Steer Your Business Dec 2020 - Magazine - Page 17
ADVICE
Mining continues to innovate at a rapid pace in each
area of ESG with improvements in technology at the
crux of these efforts. Advances are being seen in areas
such as the use of artificial intelligence in mine planning
(reducing mine footprints), improved safety practices
and increased use of renewable power sources such as
solar.
Gold has outperformed Warren Buffett for the last 20 years
Gold +532% - BRK +322%
That could well be one reason that Warren Buffett
decided to buy into Barrick. We obviously don’t know,
but there’s some compelling logic about that.
Appreciate that some investors may feel they’ve
already “missed the boat” because the gold price is
already breaking records. But if you look at this chart
that compares the current bull market with that in the
1970’s, then if history were to repeat itself, the gold
price could still go a lot higher (look at the red line).
Source: Goldchartsrus – February 2020
• Improving ESG
ESG issues have been increasingly important for
institutional investors. I think it’s fair to say that Mining
may be the last industry many investors think of when
considering ESG. A lot would probably would view it as
a “none starter” from an ESG perspective.
However, there’s a quiet revolution underway that is
delivering change. Right now, I’d say it’s on a company
by company basis. But you could be pleasantly
surprised when you take a look at opportunities from
this perspective.
The common view that mining is a ‘dirty industry’ due
to a troubled past. But many investors are unaware of
the transformation the industry has been undergoing.
It needed to clean up its reputation and it seems to be
heading the right way.
With the world becoming more resource intensive
than ever the industry needs capital and it now seems
to be jumping the ESG hurdles required by many
institutional investors.
In recent times, the industry has been making silent,
but significant leaps, due to a change in management
culture, the need to embrace new technology and
ultimately, meet investor demand.
The main Environmental changes being as follows:
• Mines are now being designed to substantially
minimise their environmental impact. It is no longer
acceptable for mining companies to find and extract
materials without serious environmental, and
regulatory, considerations.
• There are plans of building renewable power stations
at mine sites to not only supply the mining
operations but also the local community with
affordable, clean power, a monumental move for any
extraction business, creating immediate socio-eco
nomic benefits.
Social
Probably the most significant development is the
introduction of the ‘social license to operate’, which
each mining firm must obtain prior to extraction. This is
a contract between the host nation and the company,
outlining the responsibilities of the company to maintain
good practices or risk losing the right to extract.
They are also increasingly hiring indigenous
workforces to support local initiatives and boost
individual economies. Once a largely dangerous
profession, mining companies now have been on a
quest for zero harm in the workforce.
Governance
From an investors’ perspective, governance can be the
hardest of the three ESG elements to define. Corporate
governance in the mining industry includes treating
all minorities fairly, aligning executive compensation
with all stakeholders including workers and local
communities, and creating strong policies and
processes to combat corrupt practices. It also involves
such areas as minimising tax avoidance schemes and
robust cyber security.
Conclusion
Whilst it’s too early to say whether these three drivers
will lead to greater institutional interest in the gold
mining sector, there is a certain logic for greater
involvement. Personally, in these challenging times, I
think diversification is key. If you don’t have any gold in
your portfolio, it’s certainly worth
thinking about.
Right now, I don’t think it’s
ridiculous to have at least
1% of your portfolio in gold.
What do you think?
i
Simon
Popple
simonpopple@brookvillecapital.com
https://www.brookvillecapital.com/
Use code sally1 to receive a 10%
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