme is also run in partnership with the Department of Education and seeks to reward schools that achieve excellence in maths and science60. The Chairman’s Fund is supporting the HIV/AIDS sector through partnerships with organisations pioneering innovative models of support for people living with AIDS and care for orphans. One of the recipients of grants in this sector is the South Coast Hospice Association (SCHA) in KwaZulu-Natal which specialises in palliative care. Over 1000 patients were cared for through an integrated community based home care programme in 2007 alone. The Fund has backed the SCHA for over a decade. Within the welfare and development sector, the Fund supports the African Children’s Feeding Scheme, which distributes food to 21,000 children daily in Gauteng townships. Anglo American has supported this feeding scheme for over 30 years. Health projects have included support for the South African Red Cross Air Mercy Service. The Chairman’s Fund also supports a broad range of arts and culture projects. The overall goals of these programmes is to open up the arts to marginalised communities, nurture home-grown talent, and to highlight and preserve cultural diversity, national treasures and heritage of the country.

60 Trialogue (2009)

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Figure 26 Anglo American Chairman's Fund Focus Areas by Value in 2008

Identification and Geography of Beneficiaries The national focus of this grant making foundation is evident in the geographic spread of its projects, as illustrated in Figure 27. Proposals valued at over R100,000 (USD 13,500) are discussed by the Board of Trustees before they are approved. This allows the representatives of each of the Anglo American business units to exert some influence over the geographical focus of the projects. Outside of this mechanism, grants are awarded to “best practice organisations wherever they are geographically situated”61.

61 Anglo American (2008)

Education44%

HIV/AIDS11%

Health15%

Welfare and Development

14%

Arts, culture and heritage

8%

Entrepreneurial Development

5%

Policy and Advocacy

2%

Environment1%

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Figure 27 Provincial Giving by Value (2007)

Governance and Ownership The Chairman’s Fund is governed by a Board of Trustees who meet quarterly. The Board comprises nine members, both internal and external to Anglo American. The Chairmanship was held by the founder, and ex Anglo American employee, Mr Clem Sunter, until 2009, and is now held by Mr Norman Mbazima who is the Chief Executive Officer of Anglo American Thermal Coal. Each of the South African Anglo American business units has a representative on the Board. Discussion are underway on how best to increase the level of technical knowledge in the programme areas on the Board, with ideas including expanding the membership of the Board or developing a formal advisory team for the Board. In addition to day-to-day management of the Chairman’s Fund, Tshikululu also provide strategic advice to the Board of Trustees. Financing and Sustainability The Chairman’s Fund is financed on an annual basis by Anglo American businesses. The value of the annual contribution is linked to the profitability of the businesses, and in 2008 it was R72.6million (USD 9.8 million). The funds channelled through the Chairman’s Fund represent only a subset (approximately 25%) of the corporate social responsibility expenditure by Anglo American’s South African businesses. The bulk of the corporate social responsibility investment occurs in line with the social and labour plan commitments made by each operation. The Chairman’s Fund, while operating with some reserve, has not been endowed and its future depends upon the continued support of Anglo American companies. The management contract for Tshikululu Social Investments is

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valued at 10% of the grants made in a given year (approximately R7 million (USD 0.95 million) in 2008). There is no co-funding requirement for projects seeking grants from the Chairman’s Fund, however, building upon the long history of involvement in education projects, the Fund’s Rural Schools Programme is jointly funded by the Department of Education in Limpopo province. Grants can vary in size from R20,000 through to R5 million (USD 2,700 through to USD 675,000). Projects in the HIV/AIDS programme area are also sometimes co-funded with government. Management Operations/Human Resources Tshikululu Social Investments manages the Chairman’s Fund for Anglo American. Tshikululu was founded by Anglo American initially to manage the newly created Anglo American Chairman’s Fund, the AngloGold Fund and the De Beers Fund in 1998. The creation of an outsourcing model was strongly influenced by legal requirements associated with the restructuring of Anglo American in 1998. Building upon the skills gained through managing the Chairman’s Fund, Tshikululu has expanded into a successful social investment management company. In their first decade of operation they managed more than R2billion of social investments and facilitated funding to over 15,000 projects62. To undertake this workload, Tshikululu employs a team of approximately 50 employees, and each client (eg Anglo American Chairman’s Fund) has a specific client relationship manager within that team. Tshikululu review all the requests for financing and proposals received by the Chairman’s Fund. On average they receive between 50-60 appeals per week. Originally designed as a reactive grant making institution, a stronger focus is now being placed on the programmatic fit of different proposals, and Tshikululu researches appropriate partners and recipients for Chairman’s Fund finances. Guidelines have been developed by Tshikululu to direct the applicants in the type of proposals which are supported. The diversity of social investment funds managed by Tshikululu allows them to suggest alternate financing options for applicants if their application falls outside of the scope of the fund. Grants up to R100,000 (USD 13,500) can be disbursed by Tshikululu staff, however grants above this amount need to be approved by the Board of Trustees. The Chairman’s Fund requires audited financial statements from applicants before approving financing. The Chairman’s Fund is intended to support NGO’s and community development projects which are already showing success and it is not to be used to “fix broken organisations”. The outsourced nature of the Chairman’s Fund could quite possibly go unnoticed by applicants and partner organisations. Various administrative efforts have been put in place to ensure applicants and partners know they are receiving

62 Tshikululu Social Investments, (2009)

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support from the Chairman’s Fund and not from Tshikululu themselves. The national coverage of grants however can mean that there is no Anglo American representative at project launches for some projects, and in these situations, Tshikululu staff will represent the Anglo American Chairman’s Fund. Key Challenges The Anglo American Chairman’s Fund outsources its grant making activities to a now independent group. While the independence of TSI is a success story in itself, an outsourcing model can raise challenges around the branding on grants being delivered, and Anglo American is reviewing the reputational benefit it is receiving from its grant making activities.

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ii) Impala Bafokeng Trust

The Impala Bafokeng Trust has been in existence since late 2007, following a significant black economic empowerment (BEE) transaction between Impala Platinum and the Royal Bafokeng Holdings (RBH). RBH is responsible for the management and development of the commercial assets of the Royal Bafokeng Nation (RBN), with the overall business objective of maximising their returns to enable the RBN to deliver sustainable benefits to the community. The Royal Bafokeng Nation is an estimated 300,000 strong community of Setswana speaking black South Africans. It is located approximately 150km northwest of Johannesburg within the North West Province and co-exists with some of the largest platinum deposits and mines in the world. The North West Province comprises four district municipal councils, the largest of which is the Bojanala covering more than 18,000km2 (see Figure 28). Bojanala comprises 5 local municipalities, with a population (predominantly rural) of 1.25 million. The RBN population is spread among 29 villages within the Bojanala region. The RBN has structures almost parallel with local government. In effect, this gives the IBT a complex mix of traditional and elected government structures to work with: multiple Municipalities and the Royal Bafokeng Administration.

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Figure 28 Bojanala Region63

Despite changes to mineral ownership under the MPRDA the Bafokeng retained their mineral rights as it was deemed they were using the benefits gained from mining royalties communally. The RBN is comparatively wealthy, and led by Kgosi Lerou Molotlegi, the RBN has a development philosophy called Vision 2020, which is laid out in the “masterplan”. Establishment, Structure and Purpose of the Fund The MPRDA requires companies with “old order” rights to convert them to new rights within a five-year period. As indicated earlier, requirements for conversion are outlined in the Mining Charter Scorecard and include 15% HDSA participation in terms of ownership for equity or attributable units of production by 2009, and 26% by 2014. In order to meet this requirement the RBN and Impala Platinum undertook a BEE transaction where the RBN exchanged their royalties for shares in Impala. The RBN now own 26% of Impala, which makes them the single largest shareholder in the company. While this transaction met the requirement for HDSA ownership, it came under some criticism from Government and others over the exclusion of non-Bafokeng HDSA communities within the Greater Rustenburg area. The non-Bafokeng HDSA communities are considerably less wealthy and the Impala Bafokeng Trust (IBT) was established in part to ensure that they also receive development benefits from the transaction. IBT augments the existing corporate social investment commitments from both RBN and Implats. In establishing the IBT,

63 Taken from IBT (2010)

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both Implats and the RBN committed to make a total contribution of R340 million (R170million each) (USD 46 million in total or USD 23 million each) over an 8 year period between 2007 and 2014. Programmes Within an over-arching emphasis on the empowerment of women, the IBT has identified five key areas of focus: education, enterprise development, health, capacity building; and sport and recreation. Given the relatively short life of the Trust to date, Figure 29 below indicates both the intended allocation of expenditure per programme area and the actual allocation to the end of 2009. Figure 29 IBT Resource Allocations per Programme Area

The IBT have identified specific points of intervention within each of these programme areas. For example, the IBT is focussing on early childhood development and has formed a partnership with the Centre for Early Childhood Development (CECD) in a five-year programme promoting quality early childhood development in Bojanala District. Identification and Geography of Beneficiaries Core to the establishment of IBT is the distribution of mining social investment across affected communities in the Bojanala District of the North West Province. As such, an allocation of financial resources across the different social and geographic regions has been developed for IBT, as seen in Figure 30.

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Figure 30 IBT's Geographic Allocation of Financial Resources

Both Implats and RBN have maintained, to some level, their corporate social investment programmes both of which specifically target their respective target audiences. In June 2009, Impala took a decision to formally dissolve the Impala Community Development Trust (ICDT), with a number of ICDT programmes flowing across to IBT as a result. Governance and Ownership A Board of Trustees, with eight members, governs IBT. The Chair of the Board is the Queen Mother of the RBN and Deputy Chair is the Group Sustainable Development Manager for Implats. The remaining six members comprise two representatives from Implats, two from RBN and two independent experts. Financing and Sustainability The R340 million (USD 46 million) contribution from Implats and RBN is staggered over the eight year period. As of end July 2009, total contributions of approximately R32 million (USD 4.3 million) had been received by the IBT. During this same period the total grant expenditure was approximately R22 million (USD 3 million), with a R6 million (USD 0.8 million) operating expenditure. The long-term future for the IBT is as yet unclear and the management team is assuming no further financing will be forthcoming after the current commitment has been exhausted. Prior to its dissolution, in 2008 the ICDT spent R41.6 million (USD 5.6 million) (including R6 million (USD 0.8 million) contributed to the Impala Bafokeng Trust) on socio-economic development projects in South Africa (FY2007: R31.8 million (USD 4.3 million)). This figure includes an administration charge of R5.1 million to manage the funds. Over 15% of the programmes financed through the ICDT targeted labour sending areas (both internal and external to North West Province) as part of Impala’s commitment in its Social and Labour Plan64.

