Mining Companies Urged to Adopt 'Stakeholder Capitalism'
A geologist with a background in zoology and mineral economics provided a decidedly different keynote address this week at MINEXCHANGE, the annual conference and expo organized by the Society for Mining, Metallurgy & Exploration (SME) (Lakewood, Colorado). Rather than a motivational speaker with an upbeat message or an industry executive with detailed projections about supply, demand and prices for commodities, Douglas Silver gave the ultimate 20,000-foot speech and asked whether the COVID-19 pandemic was Earth's attempt at self-healing.
Silver, an industry veteran who was most recently a portfolio manager at Orion Resource Partners (Denver, Colorado), told attendees at MINEXCHANGE that "everything in an ecosystem is interconnected and each player has a role in the health of the entire ecosystem."
He illustrated that by reviewing how the removal, and subsequent reintroduction, of the grey wolf in the Rocky Mountain region led to changes in the ecosystem that were expected as well as unexpected. Wolves are the primary predator to the moose population, and the wolves' presence kept the moose population in check. Once the wolves were removed, the moose population grew and the animals feasted on willow trees near riverbanks. The loss of willow trees caused a decline in the beaver population, which had relied on those willow trees to build their dams and capture their food. Once the grey wolves were reintroduced, however, there was a reversal of those trends and a re-balancing of the ecosystem: the moose population declined, willow trees returned and the beaver population was restored.
Silver used that example to comment on the Mining industry's impact on the Earth's ecosystem: "If we degrade nature enough, it will find a way to respond." He briefly recalled some of the environmental improvements that followed pandemic-related shutdowns around the world: reduced industrial activity led to lower emissions of oxides of nitrogen and carbon dioxide, reduced ocean fishing allowed the fish population to replenish itself, and sharply reduced use of cars, trucks and buses led to cleaner air in major cities.
He was not being a cheerleader for the COVID-19 pandemic. Rather, Silver used his keynote address to emphasize that industries operate in an ecosystem where the actions of one party led to reactions and resets by others.
The ecosystem Silver discussed stretched far beyond air, land and water to include investors and local communities who also exert powerful influences on mining companies. He referenced the January 2020 decision by investment manager BlackRock Incorporated (NYSE:BLK) (New York, New York), which manages about $9 trillion in assets, to stop investing in certain companies and industries, including coal mining. BlackRock then refused to invest in 4,800 separate companies because of their environmental impact or business practices. Since that time, BlackRock's stock has risen about 55%, nearly double the 32% gain notched by the Standard & Poor's 500 Index over that same time. Coal mining companies, by contrast, have slumped, though miners of other commodities, including gold and copper, have done well.
Silver noted that Goldman Sachs (NYSE:GS) (New York, New York) and other financial institutions have stopped lending to certain sectors of the mining industry, another portentous sign from the financial ecosystem.
He quoted approvingly from a recent book, Stakeholder Capitalism, authored by Klaus Schwab, the founder and executive chairman of the World Economic Forum: "We can't continue with an economic system driven by selfish values, such as short-term profit maximization, the avoidance of tax and regulation or the externalizing of environmental harm. Instead, we need a society, economy, and international community that is designed to care for all people and the entire planet."
"Most of the essential benefits of nature currently have no financial or market value, despite providing the underpinnings of current and future prosperity," Schwab wrote. "Inclusive wealth, which sums the value of natural, human, manufactured and social capital, is a better measure of sustainable progress."
Silver said mining companies that wanted to secure a social license to operate (SLTO) needed to fund post-closure activities at mines. "We have to think in terms of cradle to cradle, not cradle to grave," he told attendees at MINEXCHANGE on March 1.
"COVID-19 has changed us forever, and we'll never get back to 'normal,'" Silver said. However, later in his talk he predicted that an economic recovery will take one to two years. It will take longer and cost more to develop mining properties, which will make brownfield projects a better economic bet than greenfield projects. Higher-risk mining projects will be less common. Conducting feasibility studies will take longer and cost more. Mining companies need greater amounts of working capital. Discretionary spending by mining companies will decline. Government debt is increasing faster than the underlying economies, which is unsustainable. Taxes will have to increase, partly to service the new debt load.
As important as COVID-19 has been in reshaping mining, he said environmental, social and governance (ESG) practices were even more important. "Today, society expects us to address all aspects of our operations. Those who don't will be denied the social license to operate. As an industry, we need to recognize that we're part of a larger ecosystem, and that means we have to reorganize how we operate."
Silver asserted that "stakeholder capitalism is the new path forward. Companies will adapt or die. Between COVID and ESG, it's a whole new world. We need to catch up quickly. The (mining) industry, as a whole, needs to elevate our best practices."
He continued: "More research and development dollars need to be spent ASAP on all aspects of our industry, especially for coal, to adjust to the new normal. Exploration needs new technology for discovering bulk-underground deposits. We also need to emphasize underground mining to minimize our (environmental) footprint and reduce greenhouse gas emissions." He noted a study that showed underground gold mines emit less than half the carbon dioxide per ton of production as an open-pit mine.
For all the signs of difficulty and distress, in the mining industry and the broader world, Silver concluded by reaffirming his faith in the industry's ability to evolve and adapt. "The Minerals industry has amazing scientists and entrepreneurs. Once we define how we need to adapt, I have no worries that we will."