Metals and Mining: Perspectives on an Essential Industry in Transition

From cell phones to steel to aluminum foil, the metals and mining industry provides people worldwide with myriad benefits.  The industry provides critical raw materials that make possible a wide range of existing and emerging technologies, including innovative green technologies such as electric vehicles, wind turbines and solar panels. The fact is that the green economy of the future literally cannot exist without the copper, nickel, lithium, aluminum, cobalt and various rare earth minerals that are supplied by the metals and mining industry. At the same time, decades of adverse environmental impacts from mining activities such as greenhouse gas emissions, hazardous waste and habitat loss have tarnished the industry’s reputation. But many leaders in the industry have embraced the importance of environmental protection measures and biodiversity preservation in their business operations and are increasingly responsive to stakeholder pressure and ESG investor concerns seeking implementation of socially responsible production methodologies. In fact, according to a recent study published by Ernst & Young, for the second year in a row nearly half of all executives in the industry rank the loss of social support – or the industry’s social license to operate — as their single most important business risk.

The negative side of mining comprises a long list of hazards, including fossil fuel emissions, overburden removal, and hazardous waste generation. Tailings and mine water are especially noxious byproducts of ore extraction and separation that require detailed management plans. Tailing Storage Facilities (TSFs) are massive, and frequently hazardous, waste sites that hold waste rock, mine wastewater and other byproducts of digging and separating valuable ore from rock.  These waste sites are commonly in the form of dams, and a breach of any of these dams can have devastating impacts on local populations and the environment. In extreme cases, catastrophic outcomes can occur such as when a tailings dam owned by international mining giant Vale S.A. collapsed, sweeping away forests, houses, and nearly 300 people in the nearby town of Brumadinho, Brazil under 11.7 million cubic meters of toxic sludge.

Mining operations also influence nearly a third of the planet’s forests and many operate in or adjacent to biodiversity hotspots or protected areas giving rise to the potential for regional declines in rare species and ecosystems without proper management and monitoring. The destruction of pristine land also occurs when mining companies construct roads and infrastructure for new mining operations, which provides hunters with easy access to remote forests and threatens wildlife habitats. In countries where poaching and mining is poorly regulated, new mines unintentionally increase local demand and supply of cheap “bushmeat” protein, fueling illegal wildlife trade. All of this mining infrastructure also has lasting environmental impacts. Decommissioned mines have nearly the same environmental impact as active mines decades after closure so it is imperative that companies monitor and rehabilitate the disturbed land to protect wildlife habitats and prevent ongoing environmental harm.

For all of these reasons, Karner Blue Capital prepared a whitepaper that discusses several of the key considerations that inform its selection of mining companies for inclusion in the Karner Blue socially responsible investment portfolios.  We believe that investors can raise the industry’s standards and work to protect the health of our planet through corporate engagement and rigorously researched investments in metals and mining companies that have strong biodiversity preservation, environmental protection, and animal welfare policies and practices. The whitepaper highlights the progress that some forward-looking metals and mining companies have made in certain key operational areas such as tailings storage facility and acid mine drainage management, emergency preparedness, site location and site reclamation and rehabilitation.  In selecting companies for our client portfolios, KBC excludes companies that extract or generate revenue from coal and focuses instead on companies with a demonstrated commitment to innovation and the implementation of more environmentally-friendly mining methodologies.

Our proprietary research reveals that some leaders in the metals and mining industry have embraced the importance of environmental protection measures and prioritize biodiversity preservation in their business operations. For example, Fortescue Metals Group Ltd. has prepared a detailed fauna management plan “to identify impacts, conserve significant fauna species and develop management and monitoring measures that maximize the ongoing protection, and long-term conservation, of these species within, and adjacent to Fortescue controlled sites. A similar focus is applied to understanding inland aquatic features adjacent to its operations.” The plan provides complete maps that reveal the precise location of wildlife habitats in relation to its operations with an especially strong emphasis on certain species such as the night parrot, northern quoll, and Pilbara olive python. Fortescue’s mining operations are located in Australia’s Pilbara region, home to approximately 3,000 subterranean fauna species. Since 2009, Fortescue has conducted 17 complex surveys of these fauna and undertaken DNA analyses to preserve fauna under the earth’s surface.  All this knowledge allows Fortescue to manage fauna in a progressive manner, modeling corporate behavior that other companies in the industry should strive to replicate.

