ESG in mining is dead — what comes next?

EPISODE 6. Anthony Milewski and Christian Purefoy are joined by special guest Jamie Strauss, CEO and founder of Digbbe, to talk about how ESG (Environmental Social Governance) has blown up — amd what comes next.

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Transcript

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Okay. Ladies and gentlemen, welcome to the latest episode of Boom Bust. and BS. Obviously your usual wonderful, talented hosts Anthony Milewski and Christian Purefoy. And today we have a special guest, Jamie Strauss. Thanks for joining us, Jamie. Thanks very much. For our viewers and listeners out there. A quick a little background on Jamie. Jamie had a boutique firm that he sold to BMO and then, you know, later went on to found Digbee, where he's the CEO and chairman. And, you know, I think, Jamie, you correct me if I'm wrong, but, you know, you're kind of focused on responsible investing, ESG and all sort of related things. And it's kind of an interesting time to have this conversation because now we have a complete shift in American politics. We have Donald Trump as the president. We have DOGE going on. And really what I would call a pretty brutal reaction to anything that's perceived as being liberal or related to, you know, these policies of Democrats, for better or worse, it just seems that there's a big reaction. You know, ESG as a term, people are kind of moving away from it. And, you know, notwithstanding all of that, we still are in the mining business and we still need a license to operate in the countries where we operate. And so, like what's happening? I mean, what like what is that? What's happening out there? Like, I guess like, why don't you tell us what you see is that thing that's going on? Yeah. Thanks, Anthony. Thanks Christian. I think we're at a transformative or transformation moment, which is a bit of a kind of wake up and see, and there's always been a bit of kind of reality check. A lot of people really frustrated with where things are. We're not getting a lot of the equity impact that we thought we would with some of the things going on. And I think a lot of that's connected to some of the things you've outlined. I mean, you know, if you if you look at ESG, ESG was a busted flush. You used the word BS. It was BS. There was a lot of stuff that basically didn't mean much. And frankly, the mining industry pushed back a quite a lot of the stuff and said this is compliance and cost and it didn't really add any value. And I completely agree. But you then kind of see what's now falling out of the bottom of the funnel and you're kind of saying, okay, why we less than two and a half percent of the MSCI index as a sector, why are we not getting any traction? Why are we not getting fund flow coming into this? When you've got gold at record highs, you've got the critical minerals industry at everybody's, you know, dining room table and broadsheet and being spoken about in the White House as the most important geopolitical situation. Why are we not getting the love and the attention? And look, I think there's lots of things and you could talk about, are we going to go negative rates, etc., etc.. But I think the key point and what we can do and what investors are demanding is that how do we get access to that capital? You know, mining companies are struggling to get access to capital. They've been unable to credibly prove they're managing the risk and acting responsibly. And the the game plan or the rules for investment by major institutions have changed over the last ten or 15 years. They get paid for lowering risk in their portfolio and getting the results to come out of that. And, you know, I think it was McKinsey, Anthony who came up with a stat in about 2018, 2019. I think it's probably improved since then. 84% of all projects go over budget and beyond time. That's not great, particularly when you add in the next statistic to say that the companies, the projects that go overbudget go over budget by 42%. Well, that's just wiped out the equity shareholder one small swoop. That's not a great advertisement. But here's the trick. If we can effectively professionalize these companies and move the communication so they're credible, suddenly we can change this industry and attract new capital coming into this industry. It's a real opportunity because a lot of these companies can easily get on board with this. They can easily begin to change that communication and they can easily begin to say, go to some of the bigger institutions in the world and say, we're on top of our risk. This is where we are and we want to have your money. So, how do you do that? Jamie Yeah, I mean, look, it can be. Investors want impact, you know? They want to see that the risk matrix, the risk matrix, the different topics which relate to risk. So on one side of it's technical. Obviously we're always trying to improve and enhance and how we can mitigate geological risk or whatever it is like that. But let's be honest, over the last 25, 30 years, and I’ve been in this industry for 35, 40 years. We've done a really good job on that. You know, these 43 101s and, you know, as difficult and complex as they are, but the reports etc., they've done a really good job of improving the confidence of what is in the ground before we go and start developing and ultimately producing. if you take a typical development project, you've got a social license to operate thing which relates to social and environmental things. You've got relationships with governments, you've got permitting, which takes too long. But we can do many things to improve that, improve the confidence of permiters. And so your question question is, how do we do that? Well, very simply, provide an independent, credible mining specific sustainability assessment, which internally the management can prioritize the issues with, which they can then mitigate externally, they can raise the confidence and trust in those stakeholders and investors. It's actually relatively straightforward. I have a question of what I think, are we really talking about institutional investors? I'll tell you why. You know, a few days ago, about a few days ago, maybe it's been a few weeks when gold really started to take off, I went and I picked seven or eight gold names, juniors, and I bought them and I bought them for one reason only. I thought they're going to go up. And some of them did, by the way, and I don't know anything about their permitting, if I'm being honest with you. They were big deposits in good jurisdictions. You know, it was in Canada and I didn't even give one thought to responsible investing or ESG. The only thought I had is I'd like to make some money. That was my thought, right? Yep. Yep. And so I asked the question to you like, is this work really focused on BlackRock to pick a name or, you know, or whoever those big names