While the past had seen the environmental activist as the primary driver of awareness and action toward socially conscious profit, society and investors are now demanding greater transparency and commitment to the social, economic, and environmental impact of sectors such as mining. The environmental, social, and governance (ESG) factors integrated into investment analysis and portfolio construction offer long-term performance advantages while offering funds and managers the opportunity to meet the new demands of their clients.

ESG portfolios are not just window dressing for investor pitches, but a serious and growing investment strategy. The idea is to build value beyond the standard compliance expected of companies. ESG portfolio managers look for a synergy between economic performance and social progress that combine in the right way to benefit the companies they invest in and all other stakeholders. Generating value this way requires companies to leverage shared value principles, innovation, analytics, digitization, and strategic and evidence-based solutions to deliver efficiency and competitiveness while balancing the socioeconomic impacts of projects.

Investor expectations continue to mount, and while mining companies may have used the ESG factors as a way to build greater social capital, there is growing and irrefutable evidence that prioritizing these factors builds value over the long term. Mining companies must still focus on delivering shareholder value, which is why some of the ESG initiatives planned often have trouble getting off the ground. Some companies have struggled to justify investing in non-revenue-generating activities in the past, like community infrastructure projects and sustainability initiatives.

As investors get serious about mining companies’ commitment to environmental remediation, energy efficiency, diversity, health and safety, and the fair treatment of community stakeholders and employees, organizations heavily dependent on investment funding must shift their values and operations to meet those expectations. Failing to do so could mean difficulties both financial and reputational. In a world where image matters more than ever, this would be a critical misstep that any company should avoid. 

Deep Dive Disclosure

Investor demands for the prioritization of ESG factors have meant that companies are facing greater demands for deeper disclosure from mining companies. When a vast majority of the world’s largest cobalt, copper, lithium, manganese, nickel, and zinc mining companies were found to have faced various allegations regarding human rights and the infringement of land rights – a tracking tool was launched that lets investors and other stakeholders trace allegations made against those companies. 

Greater accountability on top of the more in-depth disclosure investors now expect from mining companies has forced the change that may have been unwelcome in the past. Still, the benefits have outweighed the costs as more capital flows into mining companies getting ESG right, and investors continue to expand their ESG portfolios. 

Beyond Compliance

Investors have made it clear “that they will not advance funds unless companies can demonstrate a meaningful and measurable commitment to the principles so much of society holds dear. This causes mining companies to consider not only threats to public trust but also potential threats to investor trust”, says Dr. Leeora Black, Global Mining & Metals Value Beyond Compliance Co-Leader, Deloitte Australia. 

Earning Trust

For companies to gain trust with investors, they need to integrate and embed these principles into the mainstream of business rather than segregating them to a “charitable works” area managed by a small department, make social issues part of their strategic decision-making process, and address big issues by placing enmeshing their importance into their projects.

Natural Integration

Instead of creating a different department to pay lip service to ESG principles, companies now need to integrate these principles into their business at every level. Separating them and relegating them to a special section of their investor reports is not cutting it anymore. Investors want to see that it is a regular priority and not something to be trotted out when it suits the company. 

Make ESG Decisions

Making important social issues part of companies’ strategic decision-making process is a key element in attracting investors these days. Fixing problems as they arise when communities or other stakeholders complain isn’t enough. Companies should be proactively considering and discussing ESG principles in their day-to-day operations and taking into account those factors as they would costs or risks.

Of Equal Importance

Enmeshing the importance of ESG principles into the foundations of the projects a company is managing is the best way to show investors and the world that the social issues that are important to everyone are just as important as shareholder value. By tying those principles directly to the improved production and financial health of the company, companies can put their message forward through their work and not just their presentations. 

Andrew Lane, Mining & Metals Leader, Deloitte Africa, explains: “When companies make portfolio choices, they traditionally look at a range of factors—such as the assets, geographies, intrinsic value, shareholder value, and risks associated with these investments. But beyond those factors, they should think about the societal impact of their decisions by asking if their investments can also make the impact that society expects of them.”

