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. 

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.