IDEAS home Printed from https://ideas.repec.org/a/eee/jrpoli/v74y2021ics0301420718305853.html
   My bibliography  Save this article

The cost of mine suspension from social conflict: A decision tree model

Author

Listed:
  • Teschner, Benjamin
  • Holley, Elizabeth

Abstract

This paper presents a method which incorporates the risk associated with project suspension from social conflict into a mining project's net present value (NPV). The model applies a series of decision trees to a project's discounted cash flow (DCF) allowing for the chance of project suspension from a company-community conflict event. The model determines a social-risk-adjusted NPV for the project based on the likelihood of project suspension and the potential loss of future opportunity. This paper applies the model to a generic mining cash flow using two different approaches to estimating the project's likelihood of suspension and compares the efficacy of each method. The paper then applies the model to the proposed Pebble Project in Southwestern Alaska. The work concludes that after the risks associated with stakeholder opposition are accounted for, the NPV of the Pebble Project drops from approximately $6 billion to $1.1 billion. The model translates stakeholder concerns and priorities into potential financial consequences for investors, thereby demonstrating the business case for incorporating stakeholder positions into mine design and planning.

Suggested Citation

  • Teschner, Benjamin & Holley, Elizabeth, 2021. "The cost of mine suspension from social conflict: A decision tree model," Resources Policy, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:jrpoli:v:74:y:2021:i:c:s0301420718305853
    DOI: 10.1016/j.resourpol.2019.101443
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0301420718305853
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.resourpol.2019.101443?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Humphreys, David, 2000. "A business perspective on community relations in mining," Resources Policy, Elsevier, vol. 26(3), pages 127-131, September.
    2. Campbell, Gary & Roberts, Mark, 2010. "Permitting a new mine: Insights from the community debate," Resources Policy, Elsevier, vol. 35(3), pages 210-217, September.
    3. Prno, Jason, 2013. "An analysis of factors leading to the establishment of a social licence to operate in the mining industry," Resources Policy, Elsevier, vol. 38(4), pages 577-590.
    4. David Espinoza & Jeremy W.F. Morris, 2013. "Decoupled NPV: a simple, improved method to value infrastructure investments," Construction Management and Economics, Taylor & Francis Journals, vol. 31(5), pages 471-496, May.
    5. Holley, Elizabeth A. & Mitcham, Carl, 2016. "The Pebble Mine Dialogue: A case study in public engagement and the social license to operate," Resources Policy, Elsevier, vol. 47(C), pages 18-27.
    6. Espinoza, R. David & Rojo, Javier, 2015. "Using DNPV for valuing investments in the energy sector: A solar project case study," Renewable Energy, Elsevier, vol. 75(C), pages 44-49.
    7. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    8. Paul C. Godfrey & Craig B. Merrill & Jared M. Hansen, 2009. "The relationship between corporate social responsibility and shareholder value: an empirical test of the risk management hypothesis," Strategic Management Journal, Wiley Blackwell, vol. 30(4), pages 425-445, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Brielle Lillywhite & Gregor Wolbring, 2022. "Emergency and Disaster Management, Preparedness, and Planning (EDMPP) and the ‘Social’: A Scoping Review," Sustainability, MDPI, vol. 14(20), pages 1-50, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dou, Shi-quan & Liu, Jiang-yi & Xiao, Jian-zhong & Pan, Wen, 2020. "Economic feasibility valuing of deep mineral resources based on risk analysis: Songtao manganese ore - China case study," Resources Policy, Elsevier, vol. 66(C).
    2. Espinoza, R. David & Rojo, Javier, 2017. "Towards sustainable mining (Part I): Valuing investment opportunities in the mining sector," Resources Policy, Elsevier, vol. 52(C), pages 7-18.
    3. D. Espinoza & J. Morris & H. Baroud & M. Bisogno & A. Cifuentes & A. Gentzoglanis & L. Luccioni & J. Rojo & F. Vahedifard, 2020. "The role of traditional discounted cash flows in the tragedy of the horizon: another inconvenient truth," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 25(4), pages 643-660, April.