Who’s Doing It Well?

The rise of the importance of ESG principles for miners is not lost on those that are performing best. The top producers and explorers are not just putting their best foot forward in their work, but how they do their work as well. Some of them even win awards for their commitments. 

First Majestic (TSX:FR)

First Majestic Silver Corp. has put together an operation that fulfills all of its ESG promises and coordinates their projects with a sense of responsibility to the communities they operate in, and the countries hosting their work. The company has accomplished that by winning the 2021 Socially Responsible Business Distinction Award for all three of its mines in Mexico.

First Majestic operates three mines in Mexico with the San Dimas Silver/Gold Mine, Santa Elena Silver/Gold Mine, and La Encantada Silver Mine. Located in the states of Durango, Sonora, and Coahuila, respectively, the mines have been steadfast producers for the company, and have received this award more than a few times before. The San Dimas operation received the Award for the tenth consecutive year. The company isn’t just cleaning up to look good; this is the modus operandi at First Majestic.

Solaris Resources (TSX:SLS)

Solaris’s willingness and large-scale commitment to responsible and sustainable mining, while serving the communities it operates in, the health and safety of its people and the environment means that it will also benefit from investors’ increased appetite for clean energy, and the decarbonization trend sweeping the industry. With the recent announcement out of Ottawa that Canada is aiming to achieve net zero emissions by 2050, industries are ramping up their efforts to achieve those goals both at home and abroad. The appeal of a company taking care of their people, the environment, and their bottom line all at the same time is now a necessary selling point for any mining company today and in the future. Solaris is already ahead of the curve and is being rewarded for those commitments.

Collective Mining

To understand this company’s ethos, simply look to the name. Collective Mining’s “collective model” means they aim to work hand-in-hand with stakeholders to build a strong and mutually beneficial future. Their focus on ESG principles has created a principled approach towards the environment, sustainability, and governance. Their rapidly expanding copper-gold-molybdenum porphyry exploration is being advanced with those principles embedded in the project in the mining-friendly department of Caldas in Colombia. Collective’s approach to their operations has been socially-beneficial and geared towards the ESG goals that investors prize so much from the beginning. Their company and projects are sure to benefit from this well-executed foresight.

Redefining Value Now, and For The Future

Defining the concept of value as perceived by stakeholders including governments, host communities, employees, and investors should also include the principles that the mining community now shares with society. The priorities of the environment, community integration, grassroots collaboration, diversity, health and safety, and even water management are deeply important to investors who look for companies to deliver value to all stakeholders in order to contribute to the value received by shareholders. Investors will continue to keep their eyes peeled for the companies doing it best. 

Photo: Solaris Resources

2020 saw some of the most complicated operating conditions for the mining industry ever, but the subsequent economic recovery brought important and profitable changes for one particular new listing on the Toronto Stock Exchange. While Solaris is not new to the industry, the listing on the TSX is, and they couldn’t have timed it better. With copper prices rising, the decarbonization and electrification movements gathering speed, and a flood of new money in the markets, Solaris couldn’t have picked a better time to become a public company. 

It’s Raining Copper

Copper mining has been fraught with worry over an impending shortage, which Solaris has hedged against with a portfolio of exploration properties picked by the late David Lowell. The former Solaris consultant and strategic partner was known as the greatest copper explorer in the past century. Lowell helped develop the porphyry copper deposit model alongside John Guilbert in the early 1960s. This model is still dominant today and is implemented for something like 60% of the world’s copper supply. The company started with the best and is in just the right position to make their projects shine with a red tinge.

Around the World in Multiple Projects

Solaris’s portfolio includes projects in Ecuador, Peru, Chile, and Mexico. As projects get off the ground and start to expand, the market has noticed the ambition of the company and management to scale up quickly. The potential scale of the projects is hard to find these days, as most of the newer generations of projects are a fraction of the size of the projects in the existing supply base. 

