Case Study: Is the Mining Industry Ready for Increasing Transparency Demands?

Mining companies need to meet a lot of expectations. 

Mining has been with us since before the Bronze age, and the extraction of minerals has resulted in numerous human, social and economic improvements in our “way of life”. And now, the sustainability of the mining industry is under closer scrutiny than ever before.

When done following sustainable principles, mining can help the communities where they are operating. A good example is Glencore’s Raglan Mine in northern Quebec. In 2016, it won the Mining Association of Canada (MAC) Towards Sustainable Mining (TSM) Environmental Excellence Award for the construction of a 120-metre high wind turbine and storage facility¹. In the last five years the wind turbine, which is owned and operated by TUGLIQ Energy, has reduced consumption of diesel by over 10 million liters of diesel (28,000 tons of CO2 abated in the Canadian Arctic)², paving the way for a second turbine to be integrated into the mine’s power network³. Projects like this could help other Aboriginal communities and mining operations in the Arctic.

And Raglan won again in 2019, this time in the Community Engagement category, with its Tamatumani Program: Empowering Inuit Communities and Inspiring the Next Generation.  This program’s goal is to attract and retain local Inuit employees. As of December 2018, 22% of the mine’s workforce were Inuits from Nunavik⁴. Again, the innovative core skills training that was developed can be shared with other companies and communities operating in Canada’s North.

For investors, mining is a risky business.  Out of every 10,000 identified mineral prospects, only about 10% will lead to a drilling program (1 in 10), and just 0.01% (1 in 10,000) will lead to a new mine⁵. Capital for new mines usually becomes more available when demand for a commodity is greater than supply, causing the price to go up, and those are usually the optimistic price assumptions used to analyse its economic feasibility. By the time the new mine is finally in operation, supply and demand should begin to equilibrate and prices would in theory stabilize, but more often than not, prices don’t behave as expected. This is due to assumptions in supply and demand that are impacted by newly developed uses for a commodity, substitutions, new markets, new producers, political instability or in the case of gold, as a safe place to invest. All this leads to more financial uncertainties to investors, who then expect a just reward for their faith.

Given that investment money is hard to get, organisations learn from early on to stretch their dollars by focusing on short-term needs, and meeting minimum requirements and regulations in order to get the results that will earn them the next phase of investment. When a mine is operating, changes to commodity prices — both positive and negative — can lead to short term decisions with long-term consequences. For example, if the commodity price is going up, there could be pressure to increase production, usually stretching employees. If the price is going down, budget cuts are sure to happen, affecting employees, programs and sometimes even maintenance of assets.

Mining is a long-term industry trying to meet short-term quarterly profit reports expectations. 

Adding to the financial risks, are the non-financial risks. The continuing rise in the use of Environment Social and Governance (ESG) factors to guide investment is throwing a new light on reporting practices. Since the early 1990’s larger mining companies have been writing annual environmental and Corporate Social Responsibility (CSR) reports, in an effort to gain the confidence of stakeholders and obtain a “Social License to Operate”. The reports strived to communicate a ‘‘new operating paradigm that has shifted from a ‘do no harm’ approach to a ‘demonstrate positive development benefit’ imperative.’’⁶ While following the Global Reporting Initiative (GRI) Economic, Environmental and Social data disclosures, these reports have tended to highlight their success stories only. Stakeholders are no longer fooled by this.

The Top challenge

It’s no wonder then that according to EY⁷ and Deloitte⁸, mining’s top challenge is to be more transparent to stakeholders such as investors, clients and local communities. They want to see the good and the bad. They want to understand the risks that they are exposed to — financial and non-financial — and how they are being mitigated.

This can be difficult to show if a company still treats sustainability as a public relations exercise, separate from the day-to-day operations, without any meaningful strategy and associated action plan.