64 Implats (2009)

Royal Bafokeng

Nation40%

Greater Rustenburg

25%

Bojanala25%

North West Province

10%

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Management Operations/Human Resources IBT is primarily a grant making Trust, and sees advocacy, research and facilitating common-purpose partnerships as key to making its grant making activities meaningful. Unsolicited grant applications have to date not been encouraged. Extensive consultation and gap analysis comprised much of its first two years of operation. Strategic advice and assessment were sought from a number of commercial and not for profit organisations during this time. The staff component has been very small to date, with only a senior programme manager joining the Chief Executive Officer in early 2010 to comprise the entire team. A registered non-profit organisation specialising in financial and social investment and development had been providing strategic assistance and programme implementation support to IBT, and financial accounting and auditing services have also been sourced from external providers. The team are in the process of developing monitoring and evaluation criteria for their projects, however at a broad level they plan on reporting to society on progress against the following indicators in years to come:

- The number of children accessing early learning, and the extent to which this has contributed to their readiness for school;

- The number of young people finishing school with satisfactory grades, and how this has enabled them to access further training and work opportunities;

- The number of people starting and sustaining their own enterprises and how this contributes to employment opportunities and general economic wellbeing;

- The number of people who have improved access to healthcare workers and facilities, resulting in enhanced knowledge and management of diseases; and

- The number of young people who participate in sport and thereafter enjoy healthier, active lives.

Key Challenges

The Trust was established not voluntarily by RBN and Impats, but at the insistence of the South African Government through its then Department of Minerals and Energy. The commitment of its founders is thus untested;

The IBT has “guaranteed” funding for only an eight-year period. It’s sustainability beyond this period is unknown.

The independence of the IBT, and the extent to which it will be expected to be an implementer of Implats scorecard commitments remains a topic for further consultation.

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iii) Greater Rustenburg Community Foundation

The Greater Rustenburg Community Foundation (GRCF) serves the North West Province of South Africa. As described in the previous case study, this area comprises over 1.2 million people with over 80% of the population rurally based. In this platinum mining dominated region, the GRCF is a community foundation mobilising resources for community development. Establishment, Structure and Purpose of the Fund In the wake of political changes in South Africa in the mid 1990s, a vacuum was created in non-profit sector leadership, with many thought leaders joining Government and corporate organisations. Responding to this challenge, in 1997 a small group started to research ways to secure resources for community development in the Greater Rustenburg community while the economy was still booming. Pricing shifts for platinum had made Rustenburg a ghost town in the past and this group were committed to mobilising sustainable resources to prevent this from happening in the future. At the same time, the South African Grant Makers Association (SAGA) were communicating with the Mott and Ford Foundations about implementing a community foundation model in South Africa. A decade later, the GRCF is now the oldest community foundation in Africa. The GRCF was formally established in 2000 and immediately spent two days engaging with tribal leadership in the Greater Rustenburg area. For community foundation models to be successful a differential in wealth in the host community is required. This exists within the Rustenburg area due to the mineral wealth held by a portion of the population. Community foundations are resource mobilisers, stewards of public funds, grant makers and facilitators of community needs. The GRCF aims to be “an acknowledged, responsive facilitator of sustainable development, ensuring a stable and prosperous local economy”65. Programmes

65 GRCF (2009)

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GRCF is a local, independent philanthropic grant making and support organisation. The GRCF approaches grant making through three avenues: annual community grants made during their annual conference; processing of regular NGO/NPO applications that are received; and through follow up to Asset Based Community Development (ABCD) programmes where grants are given to projects that have been successful and have shown sustainability in order to allow them to expand. While initially using the Community Asset Mobilisation Process (CAMP) model, GRCF is now working with the Coady Insitutue66 to implement the ABCD approach in its programmes. “ABCD is an approach that recognises the strengths, gifts, talents and resources of individuals and communities, and helps communities to mobilize and build on these for sustainable development”67. The University of South Africa is partnering with the GRCF to support the roll-out of this programme across ten different centres. Under the ABCD system initially there is no funding made available for communities, instead they are supported to get three projects successfully up and running. Once the projects are established, GRCF will work with these enterprises and make micro-financing and micro-credit facilities available to them. The GRCF will sit on the governing structure of all new enterprises until they are sufficiently mature to become independent (expected to be 3-5 years). While the ABCD programmes are developmental in nature they are used by GRCF to provide more effective grant making capability in the communities. A range of other programmes are also supported by the GRCF, some of which have been identified by the foundation staff, others are responding to community requests and the remainder have been designated by family investments. Guidelines have been developed for potential grantees highlighting the following aspects in proposals:

Innovation; Building community vitality; Building human capacity; Broadly shared understanding and vision; Sustainability; Consistent, tangible process; More effective community organisations and institutions; Effective resource utilisation; and Realistic project objectives.

Grants typically won’t be made to profit oriented organisations, political party initiatives, Government programmes, religious denominations, individuals or discriminatory programmes68.

66 http://www.coady.stfx.ca/ 67 ibid 68 GRCF (2009)

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Identification and Geography of Beneficiaries The GRCF operates within the Bojanala District, which is effectively a 180km radius from Rustenburg city, where the foundation is based. A number of large platinum mining companies operate within this area. Governance and Ownership Governance of the GRCF is provided through a Board of Trustees, comprising 6 members. The Trustees are representative of the communities being served by the foundation and include traditional leaders from the Bojanala District. Financing and Sustainability Endowing of funds is the primary financial objective of the GRCF. Initially supported by both the Ford and Mott Foundations through the endowing of funds for projects and a grant for operational costs, respectively, the GRCF continues to search for new donors. In 2001, the GRCF received R1million (USD 135,000) from Impala Platinum mining company. 50% of this grant was for a pass-through grant while the remainder was for operational expenses, which made it possible for the foundation to buy a premises and pay for operational expenses for the first year. Upon launching the foundation, each of the trustees also contributed donations from their own personal resources. The GRCF receives considerable pass-through financing from family investments, often with designated beneficiaries. In 2009, the GRC estimates it brought an additional R52million (USD 7 million) into the community. GRCF are actively seeking support from mining companies in the Rustenburg area. A partnership has been established with the IBT (described above) and discussions continue with other companies. GRCF see an opportunity to share their knowledge of the development environment and actors in the Greater Rustenburg area and their community connections with mining companies operating in the area to enhance the value of each development dollar spent. Management Operations/Human Resources The GRCF team comprises eight full-time employees including a programme manager, programme officer, community liaison office/receptionist, finance manager, operations manager, and chief executive officer. The foundation plans to make more use of community volunteers to expand their programme reach, and have recently taken on an intern. Key Challenges The biggest challenge facing the GRCF is the sourcing of new funds. GRCF are undertaking a major exercise to better engage with mining companies in South

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Africa, with a particular focus on those operating in the Rustenburg region. The community driven nature of the foundation, which makes GRCF unique in the South African mining sector, can also make it difficult for GRCF to seek financing from companies due to nervousness around how the funding will be used and how it will directly benefit a specific company.

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iv) Palabora Foundation

The Palabora Foundation has been operating in the Ba-Phalaborwa communities for 23 years. Within this time the political, social and economic context for the foundation have changed significantly and Palabora Foundation has evolved to meet the changes. The Foundation is the sustainable development arm of the Rio Tinto Palabora Mining Company Ltd (Palabora), a Rio Tinto Group copper and vermiculite extraction and beneficiation operation. The operation is located in the Limpopo Province, in the North East of South Africa. Palabora commenced operations in 1956 as an open cut mine, and after extensive studies during the 1990’s transferred from open cut to underground mining in 2002. Block caving mining techniques are being used and the underground operation achieved expected production (30,000 tonnes per day average for a month) in May 2005. Mine closure is anticipated sometime after 2016. Establishment, Structure and Purpose of the Fund Established in 1986, the Palabora Foundation was originally designed to “work for the upliftment, development and welfare of communities … doing so in partnership with the communities and other stakeholders”69. The decision to establish the Foundation was driven both by altruism and a response to the politically motivated criticism surrounding the company’s continued operation in apartheid South Africa70. Palabora provided a launching grant of R2.5 million and the commitment of an annual donation equal to 3% of net profits or a minimum of R2million (USD 270,000). This commitment was modified in 2001 from which time the operating expenses for the Foundation have been sourced from interest earned on the Foundation’s investment fund. The Foundation was established under two constitutions: a General Trust Deed covering all of the Foundation’s operations and an Educational Trust Deed specifically covering the education work conducted by the Foundation. The Trust Deeds were registered with the Supreme Court making the Foundation

69 Palabora Foundation (2007) 70 ibid

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constitutionally separate from Palabora and exempt from tax and it is registered as a non-profit organisation with the Department of Social Development. The decision to make Palabora Foundation an operational foundation was taken within its first year of existence, effectively establishing it as Palabora’s own NGO. In developing the project focus of the Foundation, a programme of research was conducted, including meetings with traditional authority leaders, township officials, educators, the Department of Education, local community leaders, Palabora staff and Homeland government leaders. Resulting from these studies early projects focussed strongly on education at all levels, from early development centres through to the establishment of the Rixile and Leboneng Education Centres focussed on upgrading science and maths skills and adult education. Through acquiring a 500 hectare game farm near Krugersdorp the Foundation set up the nationally focussed Reef Training Centre which provided accredited training in construction and motor maintenance industries. While a highly successful project (over 1500 students graduated the courses per annum) funding for the project ceased in 1997 due to a decision taken by the Board of Trustees to limit the work of the Foundation to the Phalaborwa service area71. Initially based in Johannesburg, the Foundation moved first to Phalaborwa and then onto Namakgale in 1999. At a similar time Rio Tinto developed Communities Policy Guidelines which led to increased direct involvement of Palabora in managing the Foundation. As the Foundation evolved, its purpose was revised to better capture the enabling and empowering role it could play “to assist communities to be self reliant”. This was also in keeping with the Mining Charter and BEE requirements. The Palabora Foundation believes partnerships are the most efficient way for it to become involved in social development programmes and projects in the area. They have partnered with various groups including the European Union, various departments in the Limpopo Provincial Government, NGO’s, industrial and commercial operators (including the two mining companies who have also operated in the Ba-Phalaborwa area), Ba-Phalaborwa Municipality and private individuals. After considerable evolution, the strategic objectives for the Palabora Foundation have now been defined as follows:

To assist Palabora meet the requirements of the Palabora Closure Statement;

To assist Palabora to meet the requirements of government legislation and policy;

To assist provincial government to implement education and skills training programmes in the area;

To facilitate in partnership with the Ba-Phalaborwa Municipality and other stakeholders the implementation of the Integrated Development Plan and the Social and Labour Plan;

Minimise the impact of HIV/Aids in the community;

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To engage in local economic development and the tourism promotion initiatives;

To stimulate the local economy through enterprise development initiatives and support;

To support and promote early childhood education through partnership funding;

To provide adult based education and training (ABET) to foundation, the mine employees and the community for the development of basic numeracy and language; and

To create a sustainable Foundation72. With this increased connection between Palabora Foundation and the objectives of Rio Tinto Palabora Mining Company it may be necessary to revisit the financing mechanisms for the Foundation. Programmes The Palabora Foundation works in partnership with communities in the fields of:

Education (which includes Early Childhood, High School, Tertiary and Teacher INSET programmes);

Skills Development; Business development; Community Health and HIV/Aids; and Local Economic Development (which includes Enterprise Development

and Tourism). The Foundation supports a broad spectrum of programmes, from food Preparation classes and training in brick-making through to maths and science advanced teaching for high school students. The operational nature of the Foundation makes this diversity a significant challenge for its staff, and the planned budget for 2009 outlined in Figure 31 highlights the range of skills which are required. The types of projects supported by the Foundation have evolved during its 23 years. Originally, a significant amount of support was directed to infrastructure projects, whereas now the focus has shifted to capacity development projects. Rather than seeing this as a change in policy, the Foundation considers this approach to have been necessary – without addressing infrastructure needs immediately, the space would not exist now to support capacity development initiatives.

