1. ESG is the easy win everywhere these days
It gets column inches, it generates social media traffic, it gives politicians easy talking points that can be vague enough not to be taken too seriously, and it makes people feel good.
What could be wrong with paying more attention to environmental, social and governance issues?
Not much, if you really mean it.
But in the case of mining, that’s still an open question.
This year at the Mines & Money event, an award was given out for ESG for the first time.
And there was little doubt in anyone’s mind that the winner, Royal Road Minerals, richly deserved the accolade for all the work it does on the ground at its projects in South America.
But it was also noteworthy that protestors later gathered outside of the Mines & Money conference hall, and managed to make a lot of noise out of all proportion to their numbers.
Now, mining and protesting have gone hand in hand since the days of forever, but it is only a relatively few moons since the world’s most pre-eminent financial power, Goldman Sachs (NYSE:GS), decreed that ESG credentials are a must in all new and existing ventures.
That decree effectively changed everything.
Protests can, to a degree, be faced down or bought off. But to the degree that they can’t ESG’s eye of Mordor is likely to turn its full glare on them.
If a project generates protests, is it going to be investable at all?
That will be a key issue that the mining industry will have to grapple with in 2022.
Inflation will present opportunities as well ask risks
Inflation can be a double-edged sword for the mining sector as rising input costs can have an effect on margins.
On the other hand, inflation is largely something that affects and is measured by fiat currencies these days, and the market knows this.
Therefore the easiest way to hedge against inflation is to buy hard assets, including commodities, or the companies that produce those commodities.
And, there can be an initial kick on from this dynamic.
Because, if the trend to inflation is boosting the spot prices of metals, that’s largely a US dollar-related phenomena.
Miners who incur costs in other currencies may find that raw materials prices stay the same. That in turn will lead to bigger margins.
Given that these variables are capable of changing course at the drop of a hat, the launching of a foreign war, or the development, say, of some toxic virus in a laboratory in China somewhere, investors need to keep on their toes.
But any decisions made without factoring in the effects of inflation – now at a forty-year high in the US – would seem half-blind.
Infrastructure spending will gather momentum in 2022
There’s been a slew of announcements regionally in the US over from various government bodies relating to proposed infrastructure spend.
The money from President Biden’s trillion-dollar spending plans is no longer hypothetical – it’s beginning to be allocated and budgeted for.
That US infrastructure needs a major overhaul isn’t really in doubt. Whether President Biden’s plan is the best way to get it done is more debatable, and remains a matter for intense discussion in the US media.
But the fact remains that the money is on the way, and what it will pay for, to a significant degree, will be the raw materials for the infrastructure itself.
Jobs will be a benefit too, but because of the strange vagaries of the covid-enchantments still running in all directions, jobs are not really an issue in the US. There are more vacancies than there are people willing to work.
Not so with raw materials. Here, much will have to be shipped in from overseas, as always, and the major mining companies will be significant beneficiaries.
That, however, is all largely priced in. The real upside will lie with the small companies, moving projects along from the discovery stage towards economic viability.
The world is crying out for copper, nickel, and other metals to get things built. The deposits that are known about and held by the majors are being depleted. New ones will be required.
Whether that means that boom times will return to junior and mid-tier miners in 2022 is open to question. But certainly, the hard times of six or seven years ago are unlikely to be repeated.
Covid might ruin everything
Is science the new religion? And if so, does that mean it really is science, or not?
A new wave of restrictions might be about to sweep the world as the omicron variant of covid makes itself known, instilling more fear into the fearful and more indignation into the less fearful.
Miners, on the whole, have played a relatively good game in their collective responses to Covid.
In 2020 and 20201 several companies provided specific covid relief schemes to poorer neighbourhoods affected by the inability of local inhabitants to go to work. Miners too were quick to set up testing and safety protocols for their own workers.
Furthermore, although there were some shutdowns, and at times a few question marks arose about supply from some of the world’s larger copper and nickel mines, on the whole, the show was kept on the road.
Even exploration carried on unabated, hindered mainly by the travel restrictions on top-level decision-makers rather than any restrictions on the ground.
For a brief while, there were worries that Canadian exploration teams might bring covid into indigenous communities.
But workarounds have been found, and although restrictions on the wider population in Canada appear to be increasing, the mining sector is getting on with things.
Will this optimistic state of affairs continue into 2022?
The answer has to be: probably, but there’s no way of knowing exactly which way the world’s healthcare sentiment index is going to swing next.
Two years after ‘two weeks to flatten the curve’, a mountainous pile of restrictions are still in place the world over, and it looks like many of them will be here for the foreseeable future.
Any worsening of sentiment could seriously disrupt efforts at global economic recovery, which would render all optimism about mining largely redundant.
So, is science the new religion?
It might just be. And even if the global economy is allowed to stabilise, the mining industry will need to take extra special care to stay on the right side of the new priests.
After, as we’ve already mentioned, it’s already on a sticky wicket with ESG.