An Investor’s Perspective: Long-Term Risk Assessment and
Value Drivers for Mining Investors with Varying Time
Horizons
Jason M. Siegel
Columbia University
Natural Resources Private Equity
ABSTRACT
!
Environmental! sustainability! factors! related! to! mining! operations! can! have!
significant!impacts!on!both!short!and!long!term!financial!performance!of!mining!
companies.!Some!of!these!impacts!may!emerge!slowly!over!time,!while!others!
could! manifest! as! an! impact! at! any! time! and! hence! translate! into! a! near! term!
financial! risk.! This! note! discusses! some! salient! aspects! of! an! investor’s!
perception! as! to! both! short! and! long! term! risk! associated! with! mining!
enterprises,! with! water! related! risks! as! the! environmental! context.! ! Elements!
needed! for! a! reporting! or! disclosure! framework! that! improves! investor!
understanding!of!and!response!to!long!term!risk!factors!are!discussed.!!!
INTRODUCTION
!
Every mining investor has a targeted time horizon during which time it aims to
recover capital invested plus a rate of return. These time horizons can range from
fractions of a second (for high-frequency technical investors) to decades (for longer
term fundamental investors that are less focused on exploiting temporary
inefficiencies in the market and more focused on long-term value creation and
wealth preservation). Each of these investors has its own unique set of investment
objectives and therefore takes a slightly different approach to risk and valuation of
mining assets. This note specifically focuses on the inherent differences in risk
assessment and the importance of different value drivers to shorter term mining
investors relative to longer term mining investors. Water related factors are
integrated throughout this section in terms of how they may influence some of the
topics discussed below.
The key issues discussed in this note are:
• Commodity price;
• Foreign exchange;
• Environmental impact;
• Social conflict / community relations;
• Natural disasters;
• Labor relations;
• Cost management;
• Infrastructure development;
• Offtake; and,
• Health and safety.
COMMODITY PRICE
The!commodity! price!is!often! considered!the!key! determinant!of!a! mine’s!profitab il ity! as! it!is!
the!basis! for! the!revenue!derived! from!each!quantity! of! a!given!commodity! produced.!!Short!
term!investors!and!long-term!investors!look!at!commodity!price!risk!very!differently.!
!
Short!term!investors!are!often!focused!on!temporary!fluctuations!in!supply!and!demand.!!T hey!
react!to!data!on!temporary!prod ucti on!stoppages!and!look!at!metrics!such!as!warehouse!levels!
as!a!determinant!of!how!saturated!the!current!market!is!for!a!p articul ar!commodity.!!Market!
announcements!on!growth!in!China,! n ew!housing!starts,!or!unemployment!can!in!the!course!of!
a!given!moment!change!a!short-term!investor’s!outlook!on! a!given!commodity!sector.!! Th e!spot!
market!and!forward!curve!are!of ten!the!most!widely!used!reference!prices!for!predicting!how!
successful!a!mine!will!be!on!a!short-term!(temporary)!basis!from!selling!its!product.!
!
Longer!term!in vestors!are!more!concerned!with!the!structural!nature!of!a!particular!commodity!
and! how! long-term! supply! and! demand! imbalances! will! change! over! time.!!They!loo k! at!new!
mines! coming! onl in e! and! fundamental! drivers! of! demand! of! both! the! commodity! and! the!
refined! products! for! which! each! commodity! is! an! i npu t.! ! They! carefully! examine! things! like!
cash-cost! and! grade! and! consider! how! evolving! technologies! and! substitution! (of! alternative,!
lower!cost! commodities)!may!shape! the!sector! over!time.!!Long-term!durability! of!demand!is!
examined! on! the! basis! of! the! end! consumers! and! temporary! blips! in! consumption! are! not!
materially!impactful.!
!