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Figure 31 Total Budget per Area for Palabora Foundation for 2009

Each of the five tribal authorities has a Community Development Association, and three members of each of these associations and the respective chief’s of each tribal group meet with the Palabora Foundation in a Community Development Forum. The Foundation presents projects during these Forum meetings and those which are endorsed are taken up to the Ba-Phalaborwa Municipality (local Government) to determine their fit within the agreed Integrated Development Plan for the municipality. In this manner new projects are identified and supported by the Foundation. At present Rio Tinto Palabora Mining Company is not represented in these discussions. The education programmes are directed to all levels of learners and include support for learners, teachers and school governing bodies in over 50 schools in and around Phalaborwa. Following the success of maths and science programmes (run through the Rixile and Leboneng Education Centres), in 1998 the Foundation, in partnership with two other mining companies, began offering the Programme for Technological Careers (PROTEC). The purpose of the programme is to provide a pool of skilled school leavers who could go on to study at a tertiary level and could eventually be employed by one of the three mining companies. Six month training courses in food preparation, construction carpentry, brick laying and sewing make up the bulk of the skills development programme. Recognising that many of the graduates of these programmes will not be able to gain employment with the mines, graduates are increasingly supported to develop their own businesses through the Business Development team. The Business Development team have now recorded over 506 vendors on their database. This is also inline with the BEE requirements that Rio Tinto Palabora Mining Company needs to meet.

Administration19%

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Partnership has been the key element of the health programmes implemented by the Palabora Foundation. The Ba-Phalaborwa HIV/Aids programmes was initiated in 2001 and received funding from Palabora, the Limpopo Province Department of Health and Social Development, Foskor Ltd., Sasol Nitro, Oxfam Australia, the National Development Agency and the National Lottery. The Department of Health and Welfare subsequently seconded a Chief Professional Nurse to run the programme under Foundation management. Phalaborwa has a bright tourism future, and the Foundation has been instrumental in developing this potential through the local economic development and tourism projects. Projects have included the establishment of a tourism agency in Phalaborwa town, and establishment and continued support for the Birdlife South Africa (Rio Tinto partners) Birding Route known as the “Kruger to Canyon”. Identification and Geography of Beneficiaries The Palabora Foundation works with communities within a 50km radius of Phalaborwa. This includes 1 urban area, 2 semi-urban areas and 5 Traditional authorities. The Ba-Phalaborwa area is home to over 127,000 people, 66% of whom are under 34 years of age, and 20% of whom live on less than R500 per month. Figure 32 provides the geographic context for the Palabora Foundation’s operations. Rio Tinto Palabora Mining Company’s labour sending areas are predominantly within the 50km radius covered by the Palabora Foundations activities. As such, a number of commitments under the Palabora Social and Labour Plan can be addressed by the Foundation.

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Figure 32 Palabora Foundation Areas of Operation - 50 Km Radius

Governance and Ownership The Foundation is governed by a Board of Trustees who meet quarterly to review the progress of the Foundation. The Board comprises five members:

3 x Executive Trustees: o Managing Director Rio Tinto Palabora Mining Company; o General Manager Rio Tinto Palabora Mining Company; and o Director Palabora Foundation.

3 x Non-Executive Trustees - Representatives from the community with the following backgrounds:

o Education; o Community Health; and o Business Development.

The Managing Director of Rio Tinto Palabora Mining Company is currently the chairperson of the Board of Trustees of the Palabora Foundation. The Board of Trustees delegates day to day management of the Foundation to the Foundation Director, supported by the management team and their staff (over 100 people). The non-executive trustees are nominated by the community and are appointed for a period of three years, after which time they have to be re-elected. Plans are being developed to appoint/elect a Traditional Royal Council (Traditional leader) as one of the non-executive trustees to ensure more effective transfer of information into Traditional authorities.

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A Board of Trustees Audit Committee was established in 2003 and provides regular feedback to improve the corporate governance of the Foundation, supported by internal and external auditors. The connection between the Palabora Foundation and Rio Tinto Palabora Mining Company has varied over its 23 years of operational life. While Palabora have retained control over the governance of the Foundation since it was established, the Foundation has at times been operated largely independently of the mine. Since 2003, the connection between the two entities has been reemphasised with the Foundation being seen as the vehicle to achieve and implement many of the commitments made under the companies Social and Labour Plan, Broad Based Black Economic Empowerment (BBBEE) and Black Economic Empowerment (BEE) procurement commitments. Financing and Sustainability The Palabora Foundation was financed from an annual contribution from Rio Tinto Palabora Mining Company between 1987 and 2001, amounting to the greater of 3% of net profit or R2million (USD 0.3 million). In December 1989 a decision had been taken to establish an Administrative Reserve Fund (now known as the Endowment Fund) to protect the Foundation’s financial future. From 2001 onwards the operational costs of the Foundation have been sourced from the interest on the investment, which is typically R20-25 million (USD 2.7-3.4 million) per annum. The market value of the Palabora Investment Fund was R208million (USD 28.1 million) in 2008, with a book value of R179 million (USD 24.2 million)73. The gross budget for projects and programmes for 2009 was R31.7 million (USD 4.3 million). Palabora Foundation co-funds and partners with other groups for a number of their projects, however financing for the Foundation itself is now sourced solely from the interest from the Endowment Fund. A history of the growth of the endowment fund since inception is shown in Figure 33.

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Figure 33 Rio Tinto Palabora Mining Company Donations to the Palabora Foundation

Palabora Foundation has successfully sourced funding from the European Union for two of its projects: local economic development and the tourism department. The Foundation is considered sustainable to the extent that the investment fund remains endowed. The gross budget for the Foundation, including its projects and programmes, averages out to R30million (USD 4.1 million) per annum. Of this, approximately 20% is the management cost of running the Foundation. The partnerships developed with government are part of the sustainability quest within the Foundation, however there is some reluctance on the part of the Government to partner with a Foundation connected to a mining operation. Management Operations/Human Resources Given the operational nature of the Foundation it has a large staff quota, with 100 members, of whom 55 were full-time and 55 were part-time contract employees in 2008. The “operational” approach allows Palabora Foundation to retain control of the programmes they are implementing. It also allows the Foundation to pay higher salaries and thereby attract more skilled staff than would be the case if the programmes were outsourced. The close proximity to all the project locations (within a 50km radius) also supports this approach as local knowledge in enhanced and mobilisation costs are zero. There is no formal external evaluation of programmes conducted at present and to redress this gap a monitoring and evaluation unit is being established.

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Key Challenges The Palabora Foundation has been undertaking almost all of the community development activities undertaken in association with Rio Tinto Palabora Mining Company. This approach has allowed Palabora’s internal community development skills and efforts to retract and has left the critical task of stakeholder engagement somewhat floating between the two organisations. The mine and the foundation underwent a Rio Tinto site management assessment (SMA) in October 2008. The outcome of the assessment included a number of recommendations that are specifically addressing this challenge. The spectrum of programmes supported is vast and is strongly influenced by the long history of the Foundation. This raises the challenge of how best can a foundation change its priorities when it has been supporting a programme for a long period of time?

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v) Mozal Community Development Trust

The Mozal Community Development Trust is the community development arm of the Mozal aluminium smelter. The Mozal smelter is located 17km south of Maputo, in Mozambique. BHP Billiton has a 47.1 per cent interest in the joint venture. The other partners are: Mitsubishi Corporation (25 per cent), Industrial Development Corporation of South Africa Limited (24 per cent), and the Government of Mozambique (3.9 per cent). With an investment of over USD 1.3 billion, the smelter was the largest foreign investment in Mozambique’s history. The Mozal smelter was developed in two phases, with the first phase commencing in 1996, and the first ingot being exported in 2000. Phase 2 commenced in 2001 and was completed by 2003. Establishment, Structure and Purpose of the Fund The Mozal Community Development Trust (MCDT) was established in 2000 with the specific mission of facilitating projects and programmes to improve the quality of life of the communities surrounding the Mozal Smelter – an area known as the Beluluane Industrial Park (see Figure 34), within Boane District. The trust operates predominantly as an operational trust, with its staff directly involved in the implementation of projects.

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Figure 34 Mozal Smelter and MCDT Location74

The decision to establish a trust was in line with BHP Billiton policy which requires the creation of a trust or foundation (depending on host Government laws) for sustainable development in each of its operations. These trusts or foundations are to be supported by the operations with an annual contribution of 1% of pre-tax profits. Programmes The Trust receives between 15 and 20 applications for support on a daily basis, and relies upon engagement with the local government to identify those projects which are in line with government priorities. As part of the decentralized planning process, the Mozambique Government has established consultative councils at the village level, of which at least 40% of the members are required to be women. These consultative councils also exist at the administrative post and district level and are the medium through which community members can influence the annual Social and Economic Plans prepared at the District Level.

74 Adapted from ECI Africa (2004)

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Initially the MCDT directed the types of projects they would support, however as the government planning process has matured they now pass their proposals through these consultative councils and implement those projects selected in the Social and Economic Plan for the Boane District. On average the MCDT implements 50 projects per year. This limit is defined by the physical capacity of the team to implement projects. The MCDT works closely with the District and Provincial Governments and often partners with these authorities on projects. Many of the community infrastructure projects are physically built by the Trust, with the staffing, operation and maintenance to be provided by the Government, and this agreement is captured in a Memorandum of Understanding between the Trust and the Government. The largest projects supported by the Trust have been in the order of USD 4million, while the smallest are as little as USD 1000. From inception, the MCDT identified five key portfolios for programming:

Micro business development; Health and environment; Sports and culture; Community infrastructure; and Education and training.

