MINING & EXTRACTIVES

Transcription

1 MINING & EXTRACTIVES ESG AS A PREDICTOR OF PERFORMANCE, RISK Executive Summary Prduced by Crnerstne Capital Grup Glbal Thematic Research Octber 2016

2 Intrductin The extractive sectr is imprtant t the glbal ecnmy and will be critical t a sustainable future. With a market cap f ver US$6 trillin, the extractive sectr encmpasses ver 5,000 cmpanies. Mining is particularly imprtant fr emerging markets, as these cmpanies generate a significant prprtin f ecnmic activity in less-develped ecnmies. The sectr prvides raw materials fr everything frm energy creatin t high-tech manufacturing t electrnics. Even as the wrld starts t transitin frm greenhuse gas emitting cmmdities like il and cal, natural resurce extractin will remain essential. Smartphnes and electric vehicles, fr instance, require metals surced frm extractive peratins arund the wrld. Yet natural resurce extractin is, by its very nature, envirnmentally destructive and scially disruptive and managing the risks inherent in mining is f prime cncern t extractive cmpanies and the hst cuntries in which they perate. Extractive cmpanies success will be in part determined by their ability t psitin themselves fr this future. Risk Assessment in Cntext The envirnmental and scial (E&S) issues we address in this reprt highlight strategic cncerns fr any mining r extractive cmpany. Tailings risk (tailings are the effluents generated in a mine prcessing plant, and require lng-term, secure strage), cmmunity-cmpany cnflict, cntract wrkers and labr disputes, and management f glbal reputatinal risk (using bidiversity impact as its prxy) create event risks such as mine failures, shutdwns r license denials. They als impact lnger-term peratinal planning because they require practive engagement with lcal, glbal and cntextual stakehlders t assure passage. We assess selected cmpanies crprate gvernance as it relates t actively managing E&S issues, identifying leaders and laggards based n relative attentiveness t material E&S cncerns. Detailed analysis f E&S issues prvides predictive insight. We ffer a prprietary framewrk t assess extractive cmpanies underlying values, leadership, and culture based n a bttm-up analysis f material, yet underappreciated envirnmental and scial (E&S) issues. We then explain hw the issues impact specific items within a cmpany s financial statements. Key bservatins. At a high level, we came away with these cnclusins: Cmmunity influence increasingly impacting scial license t perate. Cncerns ver ersin, lss f bidiversity, cntaminatin f sil and grundwater, waste material management, and wrker safety cntinue t threaten prject timelines and ecnmics. Lcal cmmunities are increasingly prtesting new mine expansin by cmpanies that have failed t meet cmmunity expectatins fr previus mine clsures, especially as cmmunity cnflict becmes mre transparent with scial media. The cst f prject delay frm cmmunity cnflict runs t $20m per week, thugh the largest cst is the inability t expand r sell a prject. High CEO turnver impacts perfrmance. A change in leadership is ften fllwed by fresh initiatives and new strategies, especially in regards t health and safety. Amng the cmpanies we Crnerstne Capital Investment Management

3 analyzed, utsider CEOs were mre likely t be assciated with best-in-class initiatives n transparency. The majrity f these cmpanies CEOs are engineers in training, which is well suited t the industry but als may cunterintuitively increase the risk f cmmunity cnflict. Emplyment. All else equal, an wner-perated mine is better-equipped t manage its relatinship with the cmmunity than ne that relies heavily n cntract labr. Thugh cntract mining is inherently mre flexible, wner-perated mines invest in lcal cmmunities and, when execute successfully, better maintain their scial license t perate. Best / Wrst perfrmers. Crnerstne identified several markers f a cmpany s culture, values and leadership quality, which in turn speak t its willingness and ability t address emerging risks as it executes its strategy. Leaders: Antfagasta, Newcrest, Randgld, Tullw Oil Laggards: Buenaventura, Harmny, Philex, Suth32 Methdlgy We evaluated a set f representative cmpanies accrding t seven metrics that tgether prvide a clearer picture f their ptential fr lng-term success in executing their strategies. These metrics are: CEO leadership and turnver; Management f tailings risk; Cmmunity relatins Labr relatins Apprach t bidiversity issues Crprate reprting structure (i.e., reprting lines fr envirnmental and safety executives) E&S incentives in management cmpensatin. We perfrmed ur assessment n the cmpanies listed belw. We scre the cmpanies n each f the seven metrics, then rll thse up int an verall attentiveness indicatr. Angl American Angl American Platinum AnglGld Ashanti Antfagasta BHP Billitn Cia de Minas Buenaventura Harmny Gld Mining Hindalc Industries Impala Platinum Newcrest Mining Newmnt Mining Oil Search Philex Mining Randgld Resurces Ri Tint Sibanye Gld Sciedad Quimica y Minera de Chile (SQM) Suth32 Ltd Tullw Oil Please cntact yur Crnerstne Capital Investment Management representative fr a cpy f ur cmplete reprt. Crnerstne Capital Investment Management