To! long-term! investors,! water! related! factors! such! as! scarcity! (which! may! result! in! requiring!
desalination)! can! increase! min e! capex! and! result! in! fewer! new! mines! being! built! (as! the!
economics! may! not! work! at! given! prices).! ! In! addition,! changes! in! environmental! regulations!
can! impact! operating! costs! associated! with! ongoing! moni toring! and! remediation.! ! This! can!
result! in! an! industry-wide! shift! in! the! cost! curve,! which! can! impact! the! pricing! dynamics! of! a!
given!commodity!(if!it!costs!more!to!produce!a!single!unit).!!Given!the!large!portion!of!global!
production!of! certain!commodities! that!is!located!in!highly!concentrated!areas!(for!geological!
reasons),! even! local! changes! that! influence! capital! expenditures! and! operating! expenses! in! a!
place!such!as!Chile!can!have!a!profound!effect!on!the!global!market.!!
!
US! thermal! coal! is! a! good! example! a! commodity! that! suffers! from! fundamental! structural!
problems.!!The! emergence!of!hydraulic!fracturing! technology! has! allowed! a! large! amount! US!
natural! gas! to! be! produced! which! was! previously! inaccessible,! which! has! resulted! in! a! sharp!
decline!in!the!US!natural!gas!price.!!As!a!cleaner!and!cheaper!form!of!energy,!natural!gas!has!
made!many!coal!mines!uneconomic!and!an!undesirable!fuel!source.!!Many!long-term!investors!
therefore! believe! that! US! thermal! coal! is! a! d ying! industry.! ! However,! from! a! sho rt-term!
investor’s! perspective! there! is! potentially! an! opportunity! to! exploit! economic! mines! in! areas!
where! natural! gas! has! not! been! discovered! (or! pipelines! have! not! yet! been! built)! until! US!
natural! gas! infrastructure! grows! in! such! a! way! such! that! these! mines! can! no! longer!
economically!produce.!
FOREIGN EXCHANGE
Foreign! exchange! is! an! important! factor! that! influences! a! mine’s! profitability.! ! Most!
commodities!are!sold!to!the!international!market!in!US!dollars,!however!a!material! p ortion !of!a!
mine’s! costs! is! often! denominated! in! local! currency.! ! For! example,! local! workers! and! local!
supplies!are!often!paid!in! the!currency!where!a!given!mine!is!located.!!When!the!local!currency!
appreciates,!it!costs!more!to!compensate!a!mine’s!workers!for!the!same!amount!of!work!and!
therefore!a!mine’s!profitability!goes!down!(revenues!remain!constant!and!costs!go!up).!
!
Short-term! investors! will! look! at! temporary! changes! in! emerging! market! economies! as! an!
important! element! in! evaluating! an! investment! decision.! ! Hi gher! cost! mines! will! make! less!
money! and! therefore! are! less! desirable! to! own.! ! Short-term! mining! investors! will! tailor! their!
portfolios! around! mine’s! that! will! report! positive! news! (e.g.! good! earnings)! in! the! near-term!
and!therefore! having! a!view!around! currency! fluctuations! can!impact!their! perspective! which!
companies!are!more!likely!to!make!more!money!(and!report!to!the!market!that!this!is!the!case).!
!
Longer!term!investors!will!try!to!understand!the!long-term!trends!of!a!given!foreign!currency.!!
They!will!ask!questions!such!as! whether!long-term!wage!rates!are!fundamentally!increasing!and!
try!to!consider!as!a!trade-off!whether!the!work!force!is!becoming!more!skilled!and!productive.!!
