Mining is, by its very nature, a challenging business. Mines are large, complex and risk-laden industrial enterprises run by people who have to manage them through commodity price cycles, find replacements for dwindling mineral reserves, convert them into renewable energy sources and, in many cases, find and operate them in challenging jurisdictions with poorly developed infrastructure.
Driving Economic Development
The key overarching issue that the mining industry currently faces is the need to advocate mining to the societies and general population whose needs it serves in countless and in growing ways. It’s worth recalling that mining has been advancing human civilisation since our remote forebears started using copper in the Middle East some 11,000 years ago. Today, copper remains a material of critical strategic importance, a key component not only of the global power distribution infrastructure, but of all the new clean energy technologies. In fact, these technologies are reliant on a wide range of mined resources.
Mining has been the primary driver of economic development throughout the world and it still performs that vitally important function in emerging countries. Its products touch the lives of every person, every day and in many ways.
We depend on at least 90 metals and minerals to support and power the global economy. Yet, in spite of its contribution to mankind, which few other industries can match, the mining industry has never been given its due. At best, it is taken for granted. At worst, it is depicted by activists of various persuasions as a ruthless exploiter of countries and people, and a reckless despoiler of the environment.
The key overarching issue that the mining industry currently faces is the need to advocate mining to the societies and general population whose needs it serves in countless and in growing ways.
Solar panels at Barrick’s gold mine in Loulo-Gounkoto in Mali.
Embracing ESG Principles
Sadly, greenhouse emissions by rogue players, and even some industry leaders, have given some credence to this perception. It’s therefore encouraging to note that a fightback has started with the introduction of the World Gold Council’s (WGC) responsible gold mining principles and the closely aligned mining principles of the International Council on Mining and Metals (ICMM). Representing the views of a broad range of stakeholders, these principles address key Environmental, Social and Governance (ESG) issues, and provide a credible framework within which mining companies can demonstrate that their gold or other metals and minerals have been produced responsibly.
However, as an industry, we could do better, by standing up for ourselves and ensuring that we talk with one voice and promote our own well-thought-through regulations, rather than constantly trying to comply with a plethora of third-party or activist-derived regulations.
ESG as an investment thesis has moved from the margins to the mainstream, and this is definitely a good thing. However, it also presents some challenges, with the number of disclosures, tools and metrics used to score a company’s performance ever increasing. As an industry, we need to be working with investors and raters to improve the understanding of what “good” looks like when it comes to ESG because, ultimately, we know our industry best.
We should be striving for equivalency and having a single set of reporting guidelines for the industry. Only then can we start making meaningful comparisons and focusing our attention on those ESG metrics that actually add value.
Getting to what “good” looks like is one of the reasons Barrick has worked with the WGC and ICMM on the responsible gold mining principles and the mining principles respectively – along with driving equivalency between the two. It was also a key reason for us to develop our own ESG sustainability scorecard. The scorecard, which is a first for our industry, sets out the sustainability issues that are most relevant for our business, as well as for our industry. It not only benchmarks us against our peers, but importantly, also drives internal performance.
Creating heightened awareness of mining’s industrial and commercial importance is only one challenge, however. The need to reorientate mining companies as modern businesses in step with society’s rapidly changing demands and expectations is really the key challenge we face as an industry. The new model is exemplified by the current emphasis on ESG, which requires an equal focus to be placed on the S (Social) and the G (Governance) criteria as on the E (Environment).
The basic principles of ESG have been around for a long time, but I think it’s fair to say that, until quite recently, chief executives of mining companies have been content to look upon these as feel-good factors, which could be relegated to their CSR departments and/or used as a tool to try and outcompete their peers in the compliance space.
While this attitude is changing, there’s still more we can do to reconsider, in a fundamental way, our priorities.
ESG as an investment thesis has moved from the margins to the mainstream, and this is definitely a good thing.
ESG is not a passing market whim. It should always have been a key element of the way we run our businesses. What we call our social licence to operate has long been a strategic imperative for Barrick. Essentially, we believe that a mining company should serve not only its shareholders, but also its host countries and communities, as a good corporate citizen and as a welcome neighbour, who shares the value it creates fairly with all its stakeholders. We define stakeholders as any constituency involved in our operations or affected by their presence. Growth in the return to investors should not be at the expense of other stakeholders, including employees, the environment and society at large.
Alex Edmunds, a professor of Finance at London Business School, recently published a book entitled Grow the Pie, How Great Companies Deliver Both Purpose and Profit. In it, he notes that many chief executives still see the value that their company creates as a fixed quantity, which he describes as a pie. They believe that anything you give to stakeholders cuts a slice out of that pie. In other words, it is at the expense of profits. Edmunds argues persuasively, drawing on academic evidence and empirical research, that when companies invest in stakeholders and take the obligation to benefit those stakeholders seriously, their long-term financial performance and profits improve. Instead of cutting up the pie, they grow it.
Far from being a necessary evil, mining can and should be a force for good in the world. This is particularly true of those disadvantaged countries where a mining company committed to its stakeholders can transform frontier regions, dependent on subsistence activities just to survive, into sustainable economic hubs, providing modern conveniences and employment opportunities that liberate people both economically and politically. It’s another sign of the times that people want products to have an ethical provenance. The industry is vulnerable to investors’ and consumers’ perception of responsibly resourced minerals and metals.
In the gold industry, we have our share of illegal miners, so it’s essential that gold should have impeccable track and trace credentials, to maintain the trust of investors and regulators.
Mining operations at Barrick’s gold mine, Turquoise Ridge, Nevada, USA.
The need to reorientate mining companies as modern businesses in step with society’s rapidly changing demands and expectations is really the key challenge we face as an industry.
As the WGC is advocating, we’re on the cusp of a new industrial revolution, driven by rapid advances in digital technology. This should be employed to ensure that the integrity of the supply chains for gold and other metals and minerals are fully transparent. The WGC envisages the use of technology to create fungible and interoperable local and regional markets, so that gold could be used for alternative purposes, from collateralisation to new sources of funding. It’s also working to move the gold market from an opaque bilateral system to a more transparent model.
It’s up to the gold industry to make the case for gold and why it should form part of every balanced portfolio for institutional investors worldwide. As for the mining industry as a whole, the world couldn’t exist without us. Instead of being defensive, we should assert our right to be recognised as an age-old foundation of economic development, now successfully adapting itself to the changing temper of the times.
Edmunds argues persuasively, that when companies invest in stakeholders their long-term financial performance and profits improve. Instead of cutting up the pie, they grow it.