A company needs to have a value system. As Roy Slack past CIM President says,
“if you aspire to live by a value system, those values shouldn’t waiver.”⁹

Sustainability is not just community and government relations. Or Health, Safety and Environment. Or Inclusion and Diversity. Or supply chain and conflict minerals. The best way to build trust with stakeholders is to show how all these topics reinforce each other, how they are embedded in their operations, supported by a coherent strategy and associated actions.

In a May 2020 report, BlackRock has noted that even during the pandemic, ESG investment indices are showing resilience and outperforming traditional funds¹⁰.

A systematic approach to sustainability ensures that the values are being addressed through meaningful actions, and not by the standard of the day.

The Solution — A Sound Sustainability Strategy

Organisations need to address 4 criteria as part of their sustainability strategy — Environment, Operating Practices, Products & Services and Community. While utilising their own terminology, organisations break each of these down into common metrics (air emissions, energy usage, waste generation, water consumption, biodiversity, occupational health & safety, ethics, labor relations, product stewardship, supplier engagement, community relations, etc.) that will define their sustainability strategy — which will be different for each organisation. Many mining companies have implemented, to different levels of success, management systems such as ISO 14001 and the new ISO 45001 (OHSAS 18001) to improve their performance in Environment and Health & Safety (EHS). Systems based on Plan-Do-Check-Act (PDCA) are recognized for driving improvement and, if properly implemented, will survive down cycles when many programs are cut as they are seen as “nice to have” and not critical for long term sustainability.

Why not use this widely accepted approach and be proactive to manage change such as what we are experiencing now with the pandemic, to manage the overall sustainability strategy? Applying a consistent PDCA management system approach will identify relevant stakeholders and associated organisation-specific material metrics that need to be managed, leading to balanced reporting — the good and the challenges too. This is the transparency that stakeholders are expecting to see.

Investors can use Staarsoft® Software to see the approach that the organisation is taking to its sustainability strategy, understand the material criteria and know which questions to ask. This provides an extra level of transparency that will engender investors to have more confidence in their investment analysis and decisions.

Sometimes, teams at the corporate and operational levels can be at odds. Corporate (head office) needs a real-time status overview of the work, with the ability to drill down to details. Meanwhile, the teams at the operational sites are overloaded with work, dealing with personnel changes with little overlap, and always wondering if this is just another initiative that will disappear with the next budget cuts or change in leadership. Sustainability actions may end up not being prioritized and get lost in the shuffle.

The Staarsoft® Software platform acts as a sustainability repository and sustainability roadmap that provides much needed continuity of the sustainability strategy. Teams at all levels can log in and look at their dashboard and drill down as necessary, understanding where they fit in the organisation’s strategy (the why). This motivates personnel to move the program forward, achieving the goals.

On top of these common internal operational challenges, there are new external hurdles to becoming more sustainable.

Once it was clear that the sustainability reports were not enough, different organizations started creating their own sustainability standards for mining. A study by the Intergovernmental Forum on Mining, Minerals and Metals and Sustainable Development (IGF) in 2018 identified more than 100 Voluntary Sustainability Initiatives (VSI), most designed for specific types of operations, commodities or countries ¹¹, and the number continues to grow as ESG-based portfolios become more popular among investors.  These include both standards for reporting as well as assessments/questionnaires that are used to rate a company on its ESG performance.

“Everybody’s coming out of the woodwork with standards. From the point of view of the miners, we’re not going in the right direction. Somewhere somebody will have to bring these entities together and say,‘Can we have common ground?’…because otherwise the reporting will take over from doing,” said Louise Grondin (Agnico Eagle Sustainability VP). “We want to do the right thing, [but] if we spend more time reporting than doing it, to me that’s not performance improvement.”¹²

The proliferation of standards forces companies to make selections that may bias their results and focus on the wrong initiatives instead of consulting with stakeholders. It also assumes that what is seen as the ideal behaviour in one jurisdiction will apply globally. The need to compare apples to apples creates false assumptions and may penalize a different approach that is also ethical. For example, a company operating in a remote location and who is trying to do the right thing and train local workers may experience an above-average turnover, leading to a lower ranking.