The!economy!of!a!given!country!is!o ften!structurally!examined!and!a!long-term!exchange!rate!
will! be! ass umed! based! on! factors! like! anticipated! population ! growth,! quality! of! life!
improvements!and!foreign!direct!investment!and!less!so!on!short! term! chan ges! to!interest!rates!
and! temporary! macroeconomic! indicators.!!It! is! important! to! note! that! many! of! the! largest!
commodity! producing! countries! have! foreign! exchange! rates! that! are! highly! correlated! to!
commodity!prices,!as!commodities!represent!such!a!material!portion!of!a!given!country’s!gross!
domestic!product!and!exports.!!As!it! relates!to!water,!it!is!therefore!likely!that!an!across-the-
board! increase! to! operating! costs! and! capital! expenditures! can! drive! up! both! the! price! of! a!
given! commodity! and! also! strengthen! the! currency! of! those! countries! who! produce! that!
commodity.!!However,!to!the!extent!the! water!related!impact!is!very!local,!it!is!possible!that!the!
resulting!effect!may!solely!be!that!a!particular!country’s!production!becomes!less!competitive!
or!that!the!economics!make!it!less!attractive!to!develop!a!mine!in!that!particular!location.!!This!
can!be!detrimental!to!a!commodity!driven!economy!and!currency.!!
ENVIRONMENTAL IMPACT
!
Mining! investors! are! concerned! about! the! environmental! impact! of! a! mine! mainly! because! it!
can! impact! profitability! through! increased! monitorin g! costs,! the! permitting! process! and!
potentially!cause!production! d isrup tio ns!in!the!event!of!pollution !or!a!reported!violation.!!While!
both!short-term!and!long-term!investors!are!concerned!with!any!sort!of!environmental!impact!
that! can! lead! to! increased! costs,! a! delay! to! the! production! ti melin e! or!either! a! temporary!or!
permanent!production!stoppage,!they!view!these!risks!very!differently.!
!
For!example,! an!investor!who! is!looking!at! a!project! with!a!30-year! time!horizon!may! be!less!
concerned!with!whether!a!mine’s!feasibility!study!or!permit!is!delayed!by!one!year,!while!a!one-
year! permitting! delay! might! be! reason! alone! for! a! short-term! investor! to! exit! a! particular!
position.! ! What! is! more! important! to! a! long-term! investor! is! that! the! mine! design! is! done!
properly! and! that! over! the! life! of! the! mine,! the! project! produces! efficiently! and ! without!
material!interruption.!!Investing!in!slightly!more!costly!monitoring!programs!and!preventative!
maintenance!is!worthwhile!to!long-term!investors!while!shorter!term!investors!may!view!these!
costs!as!wasteful.!!!
!
A!typical !example!of!this!is!the!stability!and!construction!parameters!of!tailings!ponds.!!While!
over!time!a!number!of!jurisdictions!have!required!that!tailings!ponds!be!lined,!many!countries!
in!the!world!do!not!have!any!regulations!requiring!l in in g!to!be!installed!in!order!for!a!mine!to!
receive! its! permit! to! operate.! ! Longer! term! investors! may! see! the! potential! implications! of!
depositing!the!mine’s!acidic!tailings!into!an!unlined!facility,!however!shorter!term!investors!are!
likely!to!prefer!that!a!mine!pursue!th e!most!cost!effective!route!to!reach!positive!cash!flow!that!
complies!with!local!laws!and!regulations.!
!
If! the! market! was! perfectly! efficient,! these! risks! would! be! priced! into! p roject! and! company!
valuations.! ! Companies! with! poorer! monitoring! programs! that! have! less! regard! for! the! long-
term! implications! of! their! actions! would! be! less! valuable! (as! their! valuations! would! take!into!
consideration!the!higher!risk!associated!with!investing!in!them).!!In!reality!however,!there!is!a!
mismatch!in!how!short-term!and!long-term!investors!view!these!risks!given!their!objectives.!!If!
a!mining!company!misses!earnings!as!a!result!of!increased!spending!on!preventative!measures!
(whose!impact! mi ght!not!be!felt!for!10!years),!a!short!term!investor!might!view!these!expenses!
as!simply!a!cost,!while!a!long-term!investor!would!look!at!this!as!an!investment.!!!
!
