Miners struggle to get traction in the era of climate change.
ESG — ENVIRONMENTAL, SUSTAINABILITY AND GOVERNANCE — IS THE NEW TALK OF THE CIRCUIT
O nTuesday evening, Barrick Gold Corp.’ s chief executive Mark Bristow stood inside The National Club in downtown Toronto with its dark wood panelling and paintings of pastoral scenes.
While a chef carved a rump roast under a heat lamp, dozens of mining executives, investment managers and foreign dignitaries gathered in the reception room to listen to Bristow, who has gained renown for discovering gold in Africa’s poorest countries, but also for his habit of lashing out at the rest of the mining sector for its shortcomings.
His talk at Barrick’s cocktail reception marked a finale of sorts to the Prospectors and Developers Association of Canada’s annual conference, which had drawn 23,000 people to Toronto over the past week.
This year, protesters showed up intermittently outside the downtown convention centre to decry the sector’s record on human rights and the environment, but their objections largely passed unnoticed by those inside the giant cavernous hall, where the economic impact of coronavirus and rising gold prices generated more discussion, and beer and spirits flowed freely.
Taking the floor at his own cocktail reception, Bristow took aim at the topic du jour for the mining sector — ESG, the acronym and catchphrase for environmental, sustainability and governance principles that have skyrocketed almost overnight to the top of most mining companies’ priorities, and dominated discussion at the conference.
“People are talking about ESG like as though they’ve just found out (about it),” he told the audience, “but ESG is the fundamental component of a partnership.”
Bristow, who hails from South Africa, a “Zulu boy” in his own words, has made it a centrepiece of his investment pitch that the mines he builds are designed to lift up nearby communities — by hiring and upskilling workers from local communities, and by providing tax revenues to governments. When the mine is gone, his company will conduct environmental reclamation, he says.
Lately, however, such statements are subject to more scrutiny as new metrics have emerged to measure companies’ relative ESG. That means investors have more choice about where to put their money, and even trading algorithms can take account of ESG. One result is that the largest mining companies are already aware of the changes underway, while many of Canada’s smaller companies, who see more investment from the retail side than from large institutions, are relatively insulated from this trend.
Nonetheless, Ani Markova, an independent portfolio manager who advises the mining industry on ESG, said there has been a “huge demand” from investors for companies with higher ESG ratings and it has affected every aspect of the capital markets, from pensions to green bonds to private equity.
“We have seen a big shift in the philosophy behind financial analysis from a simple analysis of income statements and balance sheets,” Markova told an audience at PDAC, “to now, a more complex levering of factors including the ethics of a company, the competitive advantages, and the culture, which are more intangible assets.”
The reason, she said, is that such factors have real impacts on financial and operational performance, and the investment sector is beginning to see these as part of their fiduciary duty.
The result is that the mining sector, which by its very nature causes massive disturbances to the environment and communities, is feeling pressure to show its ESG merits.
Another part of the recent urgency for miners stems from an ailing reputation connected to high profile environmental disasters, such as Vale S. A.’s Brumadinho tailings dam collapse in the Brazil rainforest in 2019, which killed 270 people, left a wide swath of earth covered in old mining waste and resulted in the arrest of the former CEO for homicide. In 2014, the Mount Polley mine’s tailings dam in British Columbia failed, resulting in similar environmental catastrophe.
“It’s definitely front of mind now,” said Tom Butler, chief executive of the International Council on Mining and Management. “What’s put ESG on the agenda is the tailings and climate change, but also younger investors are much more interested in this.”
His own organization is establishing a global standard for tailings dams, which some investors can use to review their investment decisions. Meanwhile, during the past year, the Church of England led a group of investors with roughly US$ 14 trillion of assets under management in an effort to make a systemic review of the world’s 1900 tailing dams.
Other major investors have taken similar steps. In January, Blackrock Inc.’ s chief executive Larry Fink, whose fund counts US$7 trillion in assets, announced it would divest some coal from its portfolio, and advised companies to take a longer term view, particularly on ESG.
Such focus on ESG can cut both ways, and make life harder for some mining companies.
For example, Newfoundland-based Altius Minerals Corp. has built a diverse portfolio of royalties worth close to US$ 400 million in market capitalization. Its portfolio includes base metals such as nickel and cobalt — both essential to the battery metal supply chain necessary for a low- carbon world — but also royalties on coal plants in Alberta.
