We are Evil, But We are a Necessary Evil – But is Greenfield Gold Mining Still Considered Necessary?
So the koala sat here in the eucalyptus tree on the beginning of July 4th weekend with several projects to work on but something keeps circling in the eucalyptus tree. ESG in its current form for the mining industry is effectively dead – divesting fossil fuels like coal is just a laughable pitch at this point.
The western world has learned in the last couple years (and yes this was the case even before Russia – Ukraine) that reliable economic energy supply doesn’t magically appear out of nowhere from the shadows. Even if it magically appeared out the desert, there is a portion of the west that has to come to terms with doing business with the folks who own said desert and do not share all the same values.
And so you have these massive ESG departments, who have made a good career out of the thematic trend of “divesting” from carbon emissions. Except, good luck convincing people to care about the world’s climate in 30-40 years for their children and grandchildren when they and aforementioned children might freeze this winter and be hungry.
We as an industry, the metals & mining / natural resources extraction industry, are critical to civilization and modern life. You don’t get the Nile, the Mississippi, or the Amazon without water emerging from the rocks up near the headwaters, and those little trickling streams of pure water combine and compound to create truly incredible things – like the global economy and the rise of humanity.
But back to those ESG departments, what are they going to target now? Are you seriously going to go after Whitehaven Coal and other high quality thermal coal companies that are keeping electrical grids stable? Spoiler alert, yes you are but it’s not nearly as universally applauded as it used to be.
Because news flash, even if the west decided to go all in on nuclear tomorrow, it would take 15-20 years to get it done. They say Rome wasn’t built in a day, but the western economy, infrastructure, and power grid certainly wasn’t either.
And given this new realization that we are a necessarily evil, both near term and long term (battery metals, electrification, decarbonization, etc.), what will be the new question of morality and principal?
Well, Evy Hambro of Blackrock (when he says something, you can safely say the seed has been planted) back in December 2021 asked a really interesting question about gold mining – why even do it?
https://www.ft.com/content/0f751580-d576-4840-a5f3-d87d38b44a6e
And every time the koala looks at a silver or gold producer I find myself saying “no better silver asset for the 21st century then that silver zone Filo is delineating and/or the stream that will inevitably be done on it). Well, that logic projected on to other copper projects with significant gold/silver credits leads to a very obvious question – why in the western/OECD world are we going to build anymore greenfield gold mines?
Between above ground stocks, and gold by-products from copper porphyries, what is the point exactly of the environmental impact of a mining operation chasing primarily gold? Maybe you can make the argument in an undeveloped third world country that a major mining project that creates jobs and economic activity justifies the environmental impact, but in what world (unless money/returns is all that matters, so ESG in its current form disappears) should “ethical”/moral capital finance a new gold mine in Canada or say the United States?
The principled/moral capital crowd are going to come for gold producers but more for any gold developer chasing an asset in the first world.
Because while our sector is a necessary evil, it will not be clear why a greenfield gold mine is considered necessary.
So with that in mind, do long life established gold mines become more valuable because you can’t build new greenfield ones to replace the depleted ones? But since already built and commissioned, the economic impact of not allowing regional satellite deposit development is not a politically defensible position, so brownfield okay?
Or is this just another reason to never buy gold producers as they perpetually de-rate to lower and lower multiples?
Or is this a reason to only go looking for gold in places that are “tricky” but you can make the case that development makes sense (assuming a public entity holds the project)?
Or perhaps gold exploration and development will have to be done privately and only access public markets once producing? Do mining permits/license for greenfield gold projects earn special scrutiny in OECD/first world nations going forward?
Not sure what the right answers are here, and in this current market environment these are longer term questions that no one is really going to care to think about today, but it’s something I expect to start to matter in the years ahead.
As always, feedback, thoughts, and pushback are welcome.
We are Evil, But We are a Necessary Evil – But is Greenfield Gold Mining Still Considered Necessary?
I thought about this in the context of the frequent gold narratives: that the gold price is suppressed/manipulated, and that majors need to replenish the supply pipeline. Shouldn't the gold crowd be welcoming the idea of gold-mining-as-unnecessary with open arms? Less gold mining means less new supply. Less new supply means a greater chance they can achieve higher gold prices despite the BaNksTeR mAnIpUlAtOrS. :-)