Social Licence Reduces Reputational Risk & Helps End Mining Dispute in Sierra Leone
It is now six months since Marampa Mines was formed in Sierra Leone to resolve a two-year revenue dispute between the government and US firm Gerald Group. The investor ceded a 10% stake in the new company to the government[1] and also paid USD20 million as a one-off settlement in July. Now, both parties have halted arbitration and the company has smoothly resumed business. While a boom in commodity prices at the time when the agreement was signed made this project a win-win for both parties, this alone isn’t enough to secure the long-term sustainability of the project. As prices slump and with elections not too far off, Gerald has understood that another ingredient is essential for the long-term sustainability of its operations in the country: a social licence.
Significance – environmental and social governance at work
In December 2017, Gerald’s mining lease agreement was hurriedly ratified in parliament when the All People’s Congress (APC) was in power, just weeks before the 2018 general elections. The firm then began facing government hostility after the APC lost the presidency and its parliamentary majority to the Sierra Leone People’s Party (SLPP). The new SLPP administration demanded higher royalties, but the company refused to cooperate and its operational licences were revoked. The government also tried to eject Gerald’s local unit SL Mining from the mine site while Gerald pursued international arbitration. However, the host community opposed these disruptions because SL Mining was liked for its impact regarding social welfare and employment. An MP representing the host district, Port Loko, told us this week, “Water supply is a serious problem for our people. But SL Mining provided clean water. It built schools and replaced many thatched huts with cement buildings. It involved paramount chiefs to be part of its community projects and regularly engaged with other stakeholders to respond effectively to their needs. It also duly paid surface rent to paramount chiefs and landowners, and it employed a lot of locals. The communities heavily felt the company’s touch. Crime went up when the mine was shut because a lot of youths were out of work. So, we talked to the government to consider this company’s role in the communities and negotiate a settlement.”
SL Mining employed nearly 2,000 people – around 5% of the primary host community in Lunsar – before the dispute.[2] Despite the significant impact that the cessation of activities had on the people during the two-year dispute, government was unmoved. It viewed many of its relationships through the lens of the polarised political system and initially viewed local dissent regarding the mine closure as political opposition. This is because the northern and north-western provinces are opposition APC strongholds, where Port Loko is situated. On the other hand, the SLPP government in Freetown mostly draws support from the country’s southern and eastern provinces.
Outlook – Community buy-in buys time
There is still substantial uncertainty in the operating environment given volatile mineral prices and the fragile framework in which the Marampa Mines deal has been reached. We maintain our July description of the outlook that weaker pricing and/or a change in power (general polls in 2023) may again unsettle the climate. Proposed changes to the mining law may improve the medium-term outlook if they are made through an inclusive process and in time before the next elections, although new legislation is not currently a government priority. But evidently, cultivating host community relationships must be prioritised if a project is to be sustained over the long-term and this strategy seems to have been the saving grace for the resumption of activities at Marampa for Gerald.
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[1]Leaving 90% to Gerald.
[2]Sierra Leone iron ore crisis creates debt-racked ghost town (March 2020). Reuters.