There! is! also! often! a! misalignment! with! management,! who! tend! to! be! rewarded! based! on!
short-term! performance! rather! than! continued! preventative! risk-avoidance.!!Investors! have!
limited!mine!specific!data!available!to!them!to!assess!how!companies!and!management!is!doing!
preventing!long-term!risks.!!The!issue!is!not!data!collection;!we!are! co nvin ced!that!mines!collect!
and! report! this! d ata! internally! (often,! so! it! can! be! looked! at! after! the! fact! in! a! high! impact!
event).!!The!problem!appears!to!be! co nsol idati ng!mine-by-mine!data!and!making!it!available!to!
investors!in!a!usable!form.!!The!result!i s!a!lack!of!incentive!(especially!for!smaller!companies!in!
need!of! capital)!to!do! anything!beyond! what!is!required! to!mitigate! longer!term! risk!because!
investors!cannot!quantify!the!resulting!impact!into!their!valuation!analyses.!
SOCIAL CONFLICT / COMMUNITY RELATIONS
Maintaining! good! relationships! with! surrounding! communities! is! essential! for! a! mine! to! be!
successful!over!the!long!run.!!Local!people!often!represent!a!material!portion!of!the!local!work!
force! and! if! not! satisfied! with! the! way! a! mining! company! is! treating! them,! can! cause! social!
unrest,!which!can!influence!local!regulations.!!
!
A! long-term! investor! will! place! an! emphasis! on! a! given! mi ni ng! company! building! long-term!
relationships!with!the!local!people!and!their!elected!officials.!!S ho rter!term!investors!will!often!
be! more! concerned! about! the! current! costs! of!operating!locally! and! the! potential! immediate!
impact!of!any!sort!of!disturbance!on!a!mine’s!bottom!line.!!!
!
Water!is!most!often!consumed!in!mi nes!in!mineral!processing,!mine!cooling!systems,!washing!
of! equipment! and! transportation! of! ore! in! slurries.! ! Some! mines! are! located! in! areas! where!
water!is! particularly!scarce! and!a!given!mine’s!consumption! may!impact! water!availability!for!
human!consumption!and!agriculture.!!Longer!term!investors!will!often!try!to!find!a!solution!for!
water! use! that! satisfies! the! needs! of! the! local! people! as! well! as! that! of! the! mine! as! a!
foreseeable! conflict! over! water! may! likely! take! place! over! the! longer! term.! ! Shorter! term!
investors!will!likely!be!f ocused!on!simply!finding!the!l ower!cost!water!access,!irrespective!of!its!
potential!long!term!impact!on!the!surrounding!population.!
!
To! protect! certain! investors,! as! a! condition! to! providing! fin anci ng,! it! is! often! required! that! a!
given! mine! will! adhere! to! Equator! Principles! or! IFC! standards,! which! set! out! international!
guidelines! by! which! mining! companies! must! follow! wh en! interacting! with ! local! communities.!!
There!are!several!pieces!of!literature!which!suggest!that!mines!th at!adhere!to!IFC!performance!
standards! have! significantly! better! engagement! with! local! communities! and! lower! resulting!
impact!than!those!that!do!not.!!This!relates!to!both!water!and!oth er!potential!activities!that!can!
impact!people!located!nearby!to!a!given!mine!site.!!!
NATURAL DISASTERS
Every! country! has! its! own! regulations! that! mines! must! adhere! to! in! order! to! p rotect! a! given!
mine! and! the! surrounding! communities! from! natural! disasters.! ! These! include! earthquakes,!
floods! and! epidemics! among! other! naturally! occurring! impactful! events.! ! Some! companies!
strive!to!go!above!and!beyond!the!minimum!that!is!required!by!law!and !some!investors!i nsi st!
that!they!do!so.!!For!example,!each!country!has!its!regulations!regarding!the!stability!of!tailings!
ponds!based!on!the!likelihood!of!flooding!and!seismic!activity.!!While!many!companies!simply!
adhere!to!the!minimum!lo cal!regulations,!there!are!some!companies!that!pride!themselves!on!
going! above! and! beyond! those! requirements! in! order! to! reduce! the! risk! of! a! low-probabi li ty!
high-impact! event! affecting! any! particular! one! of! their! assets! having! a! larger! monetary! and !
reputational!impact!on!the!entire!corporation.!