Jamie Bonham, Director of Corporate Engagement at responsible investment firm NEI Investments, says “he isn’t picky about which standards the companies NEI invests in ultimately use — the most important part is that their disclosures tell a clear story of what they see as their most pressing ESG risks, and how they’re working to address them.”¹²

Staarsoft® Software helps organisations tell that story — from:

• guiding the assessment of stakeholder priorities, through to
• prioritizing their risk and defining and establishing baselines for material metrics using associated relevant indicators which may tie into different reporting industry specific (i.e., mining) or general frameworks (GRI, Sustainability Accounting Standards Board [SASB], etc.) and ultimately global objectives such as the United Nations Global Compact’s Sustainable Development Goals (SDGs) to ensure
• meaningful reporting, and beyond to
• influence the value chain.

Preoccupation with scores is now reaching the small and mid-tier miners. Will they follow their bigger colleagues through a long and tortuous learning curve, or will they use innovative tools that are now available to help define their sustainability strategy and accelerate their implementation of sustainable actions?

The International Council on Mining and Metals (ICMM) recently launched Mining Principles that must be followed by their members, including site-level validation.

In the words of Aidan Davy COO, “transparent disclosure — and the accompanying narrative — offers a tool for interested stakeholders to observe and evaluate meaningful progress.¹³

Staarsoft® Software provides auditable transparency on the processes that organisations have in place to address their entire sustainability strategy, from determining materiality to creating targets and actions and follow up.

For more information on getting started, contact us at:

Minerva Solutions Inc. torok@minervasolutions.ca minervasolutions.ca

Staarsoft® Software sandra@tavaresgroupconsulting.com staarsoft.ca

Minerva Solutions and Staarsoft Software are joining forces to bring innovative solutions to the mining industry. Using the Plan-Do-Check-Act approach as our common expertise, we borrow and integrate best practices from different industries to create unique, fit for purpose sustainable practices. Collaborative relationships to drive improvements is a hallmark of sustainability, and we are proud to “walk the talk.”

Ielca Torok has over 25 years experience in operational activities, Research & Development and corporate processes in the mineral exploration and mining industry globally. In recent corporate roles, she supported the implementation of an integrated management system for Health, Safety and Environment in 13 operational sites while accelerating the adoption of new technological tools. Her consulting company, Minerva Solutions, provides systematic ways for companies to assess, plan and implement practices which will positively impact people and the planet.

References:

1. www.mining.ca: TSM Excellence Awards 2016
2. www.tugliq.com: TUGLIQ ACHIEVES AN IMPORTANT MILESTONE, ABATING 10 MILLION LITERS OF DIESEL WITH ITS FIRST WIND TURBINE AT THE RAGLAN MINE IN NUNAVIK
3. Glencore plc. 2019 Sustainability Report.
4. www.mining.ca: TSM Excellence Awards 2019
5. www.pdac.ca: Access to Capital
6. Warhurst, A. (2001). Corporate Citizenship and Corporate Social Investment: Drivers of Tri-Sector Partnerships. Journal of Corporate Citizenship, 1,57-73
7. www.ey.com: Top 10 business risks and opportunities – 2020
8. www2.deloitte.com: Tracking the Trends – The top 10 issues transforming the future of mining
9. www.magazine.cim.org: Strategies change, values don’t
10. BlackRock Inc. “Sustainable investing: resilience amid uncertainty.” May 2020.
11. Potts, J., Wenban-Smith, M., Turley, L. & Lynch, M. (2018). State of sustainability Initiatives Review – Standards and the Extractive Economy. The International Institute for Sustainable Development.
12. www.magazine.cim.org:  Has sustainability reporting become unsustainable?
13. www.icmm.com: A new ESG mining standard will help drive responsible production

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By: Ielca Torok, M.Sc. (A), CSR-P – Minerva Solutions Inc.