The World Bank & Peruvian Mining
Abstract:
This is an internal report, drafted for the World Bank by M.A.R.N.A, a subsidiary consulting group. While our group is a subsidiary to the World Bank,, our mission is to remain separate, thus all of our decisions are not influenced by our parent organization. The purpose of this report is to provide an outside perspective and recommendations to the World Bank on any emerging issues. Thank you.
Intro:
The World Bank’s ultimate goal is to fight poverty. The Bank’s mission is reflected in its stated goals, and include to “end extreme poverty” and “build shared prosperity in developing countries.” This goal is achieved by supporting an array of projects which provide host countries with sustainable income, and its citizens with job security. (The World Bank, 2017). Despite the Bank’s noble intentions, our organization faces an ethical challenge: our motto takes a consequentialist view, defined as the ends justifies the means, to resolve this issue. The solution is for the World Bank to adopt a deontological view, defined as the means justifies the end, and change our goal accordingly.
A common example of ends VS. means can be witnessed in recent environmental externalities.The Bank has supported a multitude of projects that promote economic development but also have negative environmental effects. The recent ExxonMobil project highlights this environmental issue: the Bank sponsored a pipeline through Chad and Cameroon, which endangered a variety of animal species as well as the lives of thousands of pygmies living in the most rural parts of these countries. (Mead, et al, 2003). From a consequentialist perspective, the only challenge is to ensure the overall outcome of these projects is greater than the costs and negative side effects. (Trevino & Nelson, 2014).
The Bank is currently funding a gold mining project in Peru to bolster the area’s economic activity; but at what cost? Gold mining produces an array of toxic chemicals that not only harm the environment around the mines, but also the local livestock and citizens. (Hallman & Olivera, 2015). To understand the risks and benefits of this endeavor, we must discuss, in depth, the scope of the Peruvian mining industry and its effects.
The Yanacocha gold mine is located in the Cajamarca Department of Northern Peru. The mine is one of the largest in the world, producing 35 million ounces of gold since its creation in 1993. (Hallman & Olivera, 2015). It rests between 3500 and 4100 meters above sea level and is a 251-square kilometer open pit mine. (Newmont, 2017). The World Bank originally financed the construction of the mine with a $23 million-dollar loan and later was given a 5% ownership stake, with Newmont Mining and Buenaventura owning the rest (51.35% and 43.65% respectively.) (Hallman & Olivera, 2015 and Newmont, 2017).
The Issue
On the surface, Cajamarca mining project is providing a financial benefit to the country and the world. But what are the negative outcomes? The gold extracted from Cajamarca is bonded using cyanide. The communities of the department of Cajamarca fear the consequences of this poison, and other chemicals, contaminating their drinking water. The mining areas are located are in the headwater catchment area, higher up in the mountains and upstream of Cajamarca city. The water from the catchment areas is filtered down to the streams and rivers which provide drinking water to people and animals. (Geredien, 2014). There are numerous reported instances where animals have refused to drink water from streams and those that do become poisoned and die. (Hallman & Olivera, 2015).
Ethical Issue
The World Bank’s mission is to combat poverty and facilitate economic growth in developing countries. While we have made tremendous strides, our actions damage the environment in the process. The Peruvian gold mining project reflects this issue. A significant amount of degradation stems from using cyanide as the main method of gold extraction. In order to extract gold using this method, rock believed to contain gold is mixed with sodium cyanide in open pits. After dissolving, cyanide must undergo a specific destruction process, otherwise it remains an environmental hazard. (Rubo, et al. 2006). Unfortunately, in Yanacocha, streams have been contaminated with cyanide (possibly due to being washed out by rainwater). These streams are used by villages, farms, and cattle. Contact, and especially consumption of cyanide, is highly toxic and potentially fatal. The leader of the protest group against gold mining Milton Sanchéz stated that “The gold they take out of our region is stained with blood”. (Hallman & Olivera, 2015).
The toxicity and degradation of these mining substances are highlighted in the following incident: In June 2000, a truck accidently spilled 330 pounds of mercury near the Yanacocha mine. Many locals mistook mercury for a valuable substance and brought it into their homes, resulting in the severe poisoning of over 1000 villagers. (Perlez & Bergman, 2010).