!
A!shorter!term! investor! may! not! be! concerned!about!protecting!agai nst! such! events! because!
the! probability! of! a! natural! disaster! occurring! during! their! holding! period! is! significantly! less. !!
Longer!term!investors!have!a!significantly!higher!probability!of!owning!a!mine!during!a!period!in!
which!it!is!impacted!by!a!natural!disaster!and!therefore!are!more!focused!on!protecting!against!
these!risks.!!A!good!example!of!this!is!to!examine!th e!policies!and!procedures!of!a!large!mine!
with! 50+! years! of! reserves! that! is! likely! to! be! producing! for! decades! to! come! relative! to! a!
narrow! vein! gold! mine! in! Peru! for! example! that! may! have! less! than! a! year! of! remaining!
reserves,! but! has! been! operating! for! 50+! years! and! continuously! replenishes! reserves! as! it! is!
mined.! ! The! larger! mining! company! will! almost! always! invest! significantly! more! mon ey! in!
preventing!low-probability! high-impact! events,! as! the! impact!is! both! more! easily! quantifiable!
and!more!likely!to!occur!(given!the! availab le!information).!!The!impact!on!the!smaller!company!
may! in! fact! b e! greater,! but! it! is! uncertain! given! the! mine! could! stop! producing! at! any! given!
time.!
LABOR RELATIONS
A! large! portion! of! mines! globally! are! unionized! and! every! several! years,! a! mine! will! need! to!
renegotiate!terms!with!the!local!workforce.!!These!negotiations!often!place!restrictions!on!the!
ability!for!a!mine!to!downsize!and!also!set!wage!rates.!!Over!the!past!decade,!labor!rates!have!
put!increasing!cost!pressure!on!mining!companies!as!commodity!prices!have!risen.!!Strikes!have!
also!caused!production!stoppages,!which!can!cause!a!material!impact!to!a!mine’s!earnings!in!a!
particular! period. ! ! Governments! have! also! implemented! “workers! participation”! regulations!
which! mandate! that! companies! must! pay! a! minimum! portion! of! their! earnings! to! the! local!
workforce.!
!
Short-term!investors!will!often!be!particularly!sensitive!to!the!impact!of!rising!wage!rates!on!a!
mine’s! cost! as! well! as! the! impact! of! any! sort! of! production! stoppage! that! directly! impacts! a!
mine’s!bottom!line.!!Longer!term!investors!are!often!more!focused!on!the!fundamental!impact!
of!the!relationship!between!a!given!mini ng!company!and!its!workers!as!well!as!any!sort!of!long-
term!impact!on!wage!rates!relative!to!productivity.!
COST MANAGEMENT
Every!mining!company!has!various!cost!controls!that!have!been!implemented!to!try!to!ensure!
that! the! company! and! its! assets! are! operated! as! efficiently! and! cost! effectively! as! possible.!!
Major!mining!companies!have!entire!departments!focused!on!implementing!i mprovements!to!
key! performance! metrics,! with! a! major! focus! on! cost.! ! In! some! cases,! this! may! include!
confirming!that! environmental!monitoring! (for!example! of!water!pollution)!is!not! superfluous!
and! that! its! assets! are! operating! with! the! minimum! number! of! people! and! resources! as!
possible.!!Mergers!and!acquisitions!in!the!industry!(particularly!in!the!private!equ ity!space)!are!
frequently! predicated! on! the! ability! to! create! valu e! through! more! cheaply! operating! a! given!
asset,!thereby!increasing!profitability.!
!
