Until recently, mining stocks—gold in particular—had been out of favour so long that many investors picked up and moved on. The reasons for this were many: sluggish gold price, poor company performance, few catalysts, and the speculative upside of other, then-booming sectors, like cannabis.
But, with one of the most constructive gold price environments in eight years—declining interest rates and growing economic and geopolitical uncertainty—we’ve seen the gold price rise nearly 20% in the past year. With gold trading consistently above $1,400 for the past six months, there is ever-growing confidence in a sustained rebound.
Investors are beginning to allocate capital into the gold space, with positive inflows over the back half of 2019, and many (in addition to the usual gold bugs) are predicting a big 2020 for the sector.
Renewing the focus on investor relations
The question for miners is: are they prepared to capitalize on these signs of renewed interest? After nearly a decade of soft gold prices in which companies were forced to retrench and cut costs, non-core “cost centres” were often the first to go. Many companies cut their communications and investor relations functions to the bone.
Most miners are operators, first and foremost. Communications is a bit of a foreign language; but the ones who do it well are rewarded with strong multiples.
If miners are going to lure back circumspect investors—many of whom have been burned in the past, or have moved on from cannabis—they need to reinvest not just in their mine plans, but in the quality of their communications and capital markets outreach.
This is particularly important for the Canadian mid-tiers, who are expected to see additional scrutiny and interest following a major round of consolidation with the tie-up of Barrick and Randgold, and the Newmont acquisition of Goldcorp.
Highlighting environmental and social engagement
One area where mid-tiers can expect far greater scrutiny by all stakeholders (including the investment community) is on their Environmental, Social and Corporate Governance (“ESG”) programs. While environmental concerns around tailings, water and waste management have long been a consideration, regulators and investors are becoming increasingly demanding when it comes to reporting climate change-related risks.
The Canadian Securities Administrators recently issued Staff Notice 51-358 which provides guidance and recommendations for companies to expand their risk reporting to focus on climate issues. Activist investor TCI, for example, has publicly pledged to vote against directors of companies who do not disclose their carbon dioxide emissions.
Communicating a company’s commitment to community and social engagement is also important. Over the years, companies in the extractive industries have seen projects shelved, or outright blocked, due to community and governmental oppositions. Increasingly, investors are using disclosure around community engagement in their due diligence as a window into potential issues and risks that can make or break an investment if not properly managed.
One mid-tier gold miner that has recently demonstrated its commitment to ESG programs and effectively communicates this is Agnico Eagle. The Toronto-based miner headed up by CEO Sean Boyd has secured a license to operate two mines in Nunavut, which together represent 25% of the Territory’s estimated 2020 GDP, by forging a strong partnership with local Inuit communities.
At a November 2019 speaking event hosted by the Canadian Club of Toronto, Boyd was accompanied by two special guests: the Mayor of the Inuit community of Baker Lake, and his wife, who spoke about the importance of Agnico Eagle’s investment to their community. Boyd made an impassioned pitch for a new “Arctic Strategy” to sustainably develop Canada’s North, stating: “The Arctic is under pressure and we need to work together to defend it, to help it reach its full potential, and to protect the environment.”
While Agnico has one of the best multiples in the business (for various reasons), this was a great example of how to communicate sustainable value creation that goes beyond just shareholder returns.
Communicating and demonstrating your upside
Investors are no longer solely looking at production and costs; it’s about how you’re producing, and where that production is going to take you. Issuers that will be the most rewarded are the ones who best communicate—and demonstrate—their strategy, upside, and competitive advantages.
Establishing a strong track record drives credibility, but it’s only one part of the equation. Companies that truly differentiate themselves create a narrative that uses results as a springboard for future value generation. Making a few hundred extra bucks an ounce is great, but it’s not the finish line; showing a longer-term vision and purpose around creating further value—for all stakeholders—is what captures people’s attention.
Just because your product is a commodity, doesn’t mean your company has to be one too.
National’s Capital Markets practice has significant expertise in the mining sector, with a number of former in-house IROs and Corporate Communications leads. We have worked with junior, mid-tier, and senior producers. Our team can provide you with the expertise you need to develop a compelling value proposition and engage with investors. Contact us to learn more about how we can help.