Similarly, Newmont has long been considered an ESG leader both among its industry peers and more broadly.  In 2007, Newmont was the first gold miner to be named to the Dow Jones Sustainability World Index (DJSI) and the company has been included in the DJSI every year since then and has been the DJSI leader of the global metals and mining industry for four consecutive years.  Newmont’s 2019 sustainability report highlights the significant efforts that the company has undertaken in several areas that KBC considers to be critical when assessing the mining industry’s impact on animals, including water stewardship, tailings management, energy management, climate change mitigation, and site closure and reclamation.  With respect to tailings management, Newmont is a standout as a result of its data transparency regarding its TSFs.  Newmont discloses a wide range of important details on each TSF under its control, including location, waste volume, hazard categorization, dam raising method (which affects the dams risk profile), inspection measures, and closure plans. Essentially, Newmont reports on the integrity of each TSF and how its practices are intended to mitigate the environmental footprint of that TSF.

Barrick Gold Corp. also scores well in KBC’s industry model, is a long-standing ESG stalwart, and has been included in the DJSI since 2007.  Barrick’s 2019 sustainability report identifies water management, responsible tailings safety and dam management, climate change mitigation, and biodiversity management as four of the company’s eight high priority sustainability issues. Fifty-four percent (7 out of 13) of Barrick’s mines currently have a biodiversity action plan (BAP) in place and, by the end of 2021, all of its mines will have a BAP as part of the company’s long-term strategy to protect threatened species, conserve the environment’s natural state, and achieve a net neutral biodiversity impact especially for ecologically sensitive environments.  As Barrick explains in its sustainability report:

Biodiversity underpins many of the ecosystem services our mines and their surrounding communities depend on. This includes the provision of fresh water and raw materials such as food and fuel, climate regulation, soil formation and the recreational services that keep people, and the natural environment, alive and healthy. However, if improperly managed, mining, refining and exploration activities have the potential to negatively affect biodiversity and ecosystem services. Impacts could include reductions in water quality or quantity, loss of protected species and habitat fragmentation. Such risks could affect our social license to operate as well as our reputation … Our Biodiversity Policy … compels us to (i) contribute to national and regional biodiversity planning, (ii) not explore, mine, drill or otherwise operate in declared natural World Heritage Sites, (iii) apply the mitigation hierarchy to manage and offset our biodiversity impacts, (iv) establish a biodiversity baseline for all greenfield projects, and (v) always consider ecological impacts and opportunities for ecological enhancement for any new project or expansion.

Among other things, Barrick’s commitment to biodiversity has resulted in (i) the protection of a critically endangered gecko in the Dominican Republic, (ii) a partnership with the Mali Elephant Project, an NGO dedicated to protecting an endangered species of desert elephant in the Gourma region of Northern Mali, (iii) efforts to promote conservation and combat poaching in the Garamba National Park in the Democratic Republic of Congo, one of Africa’s oldest national parks and a UNESCO World Heritage Site that is home to the Congo’s largest population of elephants and the critically endangered Kordofan giraffe, and (iv) efforts to establish two legally-protected areas within the Central Highlands region of Papua New Guinea — the Headwaters of the Strickland and The Kaijende Highlands — that have been identified as being of global significance and home to over 75 plant and animal species that are new to science based on biodiversity surveys sponsored by Barrick.

Karner Blue Capital believes that the combination of innovation and problem solving, along with an unhesitating embrace of best practices when it comes to environmental and animal conservation, such as that demonstrated by Fortescue, Newmont and Barrick, can better position businesses for growth and success in today’s marketplace.  Ultimately, Karner Blue Capital’s whitepaper indicates that a significant portion of the metals and mining industry is effectively making the transition to more sustainable and responsible business models that help protect their social license to operate and support the health of our planet for future generations.

DISCLOSURE: As of the date of this blog, Karner Blue Capital (“KBC”) held positions in Fortescue Metals Group, Ltd., Newmont Corp. and Barrick Gold Corp. on behalf of its clients. Securities issued by the companies identified or described in this blog do not represent all of the securities purchased, sold or recommended by KBC for its advisory clients, and readers should not assume that investments in the securities issued by the identified companies were or will be profitable. KBC and some of its partners may hold positions in certain securities issued by the companies identified in this blog in corporate and/or personal accounts. As fiduciaries, KBC prioritizes its clients’ interests above these corporate and personal accounts to avoid any conflict of interest in trading these commonly held securities.