Mozal and the Trust became well known for their efforts to eradicate malaria from the smelter area. When the Mozal project commenced development, malaria was affecting 85% of the population. The MCDT conducted a spraying programme within a 10km radius of the smelter and contributed funds to the Lubumbo Spatial Development Initiative, which is a joint venture between the Governments of South Africa, Swaziland and Mozambique to eradicate malaria in the region. As part of the programme, training in making bednets as a micro enterprise has been provided to vulnerable members of the community. By 2010 the malaria rates in the area had been brought down to approximately 5%. This project is now receiving Global Fund support and MCDT continued to support the eradication of malaria through bednet projects and awareness activities. The Trust has supported education at many levels within the Boane District, ranging from the construction of primary schools and the provision of bursaries through to the construction of the Armando Guebuza Technical College. The Technical College has been completed in stages and is being handed over to the Government to operate. Many of the teachers teaching at the College were supported by the Trust to attend capacity building training courses in South Africa. Agriculture is considered the sustainable future for Mozambique. As such, and linked to the resettlement programmes for economically displaced farmers, the Trust has supported farmers to expand their productivity and adapt new products. Through renovations made to an irrigation system in Mafuiane, the 2007 harvest of maize was better than had been seen in ten years and resulted in excess production being sold in city centres.

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Identification and Geography of Beneficiaries Mozal define their affected community as anyone living within a 20km radius of the smelter, which covers approximately 98,000 people. While technically this would include residents in Maputo, the “line” has been drawn following a highway marking the entry to Maputo from the south. Prior to the establishment of the smelter, approximately 80 families and 650 farmers were relocated from the smelter site. As the sustainable development arm of Mozal, the MCDT has targeted a number of programmes towards this audience in particular. After 17 years of civil war, Mozambique emerged as one of the poorest countries in the world. Recognising the needs across the country, MCDT have supported a limited number of projects in other provinces, typically in partnership with other actors, including the central government. An example of this approach was seen when MCDT partnered with CARE International to construct ten rural dams in the northern province of Nampula in order to stabilise water supplies for agricultural development and domestic usage. Governance and Ownership The MCDT is governed by a Board of Trustees who meet every six months. The Board comprises eleven members and is the same Board as that for the Mozal smelter. There are no community members represented on the MCDT Board. The Board provide oversight to the Trust, and monitor the expenditure of the trust to ensure that the administration costs do not exceed more than 20% of the annual budget. Financing and Sustainability Upon establishment of the MCDT, BHP Billiton contributed USD 2.5million to the Trust. There is no endowed fund within the MCDT and the trust is reliant upon the success of the smelter for its annual 1% of pre-tax profits contribution. Typically this equated to an operating budget of approximately USD 5milion, although in 2009 this was reduced by 40% due to the global financial crisis. Management Operations/Human Resources The Trust currently has a staffing complement of nine people, although a number of roles are unfilled at present. Figure 35 illustrates the ideal staffing structure sought by MCDT. Figure 35 MCDT Staffing Structure

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The Trust are committed to monitoring and evaluation of their projects and conduct an internal review of their projects on a weekly basis. Through the Government Social and Economic Plan, projects are also scrutinised through the Government system against a range of indicators. Key Challenges The MCDT undertakes almost all of the corporate social responsibilities of the Mozal project, which includes stakeholder engagement. For this model to work effectively there needs to be excellent communication between the trust and the company, and recognition within the company of the different speeds at which companies, local governments and communities operate.

MCDT Manager

Finance Coordinator

Assistant Accountant

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AssistantSenior Field

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vi) Rössing Foundation

Mining is a major part of the Namibian economy, contributing over 12% of the GDP in 2007. Hosting a variety of minerals: uranium, diamonds, zinc, gold, copper, fluorspar and salt, the Namibian economy has been somewhat protected from major price shocks affecting specific minerals. This protection is evident in the development of a number of new uranium mines around the Arandis region occurring in the same timeframe as the planned closure of up to eight copper mines. These new projects will potentially minimise the job losses caused by these closures. The mining sector in Namibia formally employed over 9000 people in 2008, with an unknown number working in small-scale mines. Mining projects are focussed in the Karas and Erongo Regions, as seen in Figure 36. Figure 36 Mining Regions in Namibia75

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Namibia was the last country in Africa to gain independence (1990) and has been in the process of developing Black Economic Empowerment (BEE) legislation for over six years, with the financial sector recently adopting voluntary BEE principles. The draft mining BEE policy, referred to as the Transformation of Economic and Social Empowerment Framework (Tesef), would require company ownership of up to 50% to be achieved over several years for historically deprived Namibians (HDNs), 50% of HDNs in management cadres, 50% of Board members, 50% of deprived women in top, middle and junior management and 80% of previously deprived individuals (DIs) in all permanent staff76. Namibia was evaluated to have the highest level of inequality in the world in the 2009 Human Development Report77, with a gini coefficient of 74.3, and the Tesef seeks in part to rectify this inequality. Namibian legislation does not require companies to establish formal social investment programmes, however a condition recently introduced by mining authorities requests that applicants seeking a mineral licence must establish a local empowerment group and present a programme aimed at empowering local communities through the mining activities. The Rössing Foundation was established in 1978 by Rio Tinto Rössing Uranium Limited through a Deed of Trust to implement and facilitate its corporate social responsibility activities within the communities of Namibia. It is the largest and oldest mining foundation in Namibia. Rio Tinto Rössing Uranium Limited (RUL) is located near Arandis, approximately 60km to the east of the coastal town of Swakopmund (as seen in Figure 36). The mine developed the town of Arandis for its mineworkers in 1976, the same year that initial production commenced. Establishment, Structure and Purpose of the Fund Legally structured as a Trust, the Rössing Foundation was established in 1978 to provide greater education opportunities for Namibians to order to gain practical skills that would create better economic opportunities for them. When RUL started operations, South West Africa was under military occupation from South Africa and as such the Apartheid policies of South Africa were also applied to SWA’s citizens. Within this context, RUL needed to demonstrate that it was being developed not only for profit but also in the interests of the country and all members of the host population. The decision to establish the Foundation in 1978 was made more remarkable by the operational context in which it was launched, where RUL was more than two years behind schedule and well over budget. The Foundation’s mandate, first defined in 1978, remains largely unchanged and is summarised below:

To further the education of all Namibians in order to achieve greater national productivity and to enhance lifelong learning;

76 Weidlich (2010) 77 UNDP (2009)

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To encourage the creation and/or to create opportunities for people to use their education;

To promote the advancement of the living standards of all the people in Namibia; and

To do any act or thing which, in the opinion of the Trustees, will benefit Namibia or any or all of its inhabitants.

Supported by an annual contribution from RUL equivalent to 2% of all dividends distributed to its shareholders after tax, a portion of this contribution was to form the capital of the Trust Fund. In addition to the Foundation, RUL have a donations and scholarships programme which supports the uplifting for socio-economic conditions of the communities in which they operate. The Rössing Foundation was established to be “as independent as possible”78, with its own bank accounts and offices independent of RUL. This independence and the quality of the financial administration systems established by the Foundation has led to numerous external groups and NGOs donating and partnering with the Foundation to implement development programmes in Namibia. The Foundation applies both a project implementation methodology as well as a partnership approach. Key partnerships exist with the Ministry of Education, the Erongo Regional Council, the Ministry of Mines and Energy, the Ministry of Agriculture, the Ministry of Environment and Tourism, the United States Peace Corps, Voluntary Services Overseas the University of Namibia and the Arandis Town Council to achieve the Foundation’s mandate. Programmes The programmes supported by the Rössing Foundation have evolved and changed considerably as the country has changed. As noted in the Foundation’s 30th anniversary publication, “the Foundation’s activities swung from addressing problems caused by Namibia’s apartheid during the 1980s to the pressing problems of poverty in the 1990s, and have now become associated with the Foundation’s role as one of the architects of the country’s future as envisaged in the official Vision 2030 blueprint for Namibia’s development”79. The first decade of the Foundation’s existence saw programmes focussed predominantly on teaching and training, ranging from literacy programmes to auto-mechanics. A number of training institutes were developed around the country, a number of which have subsequently become independent. The second decade, and post independence Namibia, brought with it tough financial times for the Foundation, including reduced income from RUL, which in turn led to a focus on sourcing external funding which proved to be successful. This period also heralded the launch of major community based natural resource management programmes (CBNRM) as a means of reducing poverty. The third

78 Rössing Foundation (2009) 79 ibid

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and fourth decades are delivering a shift towards supporting formal education systems to support the Namibian Government in its efforts to resurrect the failing education system. Following a review in 2006, four areas of strategic focus were identified for the Foundation:

Formal Education – focussing on better quality, better teachers, and better results. This areas receives approximately 60% of the Foundation’s resources and more details on these programmes are provided below;

Enterprise Development – this include programmes focussed on SME development, nature conservancy programmes and work with small-scale miners;

Innovations – including systematic efforts to assist with the sustainable development of the town of Arandis; and

Health – focussing on capacities and processes in health care and prevention at the local, regional and national levels80.

The Namibian school system went through a radical transformation after independence, with a focus placed on access for all Namibians. While the access programme was highly successful, the quality of the teaching declined significantly, despite significant sums of money being dedicated by Government to address this concern. To respond to this crisis, the Ministry of Education developed the Education and Training Sector Improvement Programme (ETSIP), as envisaged in the achievement of Namibia's Vision 2030, and requested the Rössing Foundation to support them in its implementation. Through this support, the Rössing Foundation also directly addresses the needs of local industry, in that high-school graduates qualify for employment, or enter tertiary education and training institutions. (In 2008 25% of grade 12 graduates from Kolin Foundation thus qualified for access to tertiary education and training institutions)81. In line with the National Policy of Learner-centred Education, the Rössing Foundation strategy and support to education is based on a learner-centred approach. The envisaged outcome for all Rössing Foundation support is to secure quality education that allows all Grade 12 learners to enter higher education institutions, in preparation for a knowledge-based society. The Foundation primarily aims to achieve this through two interrelated but independently driven interventions of learner and teacher support. Through focussing support on English as the official language, skills in reading, mathematics, science, and ICT are obtained. Identification and Geography of Beneficiaries While not as formalised as the Social and Labour Plans specifically addressing labour sending areas in neighbouring South Africa, the geography of

80 Mesik (2009) 81 Rössing Foundation (2010)

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beneficiaries for the Rössing Foundation highlights a close connection between the home regions of mineworkers and project locations. Namibia is a highly unequal country, with the majority of the population residing in the north in poverty and very low population densities seen in the south. Historically the vast majority of the mineworkers for Rössing were drawn from the northern areas of the country, from the Oshiwambo and Otjiherero speaking communal areas. While the location of projects has varied over the Foundation’s 32 years of operation, Figure 37 indicates the current areas of operation where the dominance of projects in the northern regions of the country and within the host Erongo Province remain evident, as does a visual representation of population density in Namibia. The renewed focus on Erongo Region is a more recent development for the Rössing Foundation, catalysed in part by fears of mine closure following the uranium price slump early in the decade. Arandis had been developed as a model town, with some of the best living conditions in the country at the time. Following independence, RUL took the decision to hand the town of Arandis to the Namibian Government as an independence gift. Following its transformation into an autonomous local authority in 1992 however, Arandis struggled to cope without Rössing’s financial and administrative input. Recognizing the potential impact of mine closure on the town (at that time approximately 1/3 of the population worked for the mine), the Rössing Foundation set up an office in Arandis in 2005 and began working closely with the town authority to develop a vision for the future, encapsulated in the Arandis Sustainable Development Plan. The main focus of this plan, which has been developed collectively, is to develop Arandis into a centre of higher learning.