The World Bank is facing an ethical dilemma: How to invest in Peruvian gold mining to promote its economy while simultaneously avoiding any harm to the environment and raising ethical issues. The Bank’s reputation is about helping others so it needs to ensure all projects reflect a pro-environmental record. This is supported by Delmas et al, who states:“The adoption of environmental management practices by firms varies not only due to different levels of institutional pressure but also because of the organizational process that transforms objective pressure into perceived pressure… A firm’s historical environmental record could be measured using the sum of environmental compliance violations…” (Delmas & Toffel, 2004.
It is crucial to clearly identify all the possible stakeholders who are involved or affected by the Peruvian mining projects. Stakeholders include: the Peruvian government, mining companies funded by the Bank, international companies and governments that import gold, and of course, the people of Peru. The latter are the most vulnerable stakeholders and lack the power to make decisions while simultaneously experiencing the consequences of gold mining first-hand. Again, The Bank’s ultimate goal is to combat poverty. However, the mining project is an example where this model is not being fulfilled. In order to understand whether our business decisions are ethical, we should refer to Consequentialist Theories that focus on projects’ consequences, particularly Utilitarianism. “According to the principle of utility, an ethical decision should maximize benefits to society and minimize harms.” (Treviño,& Nelson, 2014). Our primary intentions in facilitating the development of the gold mining industry was to eradicate poverty and help the people of Peru.
Moreover, it is beneficial to assess the Bank’s actions through deontological theory. The theory states that “…certain moral principles are binding, regardless of the consequences. Therefore, some actions would be considered wrong even if the consequences of the actions were good.” (Treviño, L.K. & Nelson, 2014.) The Bank’s values underscore the importance of multiple stakeholders and minimal impact, stating every employee must do his/her “…part to ensure that WBG projects, activities, and services minimize risks to human health and to the environment.” and “Actively contribute to the greater public good.” (The World Bank Group, 2009). In other words with the deontological approach in mind, we need to learn from past mistakes and look for ways to mend the damage done to the environment and the people of Peru.
In spite of positive changes and economic growth that happened in the region in the last 24 years, the cost has been paid by the people who it was intended to help (Hallman & Olivera, 2015).. As discussed in the previous section, the main problem about the Bank project is the chemicals used to extract gold. Cyanide and mercury are toxic compounds that are leached through waterways, and sicken the local communities. The severity of such toxicity is witnessed through the deaths of local livestock. (Hallman & Olivera, 2015). However, we cannot defund gold mining in Peru, as it is one of the primary drivers of growth of the economy. Therefore, we must come up with a solution to an overlooked environmental problem.
Solution:
In the twenty-plus years since the Bank initiated funding for gold mining, Peru’s economy has changed drastically. The country’s economy has become one of the most promising in Latin America, “with an averaging growth rate 5.9 percent in a context of low inflation”. Unemployment rates also decreased significantly, and as a result, poverty level dropped by more than 26 percent in ten years. (The World Bank, 2017). It comes as no surprise that most of the Peruvian gold is exported and used by major jewelry, electronics, and technology companies.(Hallman & Olivera, 2015). We have achieved our goal of helping Peru alleviate its poverty but we must ask ourselves what is the cost of our actions? What do we do about the use of cyanide? Are there ways to mine gold in an environmentally friendly way? Should we change our policies to mandate modern, sustainable uses in the future?
While many countries still use cyanide, many nations have banned the compound. For example, Argentina and the European Union have banned the compound. (Yes to Life, 2017 & Hilson & Monhemius, 2006). In addition, much research has been conducted to find alternative, non-toxic methods to extract gold. ( Hilson & Monhemius, 2006). A similar phenomenon can be seen in the divestment in fossil fuels, which also harm the environment. (Foley, 2016).
This research demonstrates increased awareness and effort to resolve business externalities. It is imperative that any business becomes sustainable especially involving economic, social, and environmental concerns. (Hart S., & Milstein, M. 2003. Creating Sustainable Value. Academy of Management Executive) Unfortunately, none of the experiments were successful. Several alternative methods have been proposed, but cyanide still remains the most cost-effective option. ( Hilson & Monhemius, 2006).