Short-term!investors!are!often!more!concerned!with!a!company’s!short-term!performance!and!
how!that!translates!to!immediate!value!creation,!while!longer!term!investors!are!often!focused!
on!whether!cost!cu ttin g!measures!are!sustainable!and!how!any!such!changes!may!impact!the!
mine’s!ability!to!produce!in!the!long!run.!
!
A!typi cal!example!of!this!is!whether!a!mine!invests!in!reserve!replacement.!!Many!underground!
mines!need!to!continuously!drill!and!define!more!reserves!as!ore!is!produced.!!An!easy!way!to!
improve! near-term! profitability! is! to! focus! less! on! extending! a! given! mine’s! life,! which! will!
reduce! costs! in! the! short!term! but! cause! a! mine!to! run! out! of! defined! reserve! more! quickly.!!
This!is!a!frequent!trade!off!that!mine!management!needs!to!consider,!about!whether!investing!
in!the!asset’s!future!is!worthwhile!while!partially!sacrificing!near!term!profitability.!
INFRASTRUCTURE DEVELOPMENT
Mining! companies! are! frequently! placed! with! the! dilemma! of! whether! to! invest! in! long-term!
infrastructure!such!as!bu il di ng!roads,!rail,!pipelines!for!water!access!or!relying!on!more!costly!
temporary! means! for! the! project! to! operate! (such! as! utilizing! trucks! as! the! main! means! for!
transporting! supplies! and! the! finished! product).! ! For! example,! many! mines! during! the!
development!phase!of!a!project!(while!they!are!trying!to!determine!whether!there!are!ample!
reserves!and!resources!in!the!ground!for!a!mine!to!be!constructed)!will!truck!water!from!local!
wells! to! the! mine! si te.! ! Once! reserves! are! proven! and! studies! are! sufficiently! ban kable! that!
demonstrate! a! mine! sh oul d! be! built,! only! then! will! a! mining! company! consider! putting! in! a!
costly!pipeline!o r!desalination!plant.!!Infrastructure!investments!can!cost!billions!of!dollars!and!
take! years! to! complete.! ! These! investments! require! a! long-term! commitment! to! production!
from!a!particular!region!and!often!a!belief!that!a!given!geographic!area!will!thrive!in!the!long!
term.!
!
Long!term!investors!have!the!ability!to!look!at! a!project!from!an!entirely!different!perspective!in!
that! they! can! evaluate! a! region’s! geology! and! then! make! a! determination! abo ut! whether! a!
means! to! easily! access! the! area! will! likely! be! necessary! and! cost-effective! over! the! long! run.!!
Shorter! term! investors! are! often! focused! on! nearer! term! profits! and! whether! a! given!
investment!will!result!in!visible!value!creation!during!their!shorter!investment!horizons.!
OFFTAKE
The! physical! metal! that! a! mine! produces! can! have! significant! strategic! value! to! industrial!
consumers!and!metals!traders.!!A!mine’s!production!is!ultimately!sold!to!an!end!user!that!will!
turn!a!given!commodity!into!a!finished!product.!!These!downstream!consumers!value!security!
in!their!supply!chain!and!are!therefore!often!to!pay!a!premium!or!provide!financing!to!mines!
willing!to!provide!them!with!certainty!of!supply.!
!
Shorter! term! investors! are! more! likely! to! be! willing! to! sell! a! mine’s! long-term! ph ysical!
production!to!enhance!a!mine’s!sho rt!term!cash!flow!or!to!cater!to!a!mine’s! near!term!financing!
needs.! ! Longer! term! investors! tend! to! be! much! more! reluctant! to! give! away! the! rights! to! a!
mine’s!physical!producti on!because!they!realize!the!importance!of!this!to!a!long-term!strategic!
purchaser! and! would! prefer! to! sell! on! a! competitive! basis! to! the! open! market! with! more!
leverage! and! keep! the! value! associated! with! the! p hysical ! supply! of! their! finished! product! to!
themselves.!