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Figure 37 Areas of Operation for Rössing Foundation82

The different regions are host to different projects supported by the Foundation. For example, within the host region of Erongo, projects are mainly focussed on education, sustainable development initiatives in Arandis, and small-scale mining. By comparison, in Omausati, Oshikoto and Kunene projects are related to the community based natural resource management programme (CBNRM), and in Omaheke, Otjozondjupa and Oshana Regions the focus is on craft development and education programmes. Governance and Ownership A Board comprising ten members, only three of which come from RUL, governs the Rössing Foundation. The remaining seven members are from public and private institutions and currently include the Governor of the Bank of Namibia, the chairman of the National Council, the Governor of Erongo Region, and several businessmen. The Board meets four times a year and relies upon the diversity within its membership to provide access and linkages to development activities across Namibia. Chairmanship of the Board is held by an independent Director, who was previously the Community Relations Manager at RUL. Financing and Sustainability

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The Rössing Foundation is an endowed foundation, receiving an annual contribution of 2% all dividends distributed to shareholders after tax, or such greater amount as the Board of Directors may decide. This contribution has generated over N$120 million (USD 16.3 million) over the past 31 years, and in 2009 alone RUL contributed N$11.6million (USD 1.5million) to the Foundation. Between 2000-04, uranium prices slumped and RUL prepared close its operations in 2009. During and leading up to this time the annual contribution to the Rössing Foundation ceased and the Foundation had to conduct a significant cost cutting and reduction exercise. From this process two coping strategies emerged: firstly the Foundation’s efforts were to be refocussed on the Erongo Region (hosting the operation) and the north-central areas from where most workers hailed (Ondangwa). Secondly, steps were taken to set up the Endowment Fund with the goal of continuing the Foundation even if the mine were forced to close. Management Operations/Human Resources The size of the Foundation has varied considerably over the last three decades, with a current staff complement of 56 people. With a small headquarters in Windhoek, the majority of staff are located in offices located in key project areas: approximately 15 people in Swakopmund and Arandis; and 24 in the Northern regions83. Key Challenges The Rössing Foundation has a long history in Namibia which has seen its activities spread across a vast geographic area. As fortunes have changed for the Foundation it has needed to reduce and streamline its activities, in cases ceasing operations in certain areas. The challenge of reducing programmes without suffering significant negative reputational impacts or worsening the development situation in the project location has been significant for the Foundation. During a period of low uranium prices, the Foundation became the default community relations arm of RUL. For this transfer of responsibilities to have been successful, clear new strategies would have been required for the Foundation and the company, and instead after a period of time, responsibilities defaulted back to RUL. This transfer did however leave a gap in the community relations work undertaken with impacted communities around the mine site for a number of years.

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c) Papua New Guinea Gaining independence from Australia in 1975, Papua New Guinea (PNG) is a young country. It is characterised by an unparalleled ethnic and cultural diversity and is home to over 850 separate language groups. This diversity is also evident in its geography, comprising a mountainous mainland and over 600 islands. Papua New Guinea has a long history of mineral development, with mining activity commencing in 1888, however major multinational mining projects did not commence in PNG until the 1970s. Despite this history, challenges have been experienced transferring the mineral wealth into poverty reduction and better living conditions for Papua New Guineans84. The extractive sector (both oil and gas and mining) account for on average 25% of GDP, with approximately 15,000 people formally employed in the sector. The recent history of mining in PNG is punctuated by five major projects: Bougainville Copper Limited (BCL), Ok Tedi Mining Limited (OTML), Porgera Joint Venture (PJV), Misima Mines Limited and Lihir Gold Limited (LGL), all of which influenced the development of mining policy in the country. The location of these projects (two of which no longer operate85) can be seen in Figure 38. In order to understand the mining foundations, funds and trusts which have developed in PNG it is necessary to understand the mineral policy environment in which they were created and to which they have responded. Through independence and as the first of these major projects was developing the PNG Government took the opinion that the mining industry was an “unsustainable” industry and that the key to generating development from this sector was to use its wealth to invest in other forms of development which would not cease “due to an accident of geology”86. The Mineral Resources Stabilisation Fund had been established prior to Independence with the goal of stabilising the amount of revenue which came into the government’s annual budget regardless of mineral price fluctuations. Also connected to this approach was the belief that mineral ownership rested with the State and that as such the nation, rather than the host community, would predominantly benefit from the mineral wealth.

84 World Bank (2008) 85 BCL and Misima 86 Filer and Imbun (2004)

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Figure 38 Papua New Guinea Mines and Potential Project Map87

These approaches began to be challenged during the exploration boom of the 1980s, however the major triggers for the ensuing policy overhaul were rising tensions in Bougainville and the challenges of gaining local consent for the Porgera mine to be established in the late 1980s88. The solution to the Porgera situation was the institution of the Development Forum, which was later incorporated in the 1992 Mining Act. The Development Forum requires that the views of “any persons who the Minister believes will be affected by the grant” of a mining lease be considered prior to awarding the lease. The main outcome of the Development Forum is the negotiation of a multi-party Memorandum of Agreement (MoA) between the National, Provincial and Local levels of Government, the landowners and company which defines the benefit sharing arrangements, and the roles, responsibilities and obligations of each party. Following the successful negotiation of the Porgera Joint Venture, many of the terms developed for that agreement were subsequently incorporated and further developed into a “Basic Mining Package” which was used as a template for benefit sharing agreements with other mines, such as Ok Tedi and Misima. Within this basic package was a shift in the approach to the return of mineral wealth to host communities, with some of the royalties previously intended for the Provincial Government instead being directed towards special mining lease landowners and the Porgera Development Authority. In order to compensate the Provincial Government for their loss of royalties, the National Government established the Special Support Grant (SSG) programme transferring some of their national royalties to the provincial level.

87 Chamber of Mines and Petroleum (2002) 88 ibid

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This first development under an MoA did not meet all landowner expectations mainly as a result of the very remote area and limited capacity of Government to deliver infrastructure in Porgera. The national government, at the request of the Porgera Joint Venture established a company executed mechanism to deliver infrastructure in the mine area called the Infrastructure Tax Credit Scheme. The Tax Credit Scheme initially allowed mining companies to spend up to 2% of their taxable income on the construction of approved social and economic infrastructure and to have this counted as corporate income tax already paid to the government89. This allowance was later reduced to 0.75% of taxable income. The first MoA was further challenged by landowners seeking to have more economic activity in the region through cancellation of the Fly-in Fly-out system and development of township infrastructure at the mine to house all mine employees. This led to a strengthening of the MoAs for later developments and inclusion of a Sustainable Development focus in these agreements. Mineral policy was to evolve further with the negotiation of the Lihir project in the mid 1990s. The package agreed with the Lihirian landowners was an “integrated” package, combining both compensation and benefit-sharing components in the one package. In both Porgera and Lihir, Development Authorities were established to serve as local level Governments and as vehicles for the utilization of a portion of mineral revenues for the benefit of their local communities. By the late 1990s, a World Bank review concluded that the Mineral Resources Stabilisation Fund had not succeeded in stabilising the national budget and the Fund was abolished. At the same time, BHP Billiton began to seek an exit from the Ok Tedi mine and the environmental destruction it had caused, resulting in the establishment of the Papua New Guinea Sustainable Development Program (PNGSDP) in 2001. Today, the 1992 Mining Act regulates mining, although the Ok Tedi mine operates under its own act. The Mining Act is largely silent on sustainable development considerations, although a Draft Sustainable Mining Development Policy has been developed, it is yet to be endorsed. The mineral policy history provided above highlights the evolution of corporate social responsibility within the mining industry in PNG. Many of the developments have moved faster than the legal frameworks regulating the industry, often, in response to stakeholder demands. Surveys undertaken in PNG to determine mining community attitudes towards corporate social responsibility programmes have highlighted an interesting trend: “most respondents thought the benefits they were getting as [a] form of CSR activities were anticipated and therefore served as [a] form of compensation to make up for the seemingly adverse impact of the mines”90. This lack of distinction between compensation and benefit sharing, also inherent in the integrated package approach, provides a different operating environment for foundations, funds and trusts in PNG compared to the other country case studies.

89 Filer and Imbun (2004) 90 Imbun (2007)

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Three case studies are included in this Papua New Guinean chapter: The Ok Tedi Fly River Development Programme (OTFRDP); the Papua New Guinea Sustainable Development Programme (PNGSDP) and the Lihir Integrated Benefits Package (IBP) and associated Lihir Sustainable Development Plan Trust (LSDP). Both the OTFRDP and the LSDP Trust were developed primarily to manage compensation and benefits paid to communities on behalf of those communities. In contrast, the model for PNGSDP’s establishment is not one anticipated to be repeated anywhere in the world, and represents a positive outcome from a difficult situation for all parties involved.

