Case analysis is a multi-step process. This exercise will help you to learn to analyze a case by framing questions, labeling variables, synthesizing information, summarizing facts, and drawing conclusions. You can use this approach to develop thoughtful solutions to any business issue or situation.
BHP’s Tintaya Copper Mine
While you may not have heard of BHP Billiton, you most likely own a product or live in a dwelling that uses its materials. In recent years, this metal mining company has grown in power and stature as the demand for base metals has increased in concert with the growth of economies in China and India. BHP is a global mining giant that maintains business in aluminum, iron ore, coal, lead, copper, and zinc extraction in 25 countries across the globe. By year-end 2007, the company had revenues of $48 billion and net income of $14 billion. In 1996, the company acquired the Tintaya copper mine, which was located in the Andean region of Peru known as Espinar province.
Although Peru is considered one of Latin America’s better economic performers, its average per capita income hovered around $2,000.i In general, the country’s rural population was worse off, with few opportunities for employment.ii And while copper mining had contributed to greater prosperity for the Peruvian government, most of the local inhabitants of Espinar province did not see any benefits. In fact, the Tintaya mine had long been a source of contention between the locals and the mine’s various operators. Established in 1985 as a state-owned enterprise, the mine originally stood on 2,368 hectares of land expropriated from 125 families in Tintaya Marquiri, an indigenous farming community.iii In return for the land, the Peruvian government reportedly offered farmers as little as 10 soles per hectare (about $3 for 2.45 acres) and the promise of mining-related jobs.iv The jobs, however, were few in number, and the loss of land pushed many local families into poverty.v
As metal prices continued to soar in the early twenty-first century, Peru’s fortunes climbed in concert (see Figure 1.12). The rising profile of Peru’s mining industry also attracted the attention of various NGOs and subsequently led to widespread unrest among some of the lower classes of society. Protests against large-scale mining and its environmental and social impacts became more frequent throughout the country.vi BHP thought it had supported the local community by creating jobs for over 600 locals and voluntarily contributing close to $2 million for a local development fund. However, many locals in the Espinar province had grown tired of the company because it continued to acquire land cheaply in the areas surrounding the Tintaya mine. As concerns about BHP’s land purchases mounted, community members also began to speak up about the perceived environmental degradation the company had caused. Residents living near the company’s operations claimed that wastewater from the company’s processing plant had contaminated pasture lands and rendered the water unfit for consumption.vii
In the spring of 2003, nearly 1,000 people stormed the Tintaya mine and took the general manager hostage. This group consisted of people from the Ccañipia river basin, who claimed that the company’s tailings reservoir had polluted water sources used in the local dairy farming industry.viii BHP negotiated with this group and agreed to set up a development fund that contributed a certain percentage of the mine’s annual profits to the fund. At the same time, other groups in the mining community became angry that the company had negotiated a settlement with the Ccañipia group that had stormed the mine.ix On May 23, 2005, 500 members of left-wing political parties and student groups from the provincial capital gathered outside the mine’s gates to protest the terms of the agreement with the community. The decision was made to shut down the mine and evacuate all personnel.x
BHP failed to recognize the importance of its various stakeholders throughout the entire process. When the company obtained the mine from the Peruvian government in the 1990s, it was apparent that BHP did not have a stakeholder strategy in place. And despite subsequent attempts to develop one in the early 2000s, the company’s inattention ultimately led to a crisis situation.
The Tintaya Mine situation represents:
A A situation that shows the impact of the imbalance of power even when motives are good.
B An economic solution to the poverty in Peru.
C An economic development opportunity that can work in multiple contexts.
D An exploitation of the poor.
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