The company has shown not only promise, but proven success and a stable track record to make it a good investment. The share price has grown significantly since its market debut in mid-2020 but remains a value buy because of the massive potential of its projects. Solaris currently remains focused on its flagship project, the Warintza Mine in Ecuador. This rich mine is a high-grade open-pit resource with a 5km by 5km cluster of outcropping copper porphyries. Of course, this copper project will remain the focus but there is also untested gold potential waiting in the wings.

Bringing Big Value…

Solaris is managed by Augusta Group, an incredible value-creating company that boasts annual returns of up to 308% (from the Solaris IPO and subsequent gains in the stock price) in 2020 on current projects, and returns of up to 12,960% on past sold projects. Having such a reliable and profitable partner gives Solaris the advantage they need to pull ahead in the sector. Their strong strategies and valuable projects paired with the formidable management both internally and from Augusta Group gives them the instant advantage over competitors even though they have only been a public company for less than a year.

The company is worth keeping on a watchlist for the growth and discovery potential, and investors have already begun paying attention to this aspect of the business. Investor appetite has not waned since the 2020 IPO, and as activity continues to pick up and production scales up, the stock will continue to be a good buy even as the price doubles or triples. The value of a sub-$10 stock with the potential for scale on so many exclusive and lucrative projects should not be overlooked, and so far investors have been rewarded by their eagerness to own a piece of this company. Trading around $7 at the time of writing, it is within an affordable range for investors across the spectrum from retail to institutional, and is likely only the beginning of a steady climb upward.

…And Keeping It Green

Solaris’s willingness and large-scale commitment to responsible and sustainable mining, while serving the communities it operates in, the health and safety of its people and the environment means that it will also benefit from investors’ increased appetite for clean energy, and the decarbonization trend sweeping the industry. With the recent announcement out of Ottawa that Canada is aiming to achieve net zero emissions by 2050, industries are ramping up their efforts to achieve those goals both at home and abroad. The appeal of a company taking care of their people, the environment, and their bottom line all at the same time is now a necessary selling point for any mining company today and in the future. Solaris is already ahead of the curve and is being rewarded for those commitments.

As more news and reporting are sure to come down the pipeline, we will make sure you can stay updated about all of it right here on MiningFeeds. 

Photo: Kinross

Gold giant Kinross Gold (TSX:K) announced financial results last month for its fourth-quarter and year-end 2020. Investors are pleased with the company’s net earnings of $783.3 million (62 cents a share) in 2020. The Toronto-based company nearly doubled its net adjusted earnings in 4Q2020 with a boost from higher gold prices to $335.1 million (27 cents a share), compared with $156 million (13 cents a share) in 4Q2019.

Tough Times

Kinross was able to capitalize on a strong gold price despite 2020 being a unique and challenging year for everyone in the industry. In the middle of one of the most challenging years for the mining industry, Kinross had a free cash flow of more than $1 billion. 

While balancing the restrictions and complications in operations, the company still met its original guidance for the ninth consecutive year and was able to declare a quarterly dividend of 3 cents per share for 4Q. While the company saw lower production for the quarter with 624,032 ounces down from 645,344 ounces in the 2019 quarter, the results were not hit significantly and investors responded well to the news. 2020 production hit nearly 2.37 million attributable gold equivalent ounces compared with 205 million ounces in 2019. The company has excelled at maximizing operations and surpassing guidance even with consistently lower production in 2020.

Strong COVID-19 Risk Management

Management clearly has its eye on the ball and implemented operational and financial support to manage COVID-19 risks. The company implemented “…rigorous measures to keep our employees safe, maintain business continuity and support local communities,” Kinross President and Chief Executive Officer J. Paul Rollinson said in the earnings teleconference. He went on to thank employees worldwide for meeting the challenges. 

With strong leadership during the challenging year, Kinross put together a comprehensive and efficient plan for managing the risks of the pandemic while continuing to maintain productivity and earnings. The company provided roughly $6 million in 2020 toward community efforts geared toward combating COVID-19 in areas where they operate mines. Some of the loss in revenues was a result of the extra costs and investments related to operations during the pandemic, but being able to balance those costs with successful mining operations puts Kinross in the lead for the industry for 2020.