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i) Ok Tedi Fly River Development Programme (OTFRDP)

Exploration activities began in the Ok Tedi region in 1968, with construction of the mine commencing in 1981 and the mine starting operating in 1984 with first production in 1987. The Ok Tedi copper and gold mine is located in the North Fly District in Western Province of PNG. The town of Tabubil, now hosting a population of over 9000 people, was developed by the company in an area that held no more than 700 people prior to the mine’s development. The shareholders of OTML are: Papua New Guinea Sustainable Development Programme (52%), Government of Papua New Guinea (30%) and Inmet (18%)91. In 1990, OTML established the Lower Ok Tedi Development Trust to bring long-term benefits to communities living along the Ok Tedi and Fly River systems. The Trust covered those villages outside of the Ok Tedi mine lease area who were not receiving royalty or land lease payments and was operated in conjunction with the National and Provincial Governments and community representatives. The Trust received annual commitments from OTML and was governed by a management committee comprising broad representation (5 positions: 1 held by National Government, 1 by Provincial Government, 1 by a beneficiary representative and 2 by OTML) and a Board of Trustees (three OTML management representatives, 1 representative from BHP and two Local Level Government Chairmen). The Trust was very closely connected to OTML, with project proposals coming from villages through the OTML community relations officers. The Lower Ok Tedi Trust resulted from an out of court settlement between the Lower Ok Tedi people and BHP/OTML when significant environmental damage (dieback) first became prominent in the area. The settlement was valued K40 million (approximately USD14.5 million) and payment was concluded in 200992. As understanding of the environmental impacts of the riverine damage grew, in 2001, OTML entered into Community Mine Continuation Agreements (CMCAs) under the Mining (Ok Tedi Mine Continuation (9th Supplemental) Agreement) Act with communities affected by its operations. Community consent was

91 This ownership structure was changing at the time of writing. 92 LOTT, and other OTML community relations initiatives (such as the Highway Village Development Programme), were superseded by the CMCA.

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needed for the mine to continue its operations and this was formalised through the CMCAs. The Agreements commit OTML to investment and development payments through 8 Trusts and six mine villages to benefit all people in the 152 mine impacted villages. The eight Trusts each covered a different geographical area within the CMCA corridor (as seen in Figure 39). Each of the Trusts has to date invested and operated independently, limiting opportunities for joint and larger-scale projects. The large footprint of impacted villages was generated by the Government sanctioned practice of waste and tailings disposal in the Ok Tedi River. Through signing up to the CMCA agreements villages were agreeing to compensation for damage and giving their consent to continued river disposal (with improvements in tailings management) until planned mine closure. Establishment, Structure and Purpose of the Fund To advance the agreements made in 2001, OTML established Village Planning Committees (VPCs) in all 152 villages. The VPCs identified and prioritised projects and their submissions were then reviewed by the then OTML Regional Development Department which had managed the CMCA process. In 2002, OTML registered the Ok Tedi Development Foundation (OTDF) as “a not-for profit company to support community development and future generations by administering the CMCA Trust funds”93, with preferential tax status. It was also intended to establish a framework for the development of an institution that could continue to complement government, community and private sector development initiatives in the Western Province in the lead up to mine closure. The planned five-year review of the CMCA Agreements in 2007 highlighted unease within the communities that while OTDF had been established, the CMCA Trusts were still effectively being managed by OTML. As such, the Ok Tedi Fly River Development Programme was registered as a new independent entity in August 2008. The development of the OTFRDP has in effect been ongoing for 10 years, with many studies having been conducted during this time advising on its structure and role. The independent structure will be formally launched in mid 2010, and a five year detailed business plan is being developed to manage this transition. The formal vision and mission of the OTFRDP have been defined as:

“Vision - To ensure self-sustainability and improve the quality of life of all Western Province communities; Mission – Committed to best practice and wise management of funds and programmes with emphasis on accountability, transparency, performance and equal participation in order to realise the development aspirations of the impacted communities”.94

93 OTFRDP, (2010) 94 ibid

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The OTFRDP is an operational not for profit company. In addition to the vision for OTFRDP it inherited some programmes and responsibilities from OTML (food security and regional engineering). The decision to effectively hand over all community development programmes to OTFRDP was based in part on the efficiencies and cost savings achieved by having one entity focus on community needs throughout the vast impacted area. Given the OTFRDPs independent status, a fee for service arrangement may need to be developed to address this situation and to provide an income source for the entity in the future. As the investments held in each of the eight Trusts reduce it is anticipated that the OTFRDP will change its structure and purpose to continue providing development project management services beyond the mine impacted area in the Western Province. Programmes A village census was conducted across all of the CMCA villages in 2007 and during this time villages were asked to prioritise their main development needs. A Women and Children’s Action Plan (this plan will receive 10% of the financing available from the Trust funds) for each of the eight trusts and the mine villages was also produced around this time. Women from each village were also asked to prioritise their development needs, which resulted in considerably different results from the village census (derived from men without much consideration of the needs of women and children). OTFRDP have elected to follow the priorities identified by the Woman and Children Action Plan because it used a genuine bottom up consultative approach and took account of national and provincial government development plans. Key programme areas of infrastructure, health, education, rural development and food security have been defined under the current funding arrangement. The OTFRDP staffing structure being put in place in 2010 is designed to respond to the key priorities identified by the CMCA members: predominantly around food security and health. OTDF has struggled with timely implementation of projects on a scale sufficient to satisfy demand from CMCA members, and this is a challenge the OTFRDP has inherited, recognises and is working to address. Identification and Geography of Beneficiaries As indicated earlier, the beneficiaries of the OTFRDP programmes are the villages within the CMCA corridor, as illustrated in Figure 39. The beneficiaries are expected to change over time as the value of the Trusts is extinguished and new funding sources are identified. The OTFRDP is currently located in Tabubil, with field officers scattered along the CMCA corridor. This is planned to change in 2011 with the head office of the OTFRDP moving to Kiunga, which is both more accessible to the majority of the CMCA villages and places the entity closer to the seat of the Provincial Government.

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Figure 39 CMCA Regions and District Boundaries95

Governance and Ownership A number of aspects of the ownership and governance structure for the OTFRDP were defined in the 2001 9th Supplemental Agreement. Within this Agreement it was stated that OTDF would have four shares, all of which must be transferred from OTML to reputable organisations involved in development in PNG before mine closure. The first of these shares was transferred in 2009 to the Papua New Guinea Sustainable Development Programme (PNGSDP). It is anticipated

95 OTFRDP (2010)

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that one of the other shares will be allocated to a CMCA Association (combining the interests of all CMCAs). Each shareholder is expected to nominate a Director. Under the current structure, two of the Directors are OTML employees, one is from the PNG Mineral Resources Authority and the final Director comes from PNGSDP. In addition to the four Directors, four non-executive Directors have also been identified (known as Associate Directors). The Associate Directors do not have voting rights on the Board however they have sufficient voice at the Board meetings to ensure the wishes of the Advisory Committee are heard and considered by the Board. The Advisory Committee was developed to allow for broad community participation in the OTFRDP, and includes representatives from the CMCAs, the Council of Churches and the Fly River Provincial Government (as shown in Figure 40). Figure 40 Governance Structure for OTFRDP

Financing and Sustainability The OTFRDP sources most of its administrative and management funding from OTML at present, with this reliance scheduled to reduce on an annual basis back to zero by 2013. The operating costs average out to K20million/annum (USD 7.2 million) at present, with plans to reduce this to K15 million/annum (USD 5.4 million). The funds OTFRDP has been established to manage will cease to receive new investments upon mine closure, with growth only being achieved through interest on remaining investments. The 9th Supplemental Agreement resulted in a K1.0bn (approximately USD 360 million) package being agreed between OTML and the CMCA members. The proportion of this package kept within the Trusts, combined with other funds

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available combine to approximately K700 million (USD 250 million) to be managed by OTFRDP by the end of 2013. During the current transition year, OTFRDP expects to spend approximately K30 million/annum (USD 10.9 million) on development projects, and to step this up to approximately K200 million (USD 72 million) over the next few years. OTFRDP is not operating under a time limit and will spend the development trust funds at the rate that best suits the beneficiaries. As OTFRDP transitions from its dependence upon OTML it is researching other sources of funding and options for a fee for service model for project management, as applied by major NGOs. In the original conception of the OTFRDP (as OTDF at that time) it was anticipated that the PNGSDP (described below) would act predominantly as a source of funding, however PNGSDP is also implementing projects causing possible competition over funding. Management Operations/Human Resources In transitioning from OTML management to independence, it was necessary for the OTFRDP to review its programme management costs. As part of this process all staff were made redundant, and approximately 40% were re-hired, all at reduced salaries. These decisions were taken to improve the cost effectiveness of the OTFRDP model given the necessity to mange and internalise its management costs from 2010 onwards. The OTFRDP has a reduced staff complement of 60 people, split across two divisions: Regional Development and Support Services. The mandate for each division is:

“The Regional Development division identifies, designs and delivers programmes in partnership with CMCA communities in the North Fly, Middle Fly and South Fly regions to achieve the development aspirations of all people in those regions; and

The Support Services Division ensures that quality programmes are delivered to CMCA communities through the OTFRDP Regional Development Division. They employ best practice approaches for identification, design, management, monitoring and evaluation programmes; operating within a corporate governance framework that ensures prudent financial management, transparency and accountability”96.

The project teams are anticipated to change over time as the programme priorities are modified. Key Challenges The OTFRDP is in effect the custodian and implementer of monies paid to impacted communities. In this regard its key clients are the recipient communities, however it is also tasked with implementing some of the

96 ibid

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companies community development programmes and commitments. This blurring of roles may be challenging especially when operating in an environment where expectations are high and considerable time has already elapsed.

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ii) Papua New Guinea Sustainable Development Program Ltd (PNGSDP)

The Papua New Guinea Sustainable Development Program Ltd was created as part of an exit agreement between BHP Billiton and the Government of Papua New Guinea. BHP Billiton had been the majority owner and operator of the Ok Tedi mine (52% shareholding) and PNGSDP was established in 2002, when BHP Billiton divested its shareholding following concerns about the long-term environmental impact of the mine, and the social and economic repercussions of this impact. The 52% shareholding was incorporated in Singapore as a not-for-profit limited liability company. Elevated copper and gold prices, and careful management of funds from the dividends paid by OTML have led to PNGSDP becoming a very large development agency, with funds expected to exceed USD 1billion by the end of 2010 and continuing to grow until planned mine closure in 2013. Establishment, Structure and Purpose of the Fund PNGSDP commenced operations in Port Moresby in November 2002. It is mandated to support sustainable development through projects and initiatives to benefit the people of Papua New Guinea, especially the people of Western Province during the period leading up to and after closure of the Ok Tedi mine97. As well as being a development agency, PNGSDP is also a substantial PNG financial institution and joint owner of the Ok Tedi mine. PNGSDP has two main funds, with different objectives. The Long Term fund receives 2/3rds of the net income derived from OTML after deducting operating costs. It is to be invested in “low risk” ventures and can only be accessed for use after mine closure. The Development Fund receives the remaining 1/3 of the OTML dividends and is to be used to support PNGSDP sustainable development programmes in the short term. Between now and mine closure (planned for 2013, although options for mine life extension until 2020 are being studied), one third of the Development Fund is to be allocated to the Western Province Fund and two thirds to the National Fund. After Mine Closure, income from Ok Tedi Mining Ltd to the Development Fund will cease and the Long Term Fund will be utilised to support ongoing activities of the sustainable development

97 PNGSDP (2009)

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programme, which PNGSDP is mandated to sustain for a minimum of 40 years after Mine Closure98. Programmes PNGSDP is involved in a wide range of programmes and initiatives across the country. PNGSDP acts as both a grant maker and an implementation partner currently, although it is planning on focusing greater attention on contract management in the future. The broad programme areas can be described as:

Community Social Investment Programme (CSIP) – this programme supports projects which can help communities to meet their own sustainable development goals. All projects require some contribution from the beneficiary, either in cash, kind or time. Projects are generated both by communities and through research and baseline studies conducted by PNGSDP project officers. All projects are reviewed by PNGSDP before receiving support and the CSIP team aim to balance the projects geographically. This programme supported a K23.5million (USD 8.5 million) health and education programme in Western Province in 2008 amongst other projects. Operating within this team is the Community Sustainable Development Programme (CSDP) which has an annual operating budget of K6million (USD 2.2million) and supports projects driven by communities valued at less than K250,000 (USD 90,000).