“Coal right now from an ESG perspective, well from an everything perspective, is bad,” Chad Wells, vice-president of development at Altius, told prospective investors at PDAC.
He told the Financial Post that some investors have been repelled from Altius simply because of its coal assets, which would add carbon emissions to their investment portfolio.
“There were ( investors) who sat down with me, and when they saw I had coal, they politely said ‘ no, thank you,’ got up and left,” he said. “It was almost like they were actually allergic to it.”
The reasons for avoiding coal may be as much about risks as anything else. In 2018, one of Altius’ entities sued Alberta and the federal government after changes to the regulatory framework meant that one of its coal plants would cease operations in 2030, years ahead of when Altius calculated when it purchased a royalty stream.
Wells characterized himself as a climate- change skeptic, acknowledging that temperatures may be rising, but questioned whether it was caused by humans and whether the science was being “sensationalized.”
Still, he said Altius is increasing its ESG disclosures, and even investing the coal royalty, which provides $ 12 to $14 million in revenue per year, into renewable energy projects.
The company’s situation, relying on coal revenues but using it to fund renewable energy projects, illustrates the evolving attitudes in mining, particularly when it comes to climate change.
Such changes to accommodate investor demand for ESG- friendly companies have not gone unnoticed by politicians including Prime Minister Justin Trudeau, who made a surprise, last-minute appearance at PDAC for the second consecutive year.
“Yours is an industry that already understands that good climate policy is good business,” Trudeau said. “Investors are increasingly looking to fund projects in jurisdictions where governments have put a solid framework in place to reconcile resource development and climate change.”
But a split exists within Canada, and within the mining sector about carbon- pricing. While many of the largest companies support carbon pricing and see it as a mechanism to attract investment, the same attitude is not as prevalent among smaller exploration and development companies, even though it would have minimal impact on them as they aren’t actually producing any minerals.
Tim Froude, of Sokoman Minerals Corp., for example, said he doesn’t support a carbon tax because he has questions about how it would be calculated, and its impact if given that some countries may not have such a tax.
“How do you price carbon?” Froude asked.
His company, with roughly $10 million in market capitalization, may be too small to attract interest from larger funds that have devised ESG metrics to guide their investment decisions.
Rather, Froude’s Sokoman has succeeded by impressing with drill results that showed he had discovered high grade gold intercepts. In 2018, he attracted nearly $2 million in investment from billionaire Eric Sprott.
That differs from larger companies such as Teck Resources Ltd., where CEO Don Lindsay last week noted his company strongly supports a carbon-pricing framework, and that investors “are increasingly looking for jurisdictions to have a framework in place that reconciles resource development and climate change.”
Pierre Gratton, chief executive of the Mining Association of Canada, whose organization represents the country’s largest miners, including gold, copper, uranium and oilsands, said the divide on policies surrounding resource development is “highly emotional” and not always productive.
Since 2015, his organization has been on record as supporting a carbon-pricing system; but Gratton noted Alberta has challenged the federal government’s authority to require provinces to implement a carbon- pricing plan, and recently won in the Alberta Court of Appeal. The case has now moved to the Supreme Court, which will hear arguments next month. But if it wins there, it may not be good for his members, he said.
“It would be nice if the two sectors of government can co-operate more and not use the sector as a wedge,” Gratton said.
He added that having clear policies for climate change is the best way to attract investment, with all the new ESG pressure.
Back at the national club, Barrick’s Bristow had his own message for the mining sector on ESG.
As much as he likes to say his mines benefit the communities where they exist, Barrick has had its own tangled history of fighting with local communities, particularly before Bristow arrived in 2019. Earlier this year, a group of Tanzanians sued one of its subsidiaries was sued by a group is being sued in the U.K. for alleged human rights abuses at one of its mines.
Bristow has acknowledged that the subsidiary, which Barrick recently acquired, made mistakes, and said it did not operate at his standards.
He has also pointed to the situation as an example of why miners should not focus on the environment at the exclusion of other things, singling out the importance of having a social license to operate in their communities. He urged Canadians to explore outside the country and build mines in poor countries, so those economies can grow.
“We all want to have zero- carbon, and zero footprint and make sure everything is perfect and so on,” Bristow said, “but we forget about the other 90 per cent of the people on this planet, that are so poor that they can’t even plan for one week ahead. So you’ve got to think about how we bring those people with us.”
it’s definitely front of mind now. what’s put esg on the agenda is the tailings and climate change, but also younger investors are much more interested in this. — tom butler, chief executive of the international council on mining and management