Barrack Gold Corporation and Pascua Lama Project - Case Study Example

SЕ STUDY ЕSSАY ОN THЕ INSЕАD BUSINЕSS SСHООL САSЕ: “BАRRIСK GОLD ОR СОRРОRАTIОN: А РЕRFЕСT STОRM АT РАSСUА LАMА” Name: Introduction Barrack Gold Corporation is a company which has the largest gold mining corporation in the world which is located in Toronto, Canada. It has gained its superiority as the world leading gold mining company through the policy of responsible mining. This policy had helped the company over the past years to gain access to various mining sites and support from the government. Responsible mining is a policy which encourages the company to extract minerals like gold, silver and copper without having to necessarily pollute the environment and affect the communities around the mining zones and also influence the stability of the stakeholders’ interest in the company. Peter Munk is the founder of the Gold mining corporation, he founded the company around 1980. He has been the chair of the board since then until 2013, at the age of 85, where he was called to resign by the stakeholders and the members of the public (Lopez & Martell, 2013). The success of the company has been recently threatened by the tougher environmental policy requirements, the community protests and the demands for increase profit-sharing ratios from shareholders and stakeholders of the company. The prices of the commodities being mined are also depreciating, gold prices in the market are hitting a minimum low compared to the previous years. The company’s shareholders are restlessly demanding for the restructuring of the board composition. They are claiming that Peter Munk and the rest were out of sync with the trending market realities and thus should resign. The storm that is recently threatening the company is the Pascua Lama mining project that the company has been developing since 2004. The Pascua Lama project is set up in a remote area in the ancient glaciers. The project is projected to be the world’s largest gold reserve. The Pascua Lama is expected to produce 18 million ounces of gold and 676 million ounces silver. The project site is located in the boarders of Argentina and Chile, it will be the first ever mine to operate across national borders. The essay should be able to answer the following issues 1. Management of stakeholders concerns and developments to be made 2. Stake holders of the company. Primary and international groups. 3. Social license 4. Environmental impact 5. Recommendation 6. Impacts of the above issues to the company’s future. The management of the shareholders’ interest in the project The management of stakeholders’ interest by Barrick Corporation has been so far successful as far as the Pascua Lama project is concerned. The questions that have raised concerns within the stakeholders are the ideas that the prices of gold are dropping in a manner which was not anticipated before and the project is increasingly becoming expensive as time goes. Although the stakeholders are seemingly satisfied with the manner that the company is running its business activities they should be more concerned with the repercussions of the unlikely success of the Pascua Lama project. The project is faced with the political and engineering problems. However, the company is making sure that the project is favored by many shareholders through the idea that the company is participating in the responsible mining in all of its mining projects. This is not the case in the Pascua Lama project, the prospect of the direction the project is heading to might not be much convincing that it would be a successful project as earlier anticipated. The stakeholders concern on the start of the project is gaining pace due to the fact that the project is being postponed year after year. The project has now been shifted to begin its operation in the year 2016. This is opposed to the initial set dates since there are risks involved with the changes in the schedule. The stakeholders may lose or gain depending with the market value of gold in the year 2016. If the value of gold will reduce below the projected value by the company, its shareholders will have to feel the pinch for waiting for long year and finally get small returns from their million dollars of investments on to the company’s agenda in the Pascua Lama project (Andrews, 2013). The shareholders will also be faced with a negative setback if the bid to close the project completely gains favor. The shareholders will be counting losses if the project does not go through or additional policies are imposed to the project by the involved nations, Chile and Argentina.The corporation is promising its stakeholders that the project will be successful though it looks like there will be more expenses before the project will start its gold processing operations. The corporation has also invested much in the project on which it was not initially anticipated to happen. The stakeholders should have been be given a real projection on how the project was to be set up initially so as to avoid interruption with changes in schedules and postponing of the mining process in Pascua Lama project. According toPiper, (2012). Barrick Gold Corporation should have done more for the stakeholders in the realization of the Pascua Lama project. The company should have formulated a means to help people in the region where the project was set to appreciate the presence of the project and to accept the project without a lot of indirect convincing plans. The company should have asked the local people if they were interested with the project directly without affecting their existence in the region. The water reserves would be affected, so the company should have directly convinced the people in that region to use other water sources alternatives for the benefit of the project rather than coming up with a water project that failed at some point prompting the local people to complain about their dissatisfaction of the effects of the project. Primary and international stakeholders The primary stakeholders in the Barrick Gold Corporationare the investors and the employees of the corporation. The company has approximately 27,000 employees worldwide as indicated in their annual report. The Pascua lama project was estimated to provide 1,660 direct jobs to the local population for the 25 years that the project will be running. There are many investors who have invested in the project. Both local and also international groups have invested heavily in the project which is estimated to be the largest of all the projects that the company has ventured in. the Pascua lama project was initially intended to cost $1.5 billion from the investors and was to become operational by the year 2009. By 2013, the project has cost the stakeholders $8.5 billion and its production shifted to 2016. This