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MarketScreener Homepage  >  Equities  >  London Stock Exchange  >  Glencore plc    GLEN   JE00B4T3BW64

GLENCORE PLC

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Juukan Gorge is a watershed moment for the world's miners: Andy Home

09/15/2020 | 09:00pm EST

LONDON, Sept 15 (Reuters) - Even before Rio Tinto made its fateful decision to blow up the ancient Aboriginal rockshelters at Juukan Gorge, this was turning out to be another terrible year for the mining industry.

In May Russian nickel producer Norilsk spilled 20,000 tonnes of diesel into the Ambarnaya river in Siberia. The damage to the Arctic eco-system has been compared by Greenpeace to the infamous Exxon Valdez oil spill in 1989.

Extraordinarily, Norilsk didn't even notice for a couple of days before learning from social media that something very bad had happened.

There have been at least two tailings dam collapses, a small one at a gold mine in Ecuador and a much bigger one at a molybdenum mine in China, described by the Chinese environmental ministry as the country's worst in 20 years.

Last week brought another fatal artisanal mine collapse in the Congo, following an equally lethal mudslide at a jade mine in Myanmar in July.

Rio Tinto, one of the biggest and best regarded mining companies in the world, now joins the hall of mining shame.

But Juukan Gorge may prove to be a watershed moment for the sector.

WIELDING THE ESG SWORD

Rio's initial reaction to the furore over its destruction of 46,000-year old cultural heritage sites was a carefully-worded apology and the docking of executive bonuses. This has been the mining industry's stock response to past failings.

This time, though, it didn't work.

Rio's board seemed sublimely unaware of how its actions might reverberate in a societal cauldron of ethnic and racial tension. It was Rio's own shareholders who put them right and told them they had to live up to their ESG (environmental, social and governance) promises.

The ESG sword has now claimed the sacrificial heads of Rio's chief executive Jean-Sébastien Jacques, as well as the heads of iron ore and corporate relations.

This is the management team that delivered total returns of 183% and 229% to London and Australian shareholders respectively over Jacques' four-year tenure.

The activist funds that led the attack are clearly signalling that failing on sustainability metrics is now more important than winning on the financial ones.

In doing so, they have dispelled any notion that ESG is just a box-ticking exercise wrapped up in glossy public relations.

Indeed, ESG is now impacting mining corporates down credit channels as well.

In response to Norilsk's Arctic spill Fitch Ratings raised its "ecological impacts" assessment, part of an ESG weighting that feeds into the company's default long-term credit rating.

Fitch is concerned about both the potential for a $2.1 billion damages claim by the Russian authorities and the much higher costs of protecting structures from a melting Arctic permafrost.

Credit and shareholders are a powerful combination of ESG levers on mining companies.

UNDER THE SPOTLIGHT

The ESG tide is washing across every economic sector but the mining sector has rapidly moved centre stage.

A new generation of metals users, companies such as Apple and Tesla, are insisting their suppliers must be as ESG compliant as possible.

Growing consumer awareness of metal supply chains is being replicated at government level, particularly in Europe where policy-makers are pushing for "green" metals to supply the region's green industrial strategy.

The mining industry is still adjusting to this new scrutiny.

There are plenty of positive developments.

Indian aluminium producer Hindalco, for example, has solved the tailings dam problem by redesigning its alumina refining process to produce a waste that can be used by the cement and construction sectors. Three of its four plants now generate no "red mud" residue.

Major miners operating in the Congo are now moving to embrace the artisanal mining sector. Glencore's decision to join the Fair Cobalt Alliance marks, it said, an evolution in "our approach" as to how artisanal and large-scale mining "can sustainably co-exist as distinct yet complementary sectors of a successful mining industry."

Unfortunately, as the Juukan Gorge episode shows, it is the failures not the successes against which the mining industry will be judged.

And the failures tend to be truly ugly, witness last year's catastrophic dam failure at Vale's Brumadinho iron ore mine in Brazil.

FAILURE IS NOT AN OPTION

Mining companies such as Rio have now been given notice that shareholders expect a zero-failure operational model similar to that applying in industries such as nuclear.

Consider the findings of the Rio board review into why an ancient cultural heritage site was sacrificed for a bit more iron ore.

"It was the result of a series of decisions, actions and omissions over an extended period of time, underpinned by flaws in systems, data sharing, engagement within the company and with the (indigenous owners) PKKP, and poor decision-making."

How would we feel if Rio were a nuclear plant operator?

Quite evidently, something needs to change at the company.

The Australian media are calling for an Australian as the next CEO, arguing that a native would have a better intuitive cultural understanding of sites such as Juukan Gorge.

That may be missing the point. As my colleague Clyde Russell argues, it's the very composition of the board that is the problem.

Quant-driven geologists, extractive industry experts and investment managers are an unlikely group of people to handle well the soft skills essential to the S part of the ESG.

Moreover, the challenges of putting an industry with as dirty and dangerous a legacy as mining on an environmentally-friendly, socially-positive and zero-carbon footing are myriad and multiplying.

Rio and other major mining companies have global foot-prints with localised ESG risk of failure.

The sheer complexity of ESG needs a separate operational function with local roots and direct representation at the head. A company like Rio needs powerful ESG board representation.

After all, if one bad ESG call can unleash such a fire storm of social anger and bring about the downfall of three top executives, why isn't the board including sustainability in every discussion?

Rio's self-inflicted misery, though, is a wake-up call for everyone else.

Investors like the long-term mining story, a low-carbon future of metal-hungry electric cars and renewable energy generation.

But they are also clear that mining companies need to be truly green if they are going to be the winners of this green revolution.

The ESG sword has been wielded with shocking effect. It remains unsheathed, ready for its next negligent victim. (Editing by Jane Merriman)


© Reuters 2020
Stocks mentioned in the article
ChangeLast1st jan.
EXXON MOBIL CORPORATION -2.49% 54.37 Delayed Quote.31.90%
GLENCORE PLC -4.69% 290.7 Delayed Quote.24.76%
HINDALCO INDUSTRIES LIMITED -3.03% 340.3 End-of-day quote.41.50%
RIO TINTO GROUP -1.31% 127.19 End-of-day quote.11.74%
RIO TINTO PLC -4.52% 6187 Delayed Quote.13.11%
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Sales 2020 165 B - -
Net income 2020 -1 919 M - -
Net Debt 2020 33 494 M - -
P/E ratio 2020 -33,8x
Yield 2020 1,31%
Capitalization 53 547 M 53 522 M -
EV / Sales 2020 0,53x
EV / Sales 2021 0,41x
Nbr of Employees 160 000
Free-Float 74,8%
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