The rise of financial activism

It was in between sips of champagne that I heard something I encounter all too often lately.

However, I shouldn’t have been surprised.

A former metallurgist turned mine environment manager was explaining to me how the company she worked for was trying to extend the mine: she was working with a government department to get the planning and permits approved to go ahead.

“I tell you”, she said in a very broad Australian accent “it’s infuriating to have the planning and permitting process held hostage by people who nothing about mining.”

“As in, they’ve never worked in a mine” I asked.

“No, no, as in they have marketing degree or something else irrelevant and now oversee mine permits and expansion. The first time that most of them – the people from the government office I liaise with – find out a mine exists in this state, is when they have a meeting with me. They haven’t even read a book on mining. Yet, they get to decide on where and how mines expand and grow,” she told me.

My new friend went on to add that her company had proposed three possible underground expansions.

Starting from its current position, the mine might grow in either southeast, south-south-east, or due south. The management couldn’t pinpoint exactly which direction yet as the company needed permission to explore the area, and to know which way the mineralisation went. Only then would the company know which point of the compass it would follow.

Their gripe was, out of all the people who could stamp the permit, not a single one could grasp the concept that mining follows geology, not a set plan. Mining is a fluid business, and you go with the grain so to speak, not against it.

Apparently, the boffins at the government simply answered to just pick one direction and dig that out first.

Anyone with more than a passing interest in mining, knows miners don’t operate like that. You don’t just pick a direction and “hope” that there’s something in the hole you’ve dug. That’s a waste of money, time and resources. And shareholders really don’t like wasting any of those…

As I listened to a description of what sounded like the Fawlty Towers department of mine permits and planning, I was reminded of how this problem continues to crop up in all corners of the world.

Just last month at an international mining conference I attended, miners and bankers alike were extremely critical of governments holding up mines because of the governments’ lack of knowledge on the matter. Too much emphasis is being placed on the wrong aspects of mining.

However, as we enter an era where mining activity will signifincantly increase globally, there’s actually a much bigger problem brewing for the sector than just useless government departments.

Virtue signalling

The energy transition has barely begun and already it’s being infiltrated with vested interests and ripe for corruption.

As mining.com noted last week:

More than 220 [institutional investors] managing US$30 trillion have signed up to a plan to push companies over social issues and human rights.

Each member of the group has signed a public statement “acknowledging the urgency and systemic nature of human rights issues” and the need to meet their own responsibilities under international standards, it added.

Nicknamed “Advance”, supported by the UN and organised by the Principles for Responsible Investment (PRI), it is designed to force companies to acknowledge the importance of human rights and social issues when it comes to mining.

Which is… absurd.

It’s highly likely all the signatories are already doing that anyway.

Most of these members who signed this PRI alliance are major mining companies and global investment banks. All of these must already employ “environmental, social and governance (ESG)” to their mining activities and report on it to shareholder’s. Plus the odds are that they are already reporting on how they meet their Scope 1, 2 and 3 obligations as well.

The mining companies and countries most likely exploiting human labour or that show a lack of regard for social issues are either illegal mines or countries run by corrupt dictators.

A quick look at the PRI website and it notes one of the PRI’s goals is to allow organisations to “publicly demonstrate their commitment to responsible investment”.

Rather than having any real benefit, it looks to be nothing but virtue signalling.

However, to me this looks more like financial activism disguised as altruism.

The problem here isn’t the increased oversight, or the insistence on social and humanitarian issues when it comes to a dangerous business like mining. What really matters is that there are trillions of dollars that can be weaponised to pressure mining companies to make decisions that aren’t in the interests of the market.

The rise of financial activism

In the past few months, I’ve written that a repeated threat to the mining sector is the inability to secure funds to dig up what is needed to ensure we have resources to meet our future goals.

I can’t help but feel this “alliance” is another poorly executed bureaucratic thought bubble that will only lead to malinvestment.

First it happened in Big Tobacco, and then in Big Oil.

Both cruelly realised that financial activism was increasingly infiltrating pension funds and private equity groups, and decided to win over shareholders by selling off oil and gas assets and begrudgingly accept the Green Revolution.

Financial activism isn’t just shareholders demanding mining companies invest in certain assets. Financial activism can also look like lobbying from vested interests. Something an alliance like this could foster.

The problem with this latest “do no harm” paper pledge, isn’t the increasing financial sway nor is it the increased oversight of the mining sector.

It’s that it risks adding even more people into the mix with zero mining experience but a lot of money at their disposal.

Rather than mining engineers, operators and geologists driving expansion, it’s pen-pushers with zero mining experience and following nothing more than some arbitrary objective written on paper.

The bigger problem with this increased financial activism, is that it leaves stupid people in charge who’ll make totally wrong decisions.

Until next time,

Shae Russell
Co-editor, Exponential Investor