4 Abut Crnerstne Capital Investment Management (CCIM) At Crnerstne Capital Investment Management (CCIM), we prvide ur clients with deeply researched, independent guidance and a systematic apprach t managing their investment prtflis t generate cmpetitive investment returns while achieving scietal impact. We view manager due diligence, gvernance and sustainability as critical drivers f value and essential elements f successful investment advice. We are nt an asset manager and we d nt have Crnerstne-branded investment prducts. Our sle mtivatin in recmmending investment pprtunities is t help ur clients achieve their financial and impact-related bjectives thrugh ur manager selectin prcess. Our firm strives fr the highest level f ethics and integrity in the service f ur clients, with transparency, cllabratin and fiduciary duty as ur cre values. We aim t be yur trusted partner fr stewardship and prgress. Fr mre infrmatin, please cntact: Phil Kirshman, CFA, CFP Chief Investment Officer (646) phil.kirshman@crnerstnecapinc.cm Nicle Duillet Janet Mrgan Executive Directr, Client Prtfli Management Managing Directr, Strategic Business Develpment (646) (646) nicle.duillet@crnerstnecapinc.cm janet.mrgan@crnerstnecapinc.cm Imprtant Disclsures Crnerstne Capital Inc. ding business as Crnerstne Capital Grup ( Crnerstne ) is a Delaware crpratin with headquarters in New Yrk, NY. This publicatin des nt take int accunt the investment bjectives, financial situatin, restrictins, particular needs r financial, legal r tax situatin f any particular persn and shuld nt be viewed as addressing the recipients particular investment needs. Recipients shuld cnsider the infrmatin cntained in this publicatin as nly a single factr in making an investment decisin and shuld nt rely slely n investment recmmendatins cntained herein, if any, as a substitutin fr the exercise f independent judgment f the merits and risks f investments. This is nt an ffer r slicitatin fr the purchase r sale f any security, investment, r ther prduct and shuld nt be cnstrued as such. References t specific securities and issuers are fr illustrative purpses nly and are nt intended t be, and shuld nt be interpreted as recmmendatins t purchase r sell such securities. Investing in securities and ther financial prducts entails certain risks, including the pssible lss f the entire principal amunt invested. Yu shuld btain advice frm yur tax, financial, legal, and ther advisrs and nly make investment decisins n the basis f yur wn bjectives, experience, and resurces. Infrmatin cntained herein is current as f the date appearing herein and has been btained frm surces believed t be reliable, but accuracy and cmpleteness are nt guaranteed and shuld nt be relied upn as such. Crnerstne has n duty t update the infrmatin cntained herein, and the pinins, estimates, prjectins, assessments and ther views expressed in this publicatin (cllectively Statements ) may change withut ntice due t many factrs including but nt limited t fluctuating market cnditins and ecnmic factrs. The Statements cntained herein are based n a number f assumptins. Crnerstne makes n representatins as t the reasnableness f such assumptins r the likelihd that such assumptins will cincide with actual events and this infrmatin shuld nt be relied upn fr that purpse. Changes in such assumptins culd prduce materially different results. Past perfrmance is nt a guarantee r indicatin f future results, and n representatin r warranty, express r implied, is made regarding future perfrmance f any security mentined in this publicatin. Crnerstne accepts n liability fr any lss (whether direct, indirect r cnsequential) ccasined t any persn acting r refraining frm actin as a result f any material cntained in r derived frm this publicatin, except t the extent (but nly t the extent) that such liability may nt be waived, mdified r limited under applicable law. The Reprt is licensed fr use by named individual Authrized Users, and may nt be reprduced, distributed, frwarded, psted, published, Crnerstne Capital Investment Management

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