Industry Development projects – PNGSDP supports the development of sustainable industries in PNG. PNGSDP’s role in these programmes is to act as a facilitator to support new industry operating in a sustainable manner to develop in PNG. As part of this programme, PNGSDP has invested in three subsidiary companies, each of which is discussed below. PNGSDP has developed relationships with its subsidiary companies on two levels: both on the basis of an investor/owner and as a client/project partner or development agency relationship. PNGSDP nominates one director to each subsidiary Board.

o Cloudy Bay Sustainable Forestry Ltd (CBSFL) – CBSFL is a wood fibre development and processing company championing sustainable forestry practices in PNG. PNGSDP acquired 80% of CBSFL in 2007 and this share will be sold down as the company improves its financial viability;

o PNG Sustainable Energy Ltd (SEL) – Originally established as a PNGSDP joint venture with the Snowy Mountains Engineering Corporation (SMEC), in 2009 agreements were executed for the Australian energy company, Origin Energy Ltd, to purchase share assets of PNG SEL previously owned by SMEC.

o PNG Microfinance Ltd (PNGMFL) – PNGMFL is a 48.65% owned subsidiary of PNGSDP, with the Bank South Pacific and the International Finance Corporation holding the remainder of the

98 PNGSDP (2010)

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company equity. PNGMFL offers a range of business loans for micro business operations, working capital loans for small and medium business operators, asset purchase loans for small and medium business operators and agribusiness loans for farmers and business operators involved in agricultural support type businesses. By the end of 2008, PNGMFL were recording nearly 50,000 depositors in the Western Province alone, which had grown by close to 15,000 since 2006.

Infrastructure projects – A vast number of infrastructure projects have been undertaken by PNGSDP, with a number of roads in particular having been built by PNGSDP. At a national level PNGSDP has developed a partnership with the World Bank to support major projects, particularly in the area of road and bridge maintenance and rehabilitation. These projects are in line with the National Government of PNG’s national infrastructure plan, geared towards improving overall economic and structural development99.

Transformational Projects - In planning for the eventual closure of the Ok Tedi mine, PNGSDP is financing work to identify and enable alternative industries which could replace the economic role played by OTML in PNG and more specifically within the Western Province. This work includes supporting the feasibility studies for the mine life extension of the Ok Tedi mine and for the development of a major port at Daru. PNGSDP see’s its role as a facilitator, supporting these projects as much as needed to make them as attractive as possible for someone else to invest in.

Financial management – One of the key development roles that PNGSDP has played to date has been the application of a sound investment strategy to manage the Long Term Fund.

PNGSDP works with a number of partner organisations, and is supporting other development activities occurring in PNG. As part of this support, PNGSDP is contributing the greater of either 2.5% of its annual dividends or K21.5million (USD 7.8 million over a five year period) of project financing to the mine impacted communities through the CMCA review process. Identification and Geography of Beneficiaries PNGSDP’s programmes are intended for the benefit of all Papua New Guineans, with a particular emphasis on the peoples of Western Province. This approach is evident in the fund rules which direct a third of the Development Fund spending to the Western Province. Western Province is the largest province in PNG and also has the lowest population. It has a vast and varied geography, covering the mountainous area where the mine and town of Tabubil are located in the north which receive over 8m of rain per year through to low lying floodplain communities connected only by river systems in the south. Figure 41, which illustrates a range of the

99 PNGSDP (2010)

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programmes PNGSDP has undertaken and is considering for future implementation in the Western Province, highlights the array of beneficiary communities in the Western Province. Figure 41 PNGSDP's Western Province Programmes100

100 PNGSDP (2010)

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Governance and Ownership

PNGSDP is an independent company, (a company limited by Guarantee operating under a deed of trust) governed by a Board of Non-Executive Directors (Trustees). The composition of the Board is summarised in Figure 42, with four different groups appointing representatives to the Board. Different committees have been established within the Board, such as the Investment and Finance Committee to oversee the company’s investment policy and guidelines, the Audit Committee and the National Committee. The Board has remained largely stable since 2002, with only one change due to the death of one of the directors. The late director was from the Western Province and informally acted as a representative of the people of Western Province (the primary beneficiaries of the PNGSDP projects) on the Board.

Figure 42 PNGSDP Ltd Board Composition

An Advisory Council, comprising up to seven eminent and appropriately skilled Papua New Guineans, provides the Chief Executive Officer with strategic advice on sustainable development and integration between the company’s programmes the overall development objectives of PNG. Members on the Advisory Council serve for a two-year period and two of the current members of the Advisory Council are from the Western Province.

Financing and Sustainability PNGSDP is financed entirely by dividends from the Ok Tedi mine. These dividends have been larger than was anticipated when PNGSDP was established, resulting in a bigger, more influential development actor than was expected in 2002. Between 2002 and the end of 2008, cumulative project funding approved under the Development Fund was close to K400million (USD 144.2 million), and it is anticipated that the value of the Long Term fund will exceed USD1billion by the time of planned mine closure in 2013. The articles defining the role of PNGSDP mandate a life for the Long Term fund of at least 40 years post mine closure, with no more than 2.5% of the invested sum to be spent in any individual year. Given the scale of the fund, discussions are now ongoing to review the potential for an endowed fund to exist in perpetuity. Management Operations/Human Resources PNGSDP has a core staffing complement of 70 people, and the basic structure of the company is seen in Figure 43. While the majority of the staff have been

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located in Port Moresby since the company started, this is now changing with greater focus being placed on stakeholder engagement and community relations in the Western Province. In addition to the core staff, the subsidiary businesses, PNG SEL, PNGMFL and Cloudy Bay Sustainable Forestry Ltd are majority owned by PNGSDP and have considerable workforce sizes (approximately 200 for PNGMFL and 300 for CBFSL). Figure 43 Simplified PNGSDP Management Structure

The diversity of projects, in scale, location and content, have the potential to make PNGSDP a difficult company to staff, with skills of investment bankers and community development specialists needed to work together. Key Challenges PNGSDP is a unique company and fulfils a variety of roles:

It is the recipient of mining dividends but is not responsible for the achievement of the social licence to operate for the mining company;

It is a private development actor with greater resources available to it than any other development actor in the country; and

It has a mandate for development for 40 years post mine closure, which provides it with a longer life-span and planning horizon than most development organisations.

PNGSDP operates amidst great expectation from all stakeholders, in part due to the size of the funds available and in part from its broad mandate for development. The lack of beneficiary representation on the governing body can increase the challenge of minimising this expectation and can make it more challenging to convey the success of work already undertaken.

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iii) Lihir Sustainable Development Plan Trust

The Lihir Gold Project is located in New Ireland Province, and commenced development in 1995, with the first gold pour occurring in 1997. The mine comprises three interconnected open cut mines on the south-eastern side of the Lihir Island. The Lihir Group comprises four islands, of which Lihir is the largest, with a total population of 14,613 Lihirians and approximately 3,700 people from other parts of PNG and overseas101. The project is 100% owned by Lihir Gold Limited. An Integrated Benefit Package (IBP) was defined and agreed between the developing company and the Lihirian landowners in 1995. The IBP encompassed compensation payments, royalties and social development projects. The IBP was to be reviewed every five years and following the review which commenced in 2001 and the inability to resolve a number of issues an update to the IBP was finalised in 2007, which is now known as the Lihir Sustainable Development Plan (LSDP). A framework for the LSDP has been developed, although only a proportion of the elements contained with it have been implemented. The description provided below reflects the intention of the LSDP and has not necessarily been implemented at this stage. Establishment, Structure and Purpose of the Fund From the initial negotiations over the Integrated Benefits Package (IBP), the Lihirian population have sought to use the benefits from the Lihir Gold Project to advance the “Lihir Dream”. The IBP was founded upon four objectives:

“Parallel development – to ensure that development in all villages in Lihir occurs in parallel with the development of the Lihir Gold Project;

Balanced development – to ensure that development is balanced in all villages and wards in Lihir;

Sustainable development – to ensure that development is sustainable. That is, that development in Lihir must be able to sustain itself without being dependent on the Lihir Gold Project; and

Stable Development – to ensure that development in Lihir is stable. This must occur in harmony with the Lihir society and not destroy and erode

101 LGLGold (2010)

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the order and culture that existed in the society prior to the operation of the Lihir Gold Project”102.

Despite the articulation of these objectives, at the time of the first review, the IBP was not deemed to be meeting the goals of the Lihirian landowners. The Nimamar Rural Local Level Government (NRLLG) and the landowners association (LMALA) recognised that this failure was in part due to the absence of a plan outlining how the objectives were to be met. This launched the Lihir Sustainable Development Plan (LSDP), to be financed by the K107 million (USD 38.7 million) over the next five years committed by Lihir Gold Limited as part of the original IBP agreement. The LSDP uses “the Lihir Gold Project as a stepping stone”, recognising that sustainability will require undertaking and supporting non-mining related activities. Programmes The programmes areas receiving focus within the LSDP structure are intended to achieve the objectives outlined earlier. As the LSDP evolves it is anticipated that broad themes of programming will be identified. Identification and Geography of Beneficiaries The beneficiaries identified in the LSDP are effectively the Lihirian population. Due to the inclusion of on-going and future compensation payments, royalties and social development projects within a single plan, different programmes have different audiences. The LSDP revises the definition of “affected area” communities and includes additional communities over and above the original IBP. “Affected area communities” will continue to receive extra benefit in the form of infrastructure development compared to other communities. The key priorities for these infrastructure projects are: reticulated water, garbage collection and septic tank emptying facilities, assistance with preparation of village layout planning, housing assistance and electricity reticulation103. Governance and Ownership The Nimamar Rural Local Level Government (NRLLG) has assumed responsibility for the LSDP. The LSDP contains five chapters, each of which is effectively “owned” by a different group (owners are indicated in brackets):

Chapter 1 – Lihir Destiny (NRLLG); Chapter 2 – Destruction (LMALA Executive); Chapter 3 – Development (Nimamar Special Purpose Authority, NSPA); Chapter 4 – Security/Sustainability (Lihir Sustainable Development Ltd

– yet to be registered as a company); and Chapter 5 – Rehabilitation (Lihir Gold Limited).