HEALTH AND SAFETY
Mines! in! every! jurisdiction! are! required! by! law! to! operate! safely! and! take! certain! minimum!
necessary! precautions,! however! different! companies! go! to! different! lengths! to! ensure! this! is!
the!case.!!Unsafe!mines!are!subject!to!being!shut!down!and!can!result!in!sizab le!lawsuits!and !
settlements!against!the!companies!operating!them.!!!
!
Longer! term! investors! will! often! be! focused! on! ensuring! that! proper! monitoring! and!
preventative!programs!are!in!place!to!ensure!there!are!no!systematic!issues!over!the!long!run.!!
There! include! monitorin g! air! pollution,! water! pollution! as! well! as! direct! monito ring! of! the!
ongoing!health!of! the!company’s!employees.!!A!poor!safety!record!can!result! in!bad!publi city!
for!a!min in g!company!and!poor!community!and!governmental!relations.!!Short!term!investors!
can! be! less! concerned! for! example! about! a! mine’s! performance! preventing! respiratory!
infections!that!can!take!years!to!become!evident.!!Longer!term!investors!need!to!consider!the!
financial!implications!of!being!continuously!burdened!with!worker!l awsui ts! later!on!down! the!
line!which!will!ultimately!impact!a!company’s!profitability!and!valuation.!
SUMMARY / CONCLUSION
Long-term! and! short! term! investors! have! diff erent! investment! objectives! and! therefore! take!
different! approaches! to! value! mining! assets! and! mitigate! risk.! ! On! each! of! the! key! issues!
discussed!above,!the!time!horizon!that!the!given!investor!is!targeting!fundamentally!influences!
the!actions!each!of!them!prefer!to!be!taken!by!the!companies!they!invest!in.!
! !
!
Value Driver and Risk Assessment Summary Table
Issue
Examples of
Short-term Focus
Examples of
Long-term Focus
Examples of
Potential
Additional
Disclosure
Commodity Price
Warehouse levels, mine
labor strikes, current
industry cash costs,
TCRCs, current demand
for refined products /
from end users, current
performance of key
demand markets / key
economic indicators,
weather conditions that
impact supply, natural
events that cause
production stoppages
New mining technologies,
long-term cost / grade
trends, availability of
substitutes for
replacement in end
market, changes in
environmental
regulations / monitoring
costs
More detailed
breakdown of mine-
specific costs, more
detailed estimates
of mine
development
timelines, more
disclosure on
demand from end
users / trade flows
Foreign Exchange
Changes in year-to-year
inflation, interest rates,
government debt levels,
recession indicators,
export / trade
Political stability,
improving labor force /
education rates, durable
demand for a country's
products and labor
Mine-specific
disclosure on cost
and capex
denominations in
local currency
versus US dollars
Environmental
Impact
Permitting delays,
increased monitoring
costs, production
disruption as a result of
pollution, stronger
(higher cost) legislation
to protect against high-
impact events
Lack of environmental
monitoring, weak
environmental
monitoring program, lack
of preventing measures
in place to protect
against high-impact
events, clean-up costs
Mine-specific
monitoring costs,
estimates impact of
environmental
incidents
Social Conflict /
Community Relations
Higher costs as a result
of agreements with local
communities, higher
costs associated with
water use, stricter local
compliance
requirements leading to
higher development
costs
Poor relationship with
local communities, social
conflict over water use,
lack of compliance with
international standards
Mine-specific social
and community
costs, capex and
cost implications on
a mine-by-mine
basis of complying
with improved
international
standards
Natural Disasters
Earthquakes, floods,
epidemics that cause
production stoppages,
increased costs
associated with
protecting against low-
probability high-impact
events
Lack of preventative
measures to protect
against natural
disasters, lack of
investment to put at risk
value of reserves /
resources
Mine specific
design parameters,
ongoing costs and
capex associated
with protecting
against high
impact events
Labor Relations
