DICK ZANDEE

Transcript of Dick Zandee to the Sydney Mining Club, 1st April 1999

I feel a little uncomfortable standing up here, supposedly giving you a fascinating account, when there is people in this room who are much more knowledgeable than I on many of the issues than I. I'll be very quick if there are any questions, to direct them to them.

To set the framework here, I think its worth reviewing on what the public perception and attitudes is towards the mining industry. I suppose 10, 20, 30 years ago, the so-called public, we probably had different views of them - there were the rabid greenies, the environmentalists, the regulators, the ignorant public, the small part of the public that supported us. There were a lot of different views of what constituted the public.

The first paradigm shift that the mining industry has had to make, and has to continue to make, is that we can't be that unfocussed anymore. These people are stakeholders. Its anyone who is interested who are now stakeholders and we have to deal with them. As I'll show it's not an easy process and some of us are just barely learning how to do this.

It's fair to say that most people see us as dirty, dumb and dangerous and on a good day they probably see us as objectionable, obnoxious and obsolete. I think there is a large trust deficit between the mining industry and the public. It's well known that we are not very good at telling our story. We often find that even if we do tell our story, people tend not to believe us. And in many cases they have good reason to because we do have some skeletons in our closet.

Another big perception is that the mining industry exists to make money at the expense of everything else. Certainly that is the view. We've just put out our annual report and there is little place in here where we are talking about our profitability. This last year we have done very well and have gone to minus 9% on total shareholder return from 40% the year before and 14% the year before. I guess that begs the question if these guys aren't making a lot of money, then why don't they go away and stop disturbing us. It's another issue there. There are a lot of mining companies who aren't making a lot of money right now. In fact if you take a review of how much money the mining industry normally makes, it's not that great. But again, it begs the question, if you're not making money out of it, then whey do what you do?
Perhaps Australia is more fortunate than some of the other nations in which we operate. In that really rural people in Australia still appreciate that the mining industry has importance to the nation.

Perhaps North America is the extreme example of the opposite. This research that was done by Roper Research - these people every two years do a review of how the public views certain industries. Hopefully it's not this bad in Australia. But the thing is quite scary.

This is going to be a graph of public favour for various industries and a list of industries on the side. There were 24 in the last survey, only 18 are shown here. Ros Kelly and I were debating the banking industry a short time ago and you can see that it's fairly well received. Here the oil industry, after some of the problems they have had with the Exxon Valdez and so on, still rates about 50%. Beer companies slightly less than that, which surprises me because anything that's got four Xs on the tin is something that I like. The liquor industry is about the same. The chemical industry, when you think back to Bopal and whatnot, I'm surprised the view of that is as good as it is.

Then there is credit cards - well fees just keep going up and you never seem to get any more service. Then there is the tobacco industry. I can't think of anything that gets more attention than the tobacco industry. But by golly the mining industry does. It was rates lowest of 24 industries in North America.

The previous survey done two years ago we beat tobacco. So something must have happened because we fell one place. But this is quite shocking that only 30% of the population even favours the mining industry. To a large degree that is our fault because we don't tell the world what we do for them. For instance, a mobile phone has 42 metals in it. Maybe we should be doing more advertising.

Governments of course have had to get involved. Without a doubt the public pressure is forcing the government to increase its regulation. Certainly that has a great effect on what is happening in the industry.

I'll list a few things here, but I don't wont to imply that they are wrong. Certainly every phase of our development is being subjected to stricter government and regulatory control, both nationally and internationally. We are seeing a multinational approach to environmental issues, such as international treaties and agreements. We are seeing that access to land is much more restricted or banned.

Julian in his introduction just by coincidence mentioned Coronation Hill. If you just cast back your mind to what happened there. If you cast your mind back to that case about $14 million was spent to look for a project only to be told that it wasn't going to go ahead. That number is insignificant compared to some of the examples in Canada. There was one place called Windy Craggy where a small company called Getty Resources had invested $48 million before the government pulled the plug. Through a bunch of manoeuverings ultimately it was decided that the government would pay back the mining company, which was a different one at that time. As it turned out, it cost the tax payers of the province of British Columbia about $250 million. That is even dumber.

Then there is the Kimano 2 project. Kimano is a hydroelectric system for making aluminium in northern British Columbia. They had spent $503 million and that was kiboshed at the end. Certainly this is becoming a bigger issue particularly with National Parks reserves. We just have become a lot smarter and lot more careful about how we are perceived.

We are seeing these minimum air and water quality standards are becoming more uniform worldwide. As a reminder to myself in case I forgot to mention this, I'm not necessarily saying that these things are bad. This is a fact of life. Society has a right to determine how its resources are going to be received. These things must happen and they certainly are a fact of life these days.

So how is industry responding? Well I guess there's lots of degrees. There are those that still have their head and feet under the sand. There are those that are pulling them out. There are those carefully looking around and ready to duck back in. There are those real fools who are on the way up and getting their heads shot off. It's quite a broad response by industry worldwide and here in Australia. I think its a matter of adapting or dying. If we are not going to respond to what the public is telling us we are going to become dinosaurs.