102 NRLLG (2007) 103 ibid

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Any project seeking financing from the LSDP contributions has to pass through a detailed approvals process, summarised in Figure 44. Figure 44 LSDP Governance and Approvals Structure104

Financing and Sustainability The only known financial contribution to the LDSP is from Lihir Gold Limited. LGL will pay its contribution directly to the LSDP Growth Account where it will be invested. Proceeds from the Growth Fund will be rolled over within this fund and monies will be transferred to the Trust Account when projects are approved. These transfers will be made on a monthly basis to minimise exposure to corruption. Management Operations/Human Resources The management structure surrounding the LSDP is still in a process of evolution with a number of “chapter owners” requiring considerable capacity building support to enable them to undertake their roles. Key Challenges The model presented in the LSDP Trust combines compensation, royalties and community development projects. This combination will make for a coordinated management approach, however it may present challenges in portraying which projects were undertaken for which reasons within the community.

104 Adapted from NRLLG (2007)

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173

Appendix 1 Interviews Conducted Date Interviews Held With: Foundation,

Fund or Trust discussed:

Individual Organisation

1 Feb 2010

- Mrs Premilla Hamid, General Manager Public Affairs,

Anglo American South Africa Ltd.


2 Feb 2010

- Ms Jennifer Barsky, Lead Foundations Representative, - Mr Nick Cotts, Regional Vice President Environmental and Social Responsibility - Mr Joseph Danso, Community Development Superintendant

World Bank Newmont Ghana Newmont Ghana

Newmont Ahafo Foundation

3 Feb 2010

- Sarah Morisson, Client Relationship Manager - Paul Pereira, Public Affairs Executive

Tshikululu Social Investments Anglo American Chairman’s Fund

3 Feb 2010

- Mrs Teboho Mahuma, Chief Executive Officer

Impala Bafokeng Trust Impala Bafokeng Trust

4 Feb 2010

- Mr Alcido Mausse, Manager - Mr Salvador Traquino, Social Projects Coordinator

Mozal Community Development Trust (MCDT)


5 Feb 2010

- Mr Malesela Letsoalo, Director - Mr Mark Glanvill, Enterprise Development - Ms Jenni Fleming, Programme Head: Business Development,

Palabora Foundation Palabora Foundation

6 Feb 2010

- Ms Christine Delport, Chief Operational Officer - Ms Lana Lovasic, CSI Liaison and Communications Manager - Mr Sebastian Matthews, Chairman



9 Feb 2010

- Mrs Sonia Balcazar de Meza-Cuadra Corporate Affairs - Mrs Jacqueline Chappuis Cardich, Lawyer,

Proyecto La Granja, Rio Tinto Chappuis & Asociados


9 Feb 2010

- Mr Pablo de la Flor Belaunde, Vice President Corporate Affairs - Mr Gustavo Cabrera Sotomayor, Manager

Antamina Mining Company Fondo Minero Antamina, Antamina Mining Company


10 – 11 Feb 2010

- Ms Violeta Viega, Executive Director - Mr Flavio Flores Acvedo, Programme Manager - Ms Rosario Vargas Lucar, Instititional Strengthening Coordinator - Mr Jose Luis Arteaga Cacho, Productive Projects Coordinator



10 Feb 2010

- Mr Jose Chang Leon, Manager Fondo Solidaridad Cajarmarca, ALAC

Fondo Solidaridad

174

Date Interviews Held With: Foundation, Fund or Trust discussed:

Individual Organisation

Cajamarca 10 Feb 2010

- Ms Lucinda Visccher Butron, Manager Social Development, Banos del Inca

Yanacocha ALAC and the Fondo Solidaridad Cajamarca

11 Feb 2010

- Mr Mirko Chang Olivas, Director General

Asociación Ancash Asociación Ancash

12 Feb 2010

- Mr Piero Duran Sal y Rosas, Zone Supervisor

ADRA Peru Fondo Minero Antamina Ally Micuy project

18 Feb 2010

- Mr Todd Clewett, Chief Operating Office



19 Feb 2010

- Mr Musje Werror, General Manager Business Development

Ok Tedi Mining Limited Ok Tedi Development Foundation

19 Feb 2010

- Mr Ian Middleton, Chief Executive Officer

Ok Tedi Development Foundation

Ok Tedi Development Foundation

22 Feb 2010

- Mr Borone Isana, Manager Government Liaison

Lihir Gold Limited Lihir Sustainable Development Plan

175

Appendix 2 Foundations Reviewed (Desk Based)

Name Associated Company

Country

1 Alcoa Foundation Alcoa NA – Global 2 Anglo American Chairman’s Fund Anglo American South Africa 3 Anglo American Epoch and Optima

Trusts Anglo American South Africa

4 Anglo American Group Foundation Anglo American NA- Global 5 Anglo Chile EMERGE Program Anglo American Chile 6 AngloGold Ashanti Fund and Trust AngloGold Ashanti South Africa 7 Antamina Mining Fund Antamina S.A. Peru 8 Anum Lio Foundation PT Kelian

Indonesia (Rio Tinto)

Indonesia

9 ARM CSI Trust and Chairman’s Fund African Rainbow Minerals

South Africa

10 Asociacion Ancash Antamina S.A. Peru 11 Asociacion los Andes de Cajamarca Newmont Mining Peru 12 BHP Billiton Development Trust BHP Billiton South Africa 13 BHP Billiton SEWA India Development

Foundation BHP Billiton India

14 The Cerrejon Coal Foundations (Water, Indigenous Development, Progress, Institutional Strengthening)

Cerrejon Coal Colombia

15 Clermont Aboriginal Community Development Fund

Rio Tinto Coal Australia

Australia*

16 DeBeers Fund DeBeers NA- Southern Africa 17 Debswana Diamond Trust Debswana &

DeBeers Botswana

18 Escondida Foundation BHP Billiton Chile 19 Fondo de Inversion Social CODELCO Chile 20 Freeport Partnership Fund for

Community Development Freeport McMoran Indonesia

21 Fundacion Falcondo Xstrata Dominican Republic 22 Fundacion San Isidro BHP Billiton Colombia 23 Fundacion Sierra Madre Goldcorp Guatemala 24 Gelganyem and Kilkayi Trusts Rio Tinto Australia* 25 Goldfields Ghana Foundation Gold Fields Ghana 26 Greater Rustenburg Community

Foundation - South Africa

27 Hail Creek Wiri Yuwiburra Community Benefits Trust


Australia*

28 Impala Bafokeng Trust Impala Platinum South Africa 29 Impala Community Development Trust Impala Platinum South Africa 30 Inti Raymi Foundation Newmont Mining Bolivia 31 Kashansi Foundation First Quantum

Minerals Zambia

32 Kestrel Aboriginal Community Development Fund


Australia*

33 Kupol Foundation Kinross Gold Corporation

Russia

34 Las Bambas Mining Project Social Contribution trust

Xstrata Peru

35 Lihir Sustainable Development Plan Trust Lihir Gold Papua New Guinea 36 Lonmin Community Development Trust Lonmin South Africa 37 Mineral Foundation of Goa Various India

176

Name Associated Company

Country

38 Montelibano Educational Foundation BHP Billiton Colombia 39 Mozal Community Development Trust BHP Billiton Mozambique 40 Musselwhite Fund Goldcorp Canada* 41 Namdeb Social Fund Namdeb Namibia 42 Newmont Ahafo Development

Foundation Newmont Mining Ghana

43 Northern Territory Aboriginal Benefits Account

Government Australia*

44 Palabora Foundation Rio Tinto South Africa 45 Phelps Dodge Foundation Phelps Dodge NA-Global 46 PNG Sustainable Development Program OTML Papua New Guinea 47 PT Freeport Indonesia Trust Funds Freeport McMoran Indonesia 48 Raglan Fund Xstrata Canada* 49 Rio Tinto Aboriginal Foundation Rio Tinto Australia* 50 Rio Tinto Foundation Zimbabwe Rio Tinto Zimbabwe 51 Rio Tinto Western Australia Future Fund Rio Tinto Australia* 52 Rössing Foundation Rio Tinto Namibia 53 Sadiola Hill & Yaleta Gold Mines

Community Development Fund Morila S.A. Mali

54 Sorowako Educational Foundation (Yasan Pendidikan Sorowako)

PT Inco Indonesia Indonesia

55 Tahltan Heritage Trust Fund NovaGold Canada* 56 Tampakan Community Foundations Xstrata Phillippines 57 Tintaya Foundation BHP Billiton Peru 58 Vale Foundation VALE Brazil 59 Vale Social Trust VALE Peru 60 Western Shoshone Educational Legacy

Fund Barrick Gold Corporation

United States*

177

Acknowledgements The preparation of this Sourcebook has been managed by the Oil, Gas and Mining Policy Division (COCPO) of the World Bank. The team comprised Remi Pelon (Mining Specialist, Task Team Leader), Gary McMahon (Senior Mining Specialist), and Gotthard Walser (Lead Mining Specialist). It was authored by Elizabeth Wall (Shared Resources) who also undertook the field case studies as well as personal research. Business for Social Responsibility (BSR) prepared an intermediary research product on mining foundations, trusts and funds which was drawn upon in Part I, sections a, b and e. Thanks are also due to all those who provided initial guidance, valuable documents and comments along the research process, including: Peter Van der Veen, Glynn Cochrane, Juraj Mesik, Jennifer Barsky, Dafna Tapiero, Debra Sequeira, Graeme Hancock, John Strongman. Finally, this work could not have been achieved without the great collaboration of companies, foundations, civil society, and government representatives who participated in surveys and face-to-face interviews and who facilitated site visits around the world. Specific mention goes to all those referenced in Appendix 1 who contributed their time, support and knowledge during the fieldwork aspects of this study. Photos on the back cover were taken by Elizabeth Wall and are of (clockwise): Tabubil from the air, PNG; Community Vegetable Garden Project run by IDAP, Mali; and Nutrition Programme Poster in Shiqui, Peru.

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