    4. Demajorovic, Jacques & Lopes, Juliana Campos & Santiago, Ana Lucia Frezzatti, 2019. "The Samarco dam disaster: A grave challenge to social license to operate discourse," Resources Policy, Elsevier, vol. 61(C), pages 273-282.
    5. Muhammad Suhail Rizwan & Asifa Obaid & Dawood Ashraf, 2017. "The Impact of Corporate Social Responsibility on Default Risk: Empirical evidence from US Firms," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 9(3), pages 36-70, September.
    6. Mercer-Mapstone, Lucy & Rifkin, Will & Moffat, Kieren & Louis, Winnifred, 2017. "Conceptualising the role of dialogue in social licence to operate," Resources Policy, Elsevier, vol. 54(C), pages 137-146.
    7. Walsh, Bríd & van der Plank, Sien & Behrens, Paul, 2017. "The effect of community consultation on perceptions of a proposed mine: A case study from southeast Australia," Resources Policy, Elsevier, vol. 51(C), pages 163-171.
    8. Thuy Thi Thu Truong & Jungmu Kim, 2019. "Do Corporate Social Responsibility Activities Reduce Credit Risk? Short and Long-Term Perspectives," Sustainability, MDPI, vol. 11(24), pages 1-16, December.
    9. Olivier Boiral & Iñaki Heras‐Saizarbitoria & Marie‐Christine Brotherton, 2023. "Sustainability management and social license to operate in the extractive industry: The cross‐cultural gap with Indigenous communities," Sustainable Development, John Wiley & Sons, Ltd., vol. 31(1), pages 125-137, February.
    10. Mercer-Mapstone, Lucy & Rifkin, Will & Louis, Winnifred & Moffat, Kieren, 2019. "Power, participation, and exclusion through dialogue in the extractive industries: Who gets a seat at the table?," Resources Policy, Elsevier, vol. 61(C), pages 190-199.
    11. Söderholm, Kristina & Söderholm, Patrik & Helenius, Heidi & Pettersson, Maria & Viklund, Roine & Masloboev, Vladimir & Mingaleva, Tatiana & Petrov, Viktor, 2015. "Environmental regulation and competitiveness in the mining industry: Permitting processes with special focus on Finland, Sweden and Russia," Resources Policy, Elsevier, vol. 43(C), pages 130-142.
    12. Sol Kim & Geul Lee & Hyoung‐Goo Kang, 2021. "Risk management and corporate social responsibility," Strategic Management Journal, Wiley Blackwell, vol. 42(1), pages 202-230, January.
    13. Benlemlih, Mohammed & Li, Yiwei & Assaf, Cynthia, 2022. "Executive compensation and environmental performance: Evidence from CEO inside debt," Energy Economics, Elsevier, vol. 116(C).
    14. Lacey, Justine & Carr-Cornish, Simone & Zhang, Airong & Eglinton, Kelvyn & Moffat, Kieren, 2017. "The art and science of community relations: Procedural fairness at Newmont's Waihi Gold operations, New Zealand," Resources Policy, Elsevier, vol. 52(C), pages 245-254.
    15. Zhang, Zhuang & Chizema, Amon & Kuo, Jing-Ming & Zhang, Qingjing, 2022. "Managerial risk-reducing incentives and social and exchange capital," The British Accounting Review, Elsevier, vol. 54(6).
    16. Badera Jarosław, 2014. "Problems of the social non-acceptance of mining projects with particular emphasis on the European Union – a literature review," Environmental & Socio-economic Studies, Sciendo, vol. 2(1), pages 27-34, March.
    17. Mason, Claire M. & Paxton, Gillian & Parsons, Richard & Parr, Joanna M. & Moffat, Kieren, 2014. "“For the benefit of Australians”: Exploring national expectations of the mining industry," Resources Policy, Elsevier, vol. 41(C), pages 1-8.
    18. Josefa López-Marín & Amparo Gálvez & Francisco M. del Amor & Jose M. Brotons, 2020. "The Financial Valuation Risk in Pepper Production: The Use of Decoupled Net Present Value," Mathematics, MDPI, vol. 9(1), pages 1-19, December.
    19. Poelzer, Gregory & Yu, Stan, 2021. "All trust is local: Sustainable development, trust in government and legitimacy in northern mining projects," Resources Policy, Elsevier, vol. 70(C).
    20. Dunbar, Craig & Li, Zhichuan (Frank) & Shi, Yaqi, 2020. "CEO risk-taking incentives and corporate social responsibility," Journal of Corporate Finance, Elsevier, vol. 64(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jrpoli:v:74:y:2021:i:c:s0301420718305853. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30467 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.