has not been the plan for most stakeholders although they are still keeping the spirit high and are expecting an increase in their returns come 2016, when the project starts production. The employees are also faced with challenges in the process, the working altitude is so high, about 5000 kilometers from the sea level. The delay project is affecting mostly the primary stakeholders. They had not expected more challenges to arise, they are faced will new challenges every time and them. Dealing with the local stakeholders is much different compared to the way the international groups are dealt with. Local stakeholders like the governments of Chile and Argentina are provided with different terms compared to the other stakeholders from other countries. The investors from the other country are not faced with the policies that regulate development of the Pascua Lama project. They are not affected by the changes in local policies which do not affect the shareholders’ interest. When there are policies that are set and which may change the way the project was set up, the international groups might be affected and thus require the company to adjust their regulation to prevent the stakeholders from withdrawing their support and investments. The rising protest locally affect the local stakeholders like the local employees working in the company. When protest occur, like the protest that prevented trucks from their operation in the mine field prompted the company to cease various operation hence creating unemployment, thus affected the local employees who are local stakeholders. The local shareholders might also be treated differently since their investments are no taxed compared to the international groups. Social responsibility Social license is a policy which requires the company to be able to comply with the social set up within its sphere of influence(Cavallo, 2013). Barrick Gold Corporation has been a successful company in relating and complying with the social set up in various mines all over the world. Although there are regions where it has proved difficult to conduct mining without necessarily affecting the social lives of people living near the mine field. Pascua Lama gold project is located in a region which is not easy to prevent the impact of the mining from reaching the people living in either countries. During the year 2006, the protestors dumped chunks of ice in front of the presidential palace. This proved that the social lives of the people were affected by the destruction of the glaciers. The indigenous Diaguita people living in the Huasco valley region claimed the destruction of the glaciers was going to jeopardize with the water reserve as cited by (Bishop, 2014). They claimed that the company was going to affect the environmental health of their ancestral land. They presented two law suits in which they pointed out that the company was creating education and other social programs which clashed with their indigenous cultures and tradition. They gave an example of some of their members wearing fake Indian costumes which was taken to be an attempt to erode their culture. The company has manipulated their culture as they claimed in the report they presented in the annual general meeting. They claim that the company does not comply with the social regulation setup. Although the company has been given a go ahead in 2001 by Chile, the indigenous groups is claiming that they were not involved in the formulation of the policy. They claim that the country was just rushing for the money generated by the project rather that the impact it had on their social life. The company has been developed despite the fact that the social policy agreed upon was not considering the social life of people living around the mine field. Environmental degradation Environmental impact of a gold mining site is hazardous if not regulated by the regulatory bodies. However there are those levels of toxics that are allowed if industries set up to process gold. The Pascua Lama project is anticipated to pollute the natural water reserve in the Andes hills. Although the company has developed a water project, Chilean water management system, to supply water to the local community. The water would be treated before supply in order to remove toxics caused by the development of the project. The projectis expected to use up to 33 million tons of explosives in a single day to break solid rocks in the mountain. The project will also require up to 27 tons of cyanide in the processing of the rocks to extract gold. The processing of gold will use up to 33 million litres of water per day. The precipitation in the area will be acidic due to the cyanide toxics. This has been covered by the company through the collection of water and then treating it before they are supplied and reused in the processing of the gold ore. The acidic water is not supposed to be supplied to the people as per the regulations provided. The people living within the mine field are required to be checked by the hospitals set up by the company in various areas in the nearby towns and concentrated regions. The regulations on the levels of toxics are set in the Barrick’s environmental permit. Scrubbers should be used by the company to reduce the air pollution from the gaseous releases in the processing of gold. The company should install gas scrubbers in machines and trucks to prevent the release of harmful gases to the atmosphere. The company should also try as much as possible to reduce the use of explosives in the breaking of rocks. The company should implement the use machines in breaking the rocks for simple transportation. The company should also check in the toxics released to the water bodies to avoid hazardous implication by those toxics. Disposal of waste, both solid and liquid wastes should be done in a safe way to prevent future destruction of the natural resources. Recommendation The company should proceed to develop and implement various suggestions from the public and the government so as to avoid further protest from the people. The company should be able to satisfy its stakeholders and develop a new board which will oversee the continuity of the company. Most of the mistakes that have risen so far are related to board members directly and others indirectly. The followings are some of the recommendations: The management should be changed The board of management should be changed due the recent protest by various stakeholders. This will allow the company to access new management dimensions. This will go a long way in ensuring that the demands from the local communities around the Pascua Lama project. The Pascua Lama project should continue The project should be continued and there should be new ways to ensure that the communities are satisfied with the impact to the project. The communities should