In 2013 a new natural product, alpha cyclodestrin, has been discovered to bind gold better than cyanide. It is derived from cornstarch it is totally natural and inexpensive. (Liu at al, Nat Comm 20131855 (2013) doi:10.1038/ncomms2891).https://www.nature.com/articles/ncomms2891
The Bank should consider this new method of extraction because it is easy to execute, environmentally-friendly and inexpensive. However, it is also important to evaluate any potential side-effects:
Business perspective:
This method has not been used on a large scale and might only be efficient in a laboratory-setting. As of now, the method has been used exclusively for machinery that leaks gold or for electronic devices. http://pubs.rsc.org/-/content/articlehtml/2016/en/c6en00181e
Environmental perspective:
Will elimination of cyanide be “green” enough? We are still producing toxic waste when gold is smelted. In addition, the metal is smelted using mercury, which is toxic to the environment and the population. https://www.britannica.com/technology/gold-processing
Chemical perspective
Alpha-Cyclodextrin might not work as a gold solvent and may only make gold precipitate. This is a main concern about this project. In fact, alpha-cyclodestrin binds pure gold, but have not been tested yet to dissolve the gold from mining product.
The Bank should only fund mining projects that do not damage the environment and pose health risks to local populations. Therefore, the Peruvian mining project should adopt safer methods to extract gold. We propose that the Bank finance a large-scale gold extraction that relies on safe extraction methods. In order to fund this mass project, the Bank will need to focus and analyze two main issues related to the usage of this cornstarch derived product: (1) the feasibility of using the product on a large scale and (2) the efficiency of alpha-cyclodextrin in extracting gold. If the efficiency of alpha-cyclodextrin in dissolving gold is not high, it can be used in association with bromide. This compound is not toxic as cyanide and had very high efficiency in dissolving gold. The Bank should limit the smelting of gold to appropriate factories that will avoid leaking unwanted toxins in the air and water. Waste from the smelting process should be controlled extensively. In addition, if mercury is used for the smelting, it should be safely transported stored to avoid contamination with the environment.
Financial advice:
After consulting with the financial department, we realized that since 1956 we invested almost 50 billion in 120 countries for gold mining. (IFC Mining finance through the cycle in frontier countries http://www.global-mining-finance.com/gmf-autumn/pdfs/IFC.pdf IFC Global Mining http://www.ifc.org/wps/wcm/connect/434c0a0049a5f8cda3d0e3a8c6a8312a/IFC+Mining+Overview.pdf?MOD=AJPERES ) In Peru, our initial investment reached 23 million and we have a 5% stake on the Yanacocha mine, which implies a high revenue that is/can be re-invested into Peru to help the population and end poverty. (The world bank IBRD-IBA http://www.worldbank.org/en/country/peru/overview#2 )
After consulting with the financial department, we suggest that the Bank make the following investments:
1. Invest 1 million to fund experiments on implementing alpha-cyclodestrin on large scale. The Bank should obtain a patent and charge 10% of the cost to whoever uses the new method.
2. The Bank should build a new facility where gold is safely smelted. This will require a $300,000 investment.
We understand this will require a substantial upfront investment but the Bank has the available capital: In the past 20 years the Bank was able to save a large amount by owning 5% of the mines. This money has been re invested in other project, but it is time to re-invest in Peru. In addition, we will make a revenue patent for the new cornstarch method and charge 10% to people using it. This technology will be successful because it will innovative, low-cost, and environmentally-friendly, plus it will extract gold more efficiently than cyanide.
Gold mining in Peru is a complex issue that affects many stakeholders in different ways. While the mining project benefits the local economy, it also is leaching toxins into the surrounding environment. Even with the positive outcomes, we cannot allow this degradation to continue. We strongly recommend further research, development, and implementation of the new alternative to gold extraction. It is the right thing to do.
Yanacocha mine located left (Beige). Conga mine, proposed, on right. (Green)
Map from: http://projects.huffingtonpost.com/worldbank-evicted-abandoned/how-worldbank-finances-environmental-destruction-peru
Headwater Catchment Map
The map depicts the department of Cajamarca. The areas where the mines are located are in the headwater catchment area, upstream of Cajamarca city. The numbered areas are active mines or proposed mines. The darkest shades of grey are active mines (1 & 2). The lightest shades of grey are planned mining projects (3-7). The middle grey color (not too dark, not too light) are the headwater catchment areas for the department of Cajamarca. In other words, those are the areas that collect the water that is filtered into the streams and rivers that provide drinking water to the people of Cajamarca.
