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Erdene Resource has built relationships of trust, study finds

10th of 10, 2018

Erdene Resource Development describes itself as “a company that is focused on creating value for all stakeholders, doing things ‘The Erdene Way’ ”. A core element of this “Erdene way” is its commitment to make positive contributions to local economic development. From November 2017 to July 2018, a team from the University of British Columbia made a study of the company’s stakeholder engagement and community relations programme, and in this conversation with B. Tugsbilegt Jocelyn Fraser, one of the lead researchers, describes what the study found.

How did your study come about?
As part of our interest in finding ways to make mining more sustainable, we at the University of British Columbia were curious to see what companies could do at the exploration stage to create value in communities where they operated. Mongolia seemed a good place for this work:  it is a resource rich country and a place where there have been some reports of conflicts between mining companies and communities, especially over scarce resources such as water. My colleague Nadja Kunz had met Jon (Jon Lyons, part of Erdene’s senior management team) during her work with the IFC voluntary code of practice for water resource management in the Gobi and had learnt of the Bayan Khundii project in Bayankhongor. The third member of our research team was Bulgan Batdorj, who has just finished a Masters degree at UBC and who is from Mongolia.  Bulgan and I had travelled to Mongolia together back in 2016 on an earlier research project and it was wonderful to have her help and support on this project. With the team in place, we managed to secure financial support for the research project from Mitacs,and Erdene allowed us to take a close and critical look at the company’s operations.

What areas did you focus on?
The basic question was: what does creating shared value actually mean for companies, communities and government? And is it possible to create and share value at the exploration stage of the mine life cycle? The heart of the concept is in ensuring that some of the value from mining operations remains within the communities that host those operations. And that can take different forms. Our research suggests that one of the best ways to create and share value is to support things that both companies and communities need to be successful, for example, reliable access to water. In the Erdene project, we discovered a significant role was played by water initiatives such as rehabilitating wells built during the socialist era that had fallen into disrepair, drilling new wells for use in exploration work but also allowing herders to use them, and expanding the area of the company’s hydrogeological research to include Shinejinst soum centre, resulting in locating a source of potable water just three kilometers from the soum and drilling a new well there in partnership with the local government.

We also found that a lot of value is attached to scholarship programmes that Erdene has been running since 2012.  These scholarships provide funding for high school graduates from the soum to study further. A special and interesting feature of the programme is that there’s no requirement that the recipients would have to work for Erdene or even in the mining industry. The idea is simply that they get more education so that they can make a contribution to Mongolia wherever they choose to live and work.

I think local procurement is another important way in which a company can support the local community.
Yes, but in this particular case, at the exploration stage there is little to be procured and few opportunities for employment. All this will change if and when exploration moves to extraction. What our study suggests is that Erdene has formed relationships with those people relying on the company to offer some local opportunities should the project advance to mine development. Local residents also told us they know that there are people in the company they can talk to if they have an idea or if they have a problem. We found that a foundation of trust has been built, and it should be a very valuable platform to build upon should the decision be made to develop a mine. 

Erdene is now listed on MSE (symbol: ERDN). As a result, the two local governments that host its Bayan-Khundii and Altan Nar projects subscribed to the offering, registering a portion of the MSE-listed shares to over 5,000 soum residents.  Do you see this as another way of sharing value?
The local people we spoke to see it that way. They felt that it was a very measurable way for them to see the benefit from mining in the region. Creating a way for local community residents to become personally invested as shareholders in a company is an innovative idea, and quite novel social responsibility strategy for the mining industry globally. 

What, briefly speaking, are the conclusions of your study?
I think one of our major conclusions is that the company appears to have a very clear vision of how it wants to develop a project in a sustainable manner and also that the vision seems very clearly articulated. The view of sustainable development is held not just the senior management, but by all employees in the company. The vision is manifest in Erdene’s business strategy of looking at how it can develop its projects in a way that brings real benefit to the region.  

We studied how an exploration company, highly dependent on the equity markets for cash, can create and share value.  After talking to Erdene’s stakeholders and the media, our conclusion is that there is a role for exploration companies to create and share value. And this can be done despite having a limited budget. What is required is to have a clear vision, a proper business strategy, and good people in place to build relationships. It has, of course, been helpful that Erdene has been working in Mongolia for close to 20 years. 

Some companies view corporate social responsibility as a transactional arrangement, but building relationships as Erdene has done creates a way to share value and is critical for operational success.

What recommendations would you give to Erdene for further improvement?
In mining the focus is always on continuous improvement, and so, even though Erdene is in a good position, the company must continue to address the legitimate concerns of herders about water, pasture land, the effects of climate change and so on. The importance of ongoing engagement applies not just to Erdene but to the mining industry in general. Moving forward means the company never loses sight of these important issues and continues the dialogue with people to look for ways in which to help address some of these critical issues and not exacerbate them.

Our second recommendation was for the company to see if there are ways in which things like provision of water, electricity etc. can create additional opportunities to benefit communities. This would be continuing to do what they’re been doing and building on the foundation already built. For this approach to be successful, communities need to be able to access information that is clear and easy to understand. 

Proper water management is critical.  Other areas that are important, include helping to foster a culture of small and medium sized business enterprise development.  This can help to meet procurement needs using local suppliers as much as possible. For this to succeed, the company has to work in collaboration with the community to develop training initiatives, business strategies and monitoring programmes. 

As exploration projects advance, new people join the project teams, and the company must make sure that its communication channels with people remain uninterrupted.  This helps prevent misperceptions or misunderstandings. If there is no proper information on what is happening, people make their own conclusions, so they must be kept aware of the different stages of the project, especially of what’s happening at the site. Jobs, water, and environmental impacts are the issues that people say are most important. 

What can the Mongolian mining industry learn from the Erdene example?
A couple of things are most important if we want to avoid and reduce conflict between mining companies and communities. First, environmental concerns should be acknowledged and discussed. Second, all companies should invest early on building relationships so that these are in place before exploration advances to mine development or construction. It is very important to listen to people to understand their concerns and to identify areas where the company might be able to make a contribution to more sustainable local outcomes. 

In conclusion, will you give some general observations? 
Responsible mining to me means mining that’s done in a more sustainable way or that fosters the sustainable development of host communities. When we look at the big problems associated with sustainable development, there is no one entity that can fix these issues by itself, so the mining sector must build partnerships. Erdene has been creating this sort of partnerships and supporting more sustainable development from an early stage. If this foundation is built in the exploration stage, the mining industry as a whole can build incrementally upon that foundation as projects advance to give local communities an opportunity to benefit from mining and to participate in protecting the environment. There are some good examples from other jurisdictions around the world of things like participatory water monitoring. I believe there are some examples here in Mongolia as well of herders being trained to be active participants in monitoring the environment. Such collaborative partnerships are the secret to a more sustainable way forward. 

There will always be challenges, but if relationships are there to allow people to feel that they can bring their concerns to a company and that the company will listen to them, such problems can be addressed. And, hopefully, resolved.  Our study should encourage other companies to engage early with their stakeholders. This creates an opportunity to forge the kinds of relationships that allow companies and communities to work together to address problems and find solutions. This is a better approach than believing you don’t have any problems, or ignoring issues that could then grow to become serious concerns. 
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