Permitting Risk in Africa

Ludivine Wouters, Managing Partner of Latitude Five, and Jane Joughin, Corporate Consultant - Environmental & Social Management for SRK Consulting, share some insight as to how miners can efficiently identify and manage permitting risks – and realise the relating opportunities.

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Permitting risk – the phrase can be chilling in a sector dependent on access, operating and commercialisation rights. Regularly ranking among top risks in the sector(1) and crossing the boundaries of regulatory, Government relations and operational risk, permitting is a multi-facetted function which aims to lay the foundation for all exploration and mining activity. Considering its significance and complexity, permitting can sometimes be reductively assessed only in terms of the downside resulting from non-compliance.

However, like any risk category, permitting can also be considered for its upside potential: it is intrinsically linked to the multi-stakeholder notion of licence to operate(2), which allows operators to achieve trust, credibility and legitimacy as levers to consent and acceptance of their operations and is essential to the resilience of their business to shocks in its context, structure and people.

Think of the adage “accept the inevitable and turn it to your advantage” - that is what you do when you mine project risks to create opportunities (3)

Although another rapid conclusion could be that operating in Africa entails aggravated permitting risks, this is not the authors’ experience. In some jurisdictions preparatory steps and application processes may be both complex and uncertain as to their outcome; in others, permits, licences and approvals may be readily issued but subject to intense scrutiny and their maintenance or renewal particularly difficult: this is just one of the ways in which contextualisation is paramount to sound risk management.

So what does permitting risk actually comprise?

The most striking observation is the diversity of interlinking processes and requirements. Permitting is about mineral title and much more: operators’ reality encompasses hundreds of distinct approvals, requirements and commitments to understand, monitor and manage... together, constantly and across their business. These can be broken down into four broad categories, relating to mineral title, environmental constraints, social requirements and business operations; for each, a selection of risk areas is set out in the table below.

Permitting Risks

Frequency, impact and criticality of these factors may vary significantly and change over time, so it is important to take a contextualised and dynamic view. The number of stakeholders can be unlimited and in constant flux, including a wide array of Government, parastatal and local authorities as well as employees, civil society and other private sector operators, both in mining and at all levels of the supply chain: each adds its own constraints and expectations.

Each of these factors can be derived from sources including regulation, contractual terms, market standards or local practices.

Increasingly, each of the permitting risk factors ties directly to mineral title as national mining regulation and mining conventions now systematically include provisions whereby mineral title may be at stake in case of non-compliance with other permitting requirements and/or compliance obligations and weak social licence to operate can invalidate permitting if operators take a complacent or minimalist approach to environmental and social requirements. The social, political and economic context in many African jurisdictions may aggravate an already negative perception of mining and exacerbate the effects of this regulatory evolution particularly where the relevant administration has little experience with the mechanisms implemented or regulated. The view that host countries have not sufficiently benefited from their mineral resources in terms of sustainable development is widely held across Africa, and this frustration increases pressure on Governments to leverage extractive industries for inclusive development – or at least be seen to do so: mineral title can be the ultimate leverage in such contexts.

ESG disclosure and management requirements are mushrooming as a result of regulatory reform outside host jurisdictions, as well as investor focus on ESG (environment, social and governance) performance. Such regulation can include corporate law applicable to parent companies, listing and disclosure rules as well as numerous standards or guidelines developed and applied by mining industry bodies, multilateral and non-governmental organisations or financial institutions. Because these standards are shifting away from PR-style reporting and increasingly requiring evidence that ESG is integrated into the business model in terms of risks and opportunities, policies, outcomes and impact, they may be expected to alter management KPIs, Board scrutiny and investors’ assessment of companies’ performance. As governance commitments increasingly turn into requirements, the many facets of permitting should remain high on the agenda. This is also evident in the evolution of mineral resource and ore reserves reporting standards, with the new CRIRSCO International Reporting Template (2019) recognising that much more attention needs to be paid to permitting: the Competent Person must ascertain whether approvals required for mining can be obtained in a timely fashion and can be retained; legal and permitting experts should be engaged where necessary and risks associated with approvals and legal rights must be disclosed.

And what can be done about permitting risk?

Despite its prevalence, permitting risk management tools and culture can remain weak among exploration, development and mining operators: this may be observed in the context of project structuring, when planning and processes should be most forward-looking, but also in audits and reviews where experience could be leveraged to reassess and adapt. All too often, the multiplicity and complexity of the sources of requirements, constraints and commitments lead operators to overlook them and risk registers and processes fall dangerously short.

This can be changed, however, by adopting a multi-disciplinary, multi-level, principles-led and results-focused risk management culture. All functions and all levels of operational and corporate management and execution need to coordinate in the risk management process, across the business: the goal is to instil a philosophy throughout the organisation, where each employee, contractor and stakeholder is responsible for mitigating and monitoring permitting risk, and has a role in the collective success that is the emergence of a resilient organisation benefiting from unimpeachable permitting, governance, corporate and commercial practices and a strong licence to operate.

Each organisation may define its own risk management process to suit its operations, requirements and environment. A common standard involves the following five steps:

  1. Context Assessment and Risk Identification: the basis which will inform the rest of the process, requiring a thorough process of data gathering, contextualisation and comparison with input from a variety of sources including internal and external stakeholders;
  2. Impact Assessment: analysis focusing on probability and severity of potential negative effects as well as the balancing effect of potential positive impact, with a clear understanding that it reflects then-current circumstances and allowance for variation;
  3. Criticality: Decision-making about prioritisation and allocation of risk factors among business functions, and definition of reporting mechanisms and collective action triggers in case of change in circumstances or realisation of risk;
  4. Mitigation of Critical Risks, Monitoring of Other Risks and Positive Action towards Realising Opportunities: iterative process requiring centralisation of information and use of effective risk management tools; and
  5. Review and Update: sound management must be dynamic and capitalise on positive realisations and outcomes to better mitigate potential negative outcomes.

Permitting risk should be part of an integrated and simple risk management system which focuses on materiality of risk and effectiveness of outcomes rather than announcement effect, endless reporting and static tools which are most easily ignored by the very parties who should be using them to share information and coordinate action. Ideally, such a system is built from the start of a project and evolves with operations, throughout project stages of exploration, development, mining and mine closure: this requires management commitment, a risk awareness culture and allocation of resources. As much as anything else, simplicity is key here: tools, approaches, communication can all be fairly simple if the fundamental philosophy is shared, which allows integration and effectiveness to drive processes, ultimately generating resilience... which we can all agree is a worthy outcome in the face of uncertainty.

(1) KPMG, February 2019: Risks and opportunities for mining

(2) EY, October 2019: Top 10 business risks and opportunities 2020; Akua Asamoah Debrah, Hudson Mtegha, Frederick Cawood, February 2018: Social licence to operate and the granting of mineral rights in sub-Saharan Africa: Exploring tensions between communities, governments and multinational mining companies, Resources Policy Journal, Volume 56, June 2018, pages 95-103

(3) Vivian Kloosterman: Sound Risk Management Process

Ludivine Wouters

Managing Partner, Latitude Five

Ludivine Wouters is co-founder and managing partner of corporate advisory and investment firm Latitude Five where she is in charge of mining and mining services. As a corporate development consultant, Ludivine works with companies and investors to define and realise their vision, turning ideas and potential into reality across a variety of African destinations. With a decade of on-the-ground experience in Africa, Ludivine has an in-depth understanding of emerging and frontier markets and the opportunities and challenges they present to companies and investors in mining and natural resources.