Map from: https://www.sciencedirect.com/science/article/pii/S0264837715002185
Cajamarca, Mineria y Agua Map
The map details the rivers where the water from the catchment areas is filtered. The rivers are shown in red. Yanacocha is located on the left. The blue circles on top are all mining projects. The two blue circles on the bottom of the map show the City of Cajamarca and the Bath of the Incas. The white circles, Aguas a Sendamal and Aguas a Cajamarca, are rivers and say where the water is headed. Presa Chonta is a dam. And Planta El Milagro is a water treatment plant that filters the water runoff from Yanacocha mine.
https://www.earthworksaction.org/earthblog/detail/an_update_from_the_field_on_the_conga_mine#.Wi3D1EqnE2w
Citations:
Delmas, M. & Toffel, M.W. (2004). Stakeholders and Environmental Management Practices: An Institutional Framework. Cited by 9200 Assigned Article
Foley, Stephen. (May, 2016). Vanguard chief criticises fossil fuel divestment campaigns. FT.com. Retrieved from https://search-proquest-com.remote.baruch.cuny.edu/docview/1794229443?accountid=8500
History. (n.d.). Retrieved December 10, 2017, from http://www.worldbank.org/en/about/history
Geredien, R. (2014). An Update from the field on the Conga Mine. Earth Works.https://www.earthworksaction.org/earthblog/detail/an_update_from_the_field_on_the_conga_mine#.WjcmMN-nE2y
Hallman, B., Olivera, R. (2015). Gold Rush: How the World Bank is Financing Environmental Destruction. http://projects.huffingtonpost.com/worldbank-evicted-abandoned/how-worldbank-finances-environmental-destruction-peru
Hilson, Gavin & Monhemius, AJ. (2006).Alternatives to cyanide in the gold mining industry: what prospects for the future?Journal of Cleaner Production Volume 14, Issues 12–13, 2006, Pages 1158-116)
The World Bank. (2017). What We Do. (n.d.). Retrieved December 14, 2017, from http://www.worldbank.org/en/about/what-we-do
The World Bank. (2009). Code of Conduct: At a Glance. Retrieved from: http://siteresources.worldbank.org/INTETHICS/Resources/World_Bank_Group_Code_At_A_Gglance.pdf
The World Bank. (2017). “The World Bank In Peru”. Retrieved from: http://www.worldbank.org/en/country/peru/overview
Mead, J., Werhane, P. H., Freeman, R. E., & Wicks, A. C. (2003). ExxonMobil and the Chad-Cameroon Pipeline. Darden Business Publishing, 7-9.
Newmont Mining Corporation. (2017). Retrieved from: http://www.newmont.com/operations-and-projects/south-america/yanacocha-peru/overview/default.aspx
Perlez, Jane & Bergman, Lowell. (2010). Tangled Strands in Fight Over Peru Gold Mine”. The New York Times. http://www.nytimes.com/2005/10/25/world/americas/tangled-strands-in-fight-over-peru-gold-mine.html
Treviño, L.K. & Nelson, K.A. (2014). Managing Business Ethics. Straight Talk about How To Do It Right. Chapter 2:42. Sixth edition
Rubo, Andreas, Kellens, Raff.,Reddy, Jay, Steier, Norbert. Hasenpusch, Wolfgang "Alkali Metal Cyanides". Ullmann's Encyclopedia of Industrial Chemistry. 2006 Wiley-VCH, Weinheim, Germany. http://onlinelibrary.wiley.com/doi/10.1002/14356007.i01_i01/abstract
Yes to Life, No to Mining. (2017). “The European Parliament Insists on a Cyanide Ban In Mining”. Yes to Life, No to Mining. http://www.yestolifenotomining.org/the-european-parliament-insists-on-a-cyanide-ban-in-mining/
https://news.northwestern.edu/stories/2013/05/making-gold-green-new-non-toxic-method-for-mining-gold
APPENDIX:
In 2013, in a laboratory at Northwestern University, a postdoctoral fellow, Dr. Liu, accidentally discovered a new method to extract gold. Dr. Liu was trying to find a new way to make a cubic structure that would store gases and other small molecules. By mixing gold and alpha-cyclodextrin, a product derived from starch, Dr. Lui obtained needles. With a closer look, he immediately realized that each needle was made of a bundle of approximately 4000 gold wires. (Liu at al, Nat Comm 20131855 (2013) doi:10.1038/ncomms2891). Dr. Liu later realized the importance of his finding: Alpha-cyclodextrin binds gold very fast. Without relying in the case, Dr. Liu, repeated the experiment and tested other 6 types of cyclodextrins, all derived from cornstarch. Alpha-cyclodextrin bound faster to gold compared to the other similar products.
(We can add formula structure of alpha cyclodestrine as it was in the presentation)