The classic age of revolution in the late 18th century was all about people power telling governments how they were going to run the countries. Late in the 20th century we are getting a pretty strong message on how the mining industry is going to be run. If we ignore the public pressure, we just won't be in business.

Some industries are starting to participate in inter-governmental committees and working groups, workshops - the ICME's is a good example. We are trying to adopt the best practice in industry standards and new technology. We are formulating some industry codes of conduct and guidelines. I'll say a little bit more about how that pertains to Australia in a minute. We are starting to learn how to engage with stakeholders. We are struggling with external verification of performance. We are integrating this new buzzword called sustainable development into our business plans. The last four issues I'll come back to in a minute.

I want to talk about another thing called Critical Emotional Event (CEE) as a catalyst for change. I think that many of our stakeholders feel that industry is responding too slowly to this paradigm. So what is a Critical Emotional Event? Well it would definitely be one if you noticed your teenage daughter was eating pickles with her ice cream for desert. But for industry, it's defined as one that has a profound impact on the corporation causing internal questioning of conduct and practices. One of these things can really speed up the change process. And the public controversy using one of these critical emotional events, whether it be related to the environment, safety or social crisis can act as a catalyst of change.

Here is where I'll start heading off in the direction of how this has affected us at Placer. Certainly we in this region have survived two very significant incidences in the last three years. The first one was where a group of NGOs got together with a television station, the one who sponsors a lot of foreign movies, and did an expose on us of the downstream effects of the Porgera mine in PNG. That was followed by our next annual general meeting in Sydney where we had a large group of NGOs.

This newspaper clipping says "Greens Blacken Placer". In those days we were called Placer Pacific. They put up a sign saying "Placer poisons the Pacific". You will notice on the extreme right hand side there is a guy with black hair well three years later he's got grey hair. So that is what a cultural change does to a guy.

The other incidence we had was the Marcopper tailings spill we had in the Philippines in March of 1996. I don't know if many of you were aware of this, but this mine had been in operation for 30 years. We had finished mining one pit. Because we have half a dozen cyclones a year there we actually had a drainage tunnel under that pit. It finished and we started the second pit. We sealed that tunnel and put the mill tailing into that pit. There was an earthquake and the rock around the plug failed and we ended up putting tailings into the river called the Bolac River. We committed, although we were only a 39% shareholder, to protect our international reputation, we committed to do what was the right thing and to clean up the tailings spill in the river. We committed so far about $US80 million and we are still there and we are still going to be there for some time.

When you have one of these CEEs it certainly shakes you. The two incidences I refer to here really shook our company to its very core. We had employees questioning our commitment. We had been developing a greener and more sustainable approach. We were telling our employees that that's how we were. When this happened the trust of our best ambassadors - a lot of our best ambassadors are our employees - certainly there was a lot of trust lost in that.

So what it lead to was a reevaluation of our corporate core values. In our company we have a book which is all about our core values and principles. We ended up reviewing that. We also have an internal code of conduct. We ended up reviewing that. It led to the formation of our sustainability policy. I'll say a little bit more about that.

We made a commitment to be much more transparent and willing to engage NGOs. I'll talk about some of those things now.

From our perspective sustainability is the new business reality. Some people refer to this as sustainable development - some sustainability. A lot of people even don't know what the definition is or what it means or what it's all about. How does it apply to the mining industry? I know the spell check on this laptop doesn't even have the word. We've had some very interesting debates with NGOs and other stakeholders on what the thing even means.

And of course the first thing you are asked in the mining industry if you are extracting a resource how can it be sustainable?

It's raised a lot of very interesting debate. We have put out this policy and this is now a core value for us. It took us two years to develop a sustainability policy. We launched it in 1998. It is based on five core principles. One is a corporate commitment, public responsibility, social progress, environmental stewardship and economic benefits. Having said that, that was the easy part. Now we have to implement the policy and we have to earn the public support for our business around the world.

The first step we took in our region here in Asia Pacific, was to publish our first sustainability report which was called Taking on the Challenge. I found this very interesting in that we were really behind the eight ball. Our company had never even put out an environment report, whereas a lot of good companies in Australia had been putting out very top quality environment reports for a long time. Western Mining being a classic example.

We decided we were going to put out an environmental report, set a deadline and we never made it for that year and half way through the process we decided to put out a sustainability report instead. Which took a certain amount of arrogance, like I say, we certainly were not experts on it and we hadn't even put out environmental reports.

Basically what this was to set a baseline where we thought we are. A starting point for us to start speaking to our employees and changing our culture. In this thing, we tried as a first attempt to talk about this 'triple bottom line reporting'. I'm sure most of you are familiar with it. Basically this term, triple bottom line, was invented by a guy called John Elkington. He wrote this excellent book "Cannibals with Forks". Particularly this is about triple bottom line. It is caught on and became a bit of a buzzword around the world.