Rising wage rates,
implementation of
workers participation
legislation, labor strikes
Fundamental lack of
training, lack of
education / skilled labor
necessary to mine,
relationship between
workers / unions and
mine management /
corporate
Impact of yearly
union negotiations
on cash costs,
timing of contract
renegotiations,
better disclosure on
productivity /
performance
measures
Cost Management
Increased
environmental
monitoring costs, lack of
cost cutting /
operational efficiency
measures
Fundamental increases
in baseline costs, long-
term increase in supplies
and materials
Mine specific,
categorized
breakdown of costs
Infrastructure
Development
High capex, capex
overruns, financing risk
Inability to produce at
targeted production
levels, lack of expansion
capacity, high cost
transportation as a result
of lack of infrastructure
Trade-off study
analysis of
infrastructure
solutions
performed at the
mine level
Offtake
Potential financial
source from strategic
investors
Strategic value in a
mine’s product
Detailed mine
offtake terms,
contractual
commitments,
annual P&L made
by offtakers
Health and Safety
Temporary production
stoppages due to injury,
higher health and safety
/ training costs
Bad publicity that can
cause long-term brand
damage, major lawsuits,
labor claims
Better disclosure of
contingent
liabilities and
mine-level health
and safety
statistics
!
In! a! perfectly! efficient! market,! long-term! and! short-term! investors! would! be! aligned! as! the!
securities! would! be! priced! taking! into! consideration! all! of! the! risks! perceived! to! exist! in! the!
market!based!on!the!in formation !available.!!However,!there!is!a!lack!of!available!mine!specific!
information! which! limits! investors! abilities! to! assess! and! quantify! risk! and! the! potential!
resulting!impact,!which!likely!leads!to!certain!risks!being!mispriced.!
!
The!issue!is!not!related!to!collection!–!mines!collect!ampl e!information!that!would!enable!these!
risks! to! be! analyzed! (an! example! mining! reporting! framework! is! included! in! Exhibit! A).! ! The!
problem! pertains! to! making! the! necessary! data! available! to! the! public! and! presenting! it! in! a!
way! that! is! easy! to! un derstand. ! ! Without! a! greater! incentive! for! companies! to! do! so! or!
regulation!that!mandates!that!things!be!done!a!certain!way,!there!is!not!a!mechanism!in!place!
to! protect! investors! against! the! risks! they! cannot! evaluate.! ! Better! disclosure! would! enable!
investors! to! more! easily! identify! those! companies! whose! practices! match! their! investment!
objectives.! ! The! companies! themselves! could! choose! whether! trying! to! carry! out! the! actions!
necessary!to!meet!the!needs!of!those!investment!objectives!is!worthwhile!to!them.!
!
The!onus!of! making!sure!companies! are!mitigating!risks! lies!both!with!government!regulators!
and!investors!(who!are!trying!to!mitigate!financial!loss!for!themselves!and!the!companies!they!
invest!in),!however!without!the!necessary!informatio n!to!assess!probability!or!impact,!there!is!
little!that!can!be!done.!!!
! !
EXHIBIT'A'
!
!
Individual
Mine Functions
Mine Operations
Mine Management
Country / Regional
Management
Corporate / Global
Management
Investors
Local Regulators
Global Regulatory and
Securities Exchange Agencies
Federal Government
10 gallons of water were consumed in the
cooling system in Block A
Total water consumption at the mine was 100
gallons, 85% of it will be reused, the
remainder will be deposited into the tailings
pond
The mine consumed 100 gallons of water.
There were no environmental issues reported
during monitoring. Total costs associated with
water consumption were $20.
None of Company X‘s mines had any reported
environmental violations. Total C1 cash costs
at Mine X were $2.00/lb. This is higher than
last year because monitoring costs have gone
up.
Total production from Country X was 100lb of
Cu. Average C1 cash costs across all
Company X mines were $1.50/lb and therefore
Company X made $150.
Better and More Detailed Reporting Framework Needed
Example Mining Reporting Framework