be shown that the project will have a positive impact in their lives rather than being provides with resources only. Creating alternative water supply The company should ensure that there are other reliable alternatives as source of water for the project and the communities around. The company should create water reservoirs to supply water for farmers who use the water from the mountain. Resettling the Diaguita indigenous community The company should look into the issues of the resettlement of the indigenous community instead of trying to change their culture and force them to adapt to the environment which is already under influence. Although they may not be able to access their ancestral property at least they would not be disturbed in their new environment. Maintaining the set schedule The company should not further change the schedule of starting its operations so as to prevent instability among the stakeholders. The company should ensure that all standards and regulations are maintained in order to prevent further sanctions from the governments involved. This has slowed down operation of the project. The company should also ensure that they are using genuine engineering designs and materials to prevent errors like the collapsed of the section of water project. Maintaining a low cost of production The company should ensure that the expenditure of setting up the project should be at a low level to sustain the trust from the stakeholders. The community projects should use small amount of money. The communities should not be ‘bought’ to accept the continuity of the project. They should be informed on the profits that the project should generate. Long-term effects of the project on the local community There are many long term implication of various issues that is affecting the Barrick Gold Corporation. If the company will come into realizing its aims in the development of the project, Pascua Lama. There will be a lot of benefits, the estimated amount gold to be extracted is 18 million ounces of gold and 676 million ounces of silver for 25 years as expected by the company. The project will influence various stakeholders and the community living around the mining field. The following are some of the long term impacts of the project to various stakeholders: Employment The community living around the mining field and others from various parts of the world will be able to get employment opportunities. They will be able to improve their lives through the job opportunity. The stakeholders will be able to gain profits from their investments. Improved living standards The people living around the gold mining field would be able to benefit from the projects that have been developed by the company. The community are benefiting from projects like the water projects. The development of schools and various infrastructure in the region is benefiting the community Environmental degradation According toCarey, (2015). The reports indicate that the project will affect the glaciers which are responsible for the water reserves. There would be insufficient supply of water after the project reaches final stages. The water sources would be polluted over time and when the project is abandoned, the water would not be safe for any kind of consumption. Acidic rain would destroy the forests and excavations is also destroying the natural resources such as trees in that region. Improved transport and communication The region where the project is developed is remote, the region will benefit from the construction of roads by the company. This are resources which will last for a long time after the project is completed. The communication system set in the region will benefit the whole population in the region even after the company finishes its operation. Profits to shareholders The stake holders will be able to gain a lot of profits from the project. This is the largest gold deposit to be ever extracted by the company. Its shareholders will be able to gain much dividends when the production begin to operate. The company will be able to increase its value and hence attract more investors in the field of mining. Displacement of population The indigenous community in the region will be displaced from their original homeland. They would not be able to occupy various regions where it’s affected by the company’s operation. They claim that they cannot be able to graze their livestock in that region since it was locked up by the company. They are forced to look for other lands to use in their agricultural activities. Environmental and social damage The standards set for the gold mine concerning the environmental and social responsibility should be tighter since the effects of the company’s operations on the environments and the social life of the employees are significantly affected. The policy should restrict the use of more harmful chemicals that risk the life of the employees and the community near the mining field. Other mining operation normally do not have a lot of impacts on the environment and employees, like the extraction of diamond which normally less chemicals are used during extraction. The environment and social life of the employees and the community should not be affected by the gold mining operation for the cost of availability of market and the value of gold. The gold should not be given much priority compared to the life of the community and the environment they live in. Pascua lama project should not extend much in the destruction of the environment due the need of gold rather they should try as much as possible to conserve the environment. The company should try as much as possible to reduce the destruction of the glaciers. Conclusion In conclusion, the storm caused by the Pascua Lama project is going to influence a lot in the operation of the Barrick Gold Corporation. The project is estimated to produce 18 million ounces of gold and 676 million ounces of silver and other minerals. The project is developed across the borders of both Chile and Argentina. It is located in a remote region in the Andes Mountain. The project has been postponed until 2016 unlike earlier anticipated year 2009. This is due to the increase in the ore and the policies imposed on the company’s operations. The company has helped the local people with the development of schools, hospitals and road network. The project will recruit 1660 employees in its time of operation. The company if faced with a lot of challenges, protest from the stakeholders and the tight environmental regulations. However the project is expected to generate a lot of profits to its stakeholder. The project will be the greatest gold source after it starts production. References Lopez, E., & Martell, A. (2013). Pascua-Lama freeze to continue. Richard, M. (2013). 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