A few months ago there was a conference convened here in Sydney on the triple bottom line. Ros Kelly was the chairman. There were more speakers than there were delegates. The industry still has a long way to go. That is why I'm so flabbergasted there are so many people here today. Obviously the conference was too expensive compared to the cost of this lunch. That was the difference.

Basically the triple bottom line is that it's not good enough just to report your financial performance anymore. You've got your economic and social responsibilities as well. It's very hard to do to report that and to audit it.

We are now working at integrating our sustainability in our overall strategic plan. We've had a couple of years go at this and I think it's going fairly well but we have a long way to go. The Placer Dome strategic plan, the most recent one which we have just updated, has three goals: reduce costs, increase reserves, improve public acceptance. Most of the mining engineers that run our mines are very comfortable with the first two. But those three little words in the third one sound very innocent but are very difficult.

What we've tried to do in our plan is link these issues as a business objective. And of course to the extent that we integrate these will determine how successful we are. We've been undertaking several initiatives to improve our public acceptance. The first one is engaging stakeholders. This has been fairly traumatic for us internally at least. I see a lot of other colleagues in the industry having a lot of problems with this. There is a gentlemen sitting here who in our company really kicked this off in PNG. After his first meeting with the NGOs I said how did it feel? He said "just like taking your pants off in public".

In 1997 we committed to develop a comprehensive stakeholder engagement strategy. As I said, this is not very easy for companies, and you do have to teach your people how to do it. It is also not easy for NGOs because other than training your people, a lot of NGOs are very reluctant to be seen in the same room as you let alone engage you because it would be so easy for them to be accused of being lap dogs rather than watch dogs. A lot of them will dialogue with you but would prefer that you didn't mention their name and they wont put their name to anything.

This is a difficult thing, but we've had several workshops over the last two years. I've found them fascinating and very rewarding. We have learnt an incredible amount internally. But I also think some of the NGOs are starting to learn from industry too.

I think it is a very positive process and some of the other things that we are going to have to do in the future - this is the first step - so its very important that we pursue this.

Right now a lot of our mines in this region have stakeholder consultation committees and this is a photograph of the one that we have at Porgera. That particular group is called PEAK which stands for the Porgera Environmental Advisory Komiti. That's how committee is spelt in the language there.

It's been getting lots of acclaim because following on the back of the attack we got on television, we committed to do a lot of things. If you are going to commit to do things, then people are going to hold you to account. The creation of PEAK which includes a lot of academics, NGOs, government representatives, landowners and what ]not, are going to hold us to our word. To make sure we are going to do what we said we would do. It's been a positive experience for the company and apparently for some of the NGOs as well.

The other one that is extremely difficult is external verification. Every mine manager's biggest bane is auditing. A few years ago the only thing they had to worry about was when Price Waterhouse or someone else came along and did their financial auditing. But over the last few years we have added a lot of auditing demand on our mine managers. And a lot of the softer issues. A lot of mining engineers have problems with softer issues. They are results oriented and a lot of these softer social things are sometimes a little difficult to grasp. It takes a mining engineer a little while to be comfortable that sometime there is no clear end point and it is the process that counts.

We think this external verification is an important means and maybe the key means to regaining some trust with the public. We in our company are currently implementing an independent external verification review process as part of our commitment to the the Australian Minerals Industry Code for Environmental Management. We are also doing it for an internal system that we have. It's bad enough that we've got these external auditors on site, but on top of this we have superimposed another layer which is an independent advisory group under the direction of this very formidable group. What we are trying to develop is a feeling that the process we are going through is proper. We've done three of our five mines now and its been very, very learning experience and I think a very positive one.

As I said in our strategic plan we are looking at exploring models for integrating the performance of systems verification into the stakeholder engagement process.

I said I was going to talk about the Australian Minerals Industry Code for Environmental Management. I think we in the Australian minerals industry can be very proud of this code. It is the most aggressive code that I am aware of in the world. We've done a bit of research on this. There are codes in other developed as well as developing nations, but this is a very strict one. The thing that probably sets it aside is that it has external verification as one of its characteristics. I think we should all be very proud of this. It is very important that the industry supports this thing and live up to their commitments. About forty mining companies in Australia have signed the code. Now comes the tough part that in a certain period of time we will have to be externally verified.

In our case, we saw this after our Critical Emotional Events a good way to work on our reputation. We were very instrumental in pushing this thing forward. We were one of the first signatories. The code was launched in December 1996. As I said we are currently doing an independent verification process to ensure we are living up to our commitments. The sustainability report that I spoke about was actually our first public statement and reference of what we would be held accountable for and what would be verified in the future.

What we are doing now is rather than corporately at least in this region, is producing a report. Our individual mines are now preparing reports like I showed you. So that they can work more closely with their specific stakeholders in their particular area.

So what do we have to do? Obviously we are going to have to change our view of meeting society's expectations and its much more than I think we have done in the past. We are going to have to operate to the highest environmental and social standards. That's a given een debatable any more.

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