What will be the saviour of the mining industry?
The answer, says Jamie Strauss, is ESG.
To some, that might sound counterintuitive. After all, isn’t mining a big, dirty industry that scars the earth and harms the people who live in it?
Well, yes and no.
It’s true that the mining industry needs ESG as much as any sector, if not more so.
But it’s also true, that that the mining sector has long been aware of this.
Yes, there have been certain recent and famous mis-steps, like Rio Tinto’s destruction of ancient Aboriginal grave sites. But while certain disasters grab the headlines thousands and thousands of ongoing ESG programmes are already up and running. The mining industry has been practicing sustainability in some form or other for decades.
In the early 2000s it was known as corporate social responsibility, or CSR, and it goes back even further than that.
Nevertheless, there’s still an immense amount of work to be done.
For one thing, although sustainability isn’t new in mining, disclosing it in any great detail is.
And for another, there’s never been any real way of measuring or standardizing ESG.
Until now.
Digbee Limited, the mining ESG company that Strauss runs, is aiming to change all that.
It’s already made a running start, by convincing several major institutional investors that the Digbee assessment is a meaningful and viable way to ensure that ESG considerations remain front and centre in everything a mining company does.
And if the institutions think that, you can be fairly certain it won’t be long before the mining companies themselves come to agree.
The proposition that will be put to them is simple enough: if you want to raise money through us, you have to be able to present your ESG credentials credibly. .
And that’s where Digbee comes in.
So, which institutions are we talking about?
Well, as far as the UK goes Black Rock, Orion, Amati, Premier Miton, Red Fort, Appian and Tembo are all already supporting Digbee. On the European front, Thematicka, a Swiss family office, has just come on board. Dundee Resources, in Canada, has been a cheerleader from the start and there are plans for inroads into the USA and Australia in the near term, as the global investment community further embed ESG into their processes. Strauss notes that whereas the UK and Europe have thus far led the way in matters ESG, the USA and other jurisdictions are fast catching up.
“New York is now massively embracing ESG, as was seen by the recent interest in the Lifezone-Kabanga SPAC transaction,” he says.
“Mainland China is seeing a notable increase, as ESG is being written into legislation at politburo level. In Saudi Arabia, they’re building a mining sector from the bottom up, based around sustainability.”
The reasons for the new enthusiasm aren’t hard to find.
The world is undergoing a vast economic transformation, away from a carbon-based economy and towards electrification. New technologies like wind power and electric vehicles are at the forefront of this transformation, and these in turn require huge amounts of metals to make them work.
Copper, nickel and lithium are among the commodities that will be in most demand. But there’s also increasing hunger for more specialty products like vanadium, cobalt, the platinum group elements and other base metals.
The climate of world opinion and the scale on which these commodities will need to be produced makes it imperative that all ESG considerations - typically in over 30 areas for a mining company - are taken into account when greenlighting new projects.
And so, the new dynamic, inevitably, is that disclosing ESG credentials will gradually, and then with ever increasing speed, march through the mining sector.
What will this mean?
First, companies that are properly ESG accredited by a product like Digbee’s – and there is only one product of its kind at the moment – will enjoy considerable advantages over peers when it comes to sourcing capital and gaining social licence generally. For the mining sector, that’s a sweet spot in itself.
There’s also a longer-term outcome that now seems achievable too: a re-rating of the overall sector.
The mining sector is one of the least popular with investors, and tends to trade on the lowest multiples. If - and as of today it remains an if – the industry can raise confidence, credibility and perception, that decades-long discount may start to disappear.
The mechanism could, in fact, be quite simple: ESG will encourage the new pools of capital looking to fund the global transition to a sustainable economy and enable them to identify the deep value, growth. That in turn will lead to a recognition that the sector is years ahead of most sectors on adopting sustainable practices.
It may be, indeed, that the mining sector with a cleaned-up reputation comes to be regarded more in the nature of the utilities sector – steady income, steady yield, safe as houses.
Or perhaps, suggests Strauss, it could go further, and become like the utilities, but with growth – all that growth that the electric vehicles and new power generation technologies are driving.
So, is it possible that we might, even in our lifetimes, see double digit multiples across the mining sector? If there’s one way it is possible, it’ll be through the wholesale adoption of ESG. And as of this moment, there’s only one mining-specific product for that: Digbee.