A Bright 2021

The company made it clear that they are looking ahead to 2021 and beyond with optimism and forward-thinking production plans. In its exploration update, the company planned to spend $6.5 million on Bald Mountain Mine for exploration. The company will focus on drill testing targets identified in 2020 to look for deposits that may be converted to mineral resources later, turning some of the seeded work from last year into gains for the company in 2021. 

$6 million in additional funds set aside for exploration at Round Mountain Mine, the first gold ounces produced at the Gilmore Project in January of this year, completed construction on the project on time and on budget, and spending of $120 million for all projects in 2021 is sure to build on last year’s performance. 

A Pass With Flying Colours

The stock trades at $8.38 as of writing and has climbed steadily over the last 12 months. While the gains have been attractive, it is the consistent dividend and profitable performance of the company that still makes this an attractive investment. With even bigger plans for the company looking ahead to the bright side of 2021, Kinross Gold has its finger on the pulse of the operations and is in fantastic health.

The Stillwater mining complex in Montana. Credit: Franco-Nevada Corp.
The Stillwater mining complex in Montana, on which Franco-Nevada has a 5% NSR royalty. Credit: Franco-Nevada Corp.

Franco-Nevada is a diamond in the mining industry, as a steady and profitable royalty and streaming company. In a world of low yields and interest rates, investors are hard-pressed to find the kind of returns that will make them look at their RRSP with pride. Chasing returns also carries significant risk, which Franco-Nevada controls for by not operating mines, developing projects, or conducting exploration. 

Low-Risk, Reponsible Management

The company instead focuses on managing and growing the company’s portfolio and streams, giving them exposure to commodity price optionality and a perpetual discovery option over large areas of profitable and geologically prospective real estate. This low-risk, steady, and high-reward business model is a counterbalance to the hit-and-miss strategies of many other mining companies. The company has limited exposure to many of the risks associated with operating companies because of its capital-light business model. This nimble operation strategy allows it to pivot to new projects, mines, and even supporting the industry when needed. The company engages in exploration efforts as part of advancing a property in advance of taking on an investment. This due diligence is necessary as the company relies on the industry operating responsibly to both reduce risk, and honour the royalty and streaming agreements they make. 

By The Numbers

With the stock price sitting at over $109, the company is more expensive than many of its peers, but this is an investment that gives more than it takes, just as it should be. Their portfolio of precious metals like gold, silver, and platinum group metals, oil, gas, and natural gas liquids allows them to give investors a dividend yield of 0.90%. With an operating margin of 28.18% and a return on equity of 5.18%, this is one of the rare mining companies that consistently turns out results investors can be pleased with. With zero debt, and a fully equity-funded balance sheet, not only are the paper stats solid, but the bottom line fundamentals are strong enough to keep buying the stock as it gains. 

Their recent announcement of a US$0.26 per share dividend to be paid on March 25th, 2021 to shareholders of record on March 11th, 2021 was welcomed warmly by investors. Analysts are estimating 15% growth for 2021, and as the company gears up to report 4Q2020 earnings on March 10th, investors eagerly await a sign that all is well with this steady performer. Whether 2021 will shape up to be as good a year for Franco-Nevada as 2020 was is still yet to be seen, but with restrictions lifting, business activity picking up, and an optimism in the air, new projects and mines will continue to need the company’s services, bringing more dividends for shareholders quarter after quarter. 

Dividends Keep Padding Portfolios

We will continue to watch the dividend payout ratio, as the company must balance paying out less in dividends than it earns; the opposite would make the dividend unstable. Franco-Nevada paid out 74% of its earnings to investors last year, an average level for most businesses, and nothing they need to worry about adjusting. Dividends also used just 27% of the free cash flow it generated, leaving a comfortable margin to continue paying a dividend throughout 2021. As long as earnings don’t drop precipitously, the dividend looks to be stable and is covered by both profit and cash flow. 

*This story will be updated on March 10th after the earnings report.

 

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