are these days? Because I think when I think about myself, when I'm slinging around money in these juniors, my first thought is like, how do I make money? And it's not necessarily about some of these other things, which I'm not saying aren't important. I'm just trying to think about in practice. Yeah, look, I don't want to go on too long here. It's a really important question. I think the first thing to say is we're using the word investor. The breadth of spectrum of the word investor is massive. You've got so let's say that a high net worth individuals, the people we want to have a bit of a trade like what you just described yourself, you know, on that side of it, they're not going to take a moment's interest in the thing as long as they think they're going to make money because of a gold price running They're not going to be interested. But then you go down to the institutional capital because every single project that you probably are dealing with, that management team wants to get into production. That management team wants to take the asset from an exploration stage into development and production. Hopefully, or maybe at some stage it’ll be taken over on the way at every single moment along that line, you're now getting deep, more detailed due diligence coming in. So you take Phillip from Orion. Last year he was talking on a podcast today, said sustainability is the number one issue investment committee. They've done all the other work, they've done the technical DD, they've done everything. Is that investment committee basically got its reputation on the line because they're going to mess up on social license or something. So I think we have to just recognize there are different spectrums of the investor matrix, and I'm not here to push sustainability on high net worth individuals. I mean, just realism tells you that. I mean, it's just realist, but it's we're going to take these projects. Everybody complains about two things. Permitting process and the availability of capital. That's all they care about. And so your focus, your focus, which I think is important, is you're looking at these junior, junior and mid-tier and large cap companies and saying you're going to build a mine, you want to build a mine. And in order to do that and attract the capital, you need to build that mine, right? Because it's one thing to say I’m going to build a mine It's another thing to finance it in order to bring in those big institutions you just named Orion. But you know, in the mining industry now, there are probably six or seven funds that kind of control the levers of capital. You know, the overlord boards of mining finance. There are private equity fund managers sitting in London, in New York and Toronto and where have you. So in order to get these types of individuals and groups to come in, you need this kind of type of reporting and engagement that your your guys are doing at Digbee Community engagement, thoughtfulness around environmental issues, thoughtfulness around local issues. And that's really the offering. And that kind of the the point you're making and what you guys are trying to do is you're trying to kind of yeah, I mean, my mission is simple. My mission simple. How can we bring more money into this industry easier, at a lower cost to capital, which gives a high valuation and therefore, we can provide the miners in the future and hopefully give the shareholders, the stakeholders, all a win win. Simple as that, okay. The key point here is mine operators or mine developers who can demonstrate responsibility are going to be more aligned with the modern day investor, institutional investor in order to access that capital at lower costs. I think that's exactly yeah. And they write the big cheques, the institutional investors. You can't expect the high net worth individuals to fund the $400 million mine, typically. So there are a few instances you can, but typically. So how do we take these companies, give them what they need in order to demonstrate leadership, provide a more compelling communication package that effectively reduces the time of that due diligence and gets to the better outcome quickly. So I kind of would put a three point plan. The first of all, we need to recognize the investment space has changed. They want leaders who can demonstrate risk mitigation. And I mean, again, I'm talking slightly generically here, but the CEO of the PRI just came out and said the asset managers are crying out for asset ownership leadership on responsible investment. Sustainability has been embedded into the financial big institutions data gathering for due diligence and it depends on where you are on the spectrum as to how detailed you need, as to how much you need. But it's embedded because they want lower risk, whether you're a generalist or ultimately a private equity guy. So the three point plan recognize that the investment matrix has changed over the last 15 years. Secondly, give them the information in a credible and easy to read format. And the third thing is allow them to be able to compare and contrast in other words, carry on with an annual monitoring process in order for them to be able to compare and contrast as to where those management teams are going in terms of their journey right now. Digbee, are you like, what's the name of a company that's developing a mine right now— Canada Nickel. Mark Selby You know, he's got a great project in Canada. He's moving forward. Does someone like that come to you and then basically hire Digbee, kind of like you would do for a 43 101 or whatever, to write a report or do you write them and then sell them to investors? What's the model on your guy’s end? Yeah, the the model is the former. So they come to us. We know Canada Nickel quite well. They come to us and they see our offering as an internal, and an external benefit. In other words, how can we lower risk internally so that we can communicate more effectively externally? So they come to us, we charge them think about 25,000 USD. It does depend on the status and the number of projects, but it's nothing. I mean, if we can add millions of dollars to Canada Nickel, or any other company like that as a result of mitigating risk because of a lower discount rate or a lower cost of capital or whatever else it is, I mean, it's ridiculous. Thank you for saying that. But I mean, it is ridiculously cheap given the benefits and the value add that you have. Are there are there other Digbees out there? Like do you have a bunch of competitors or like, are accounting firms like this Deutsche That’s an investment bank But do the accounting firms provide the service or is this something that you do? Nobody does. what we do know that I'm aware of, does what we do. In other words, mining specific aligned to global standards and right sized, in other words, exploration, then development and then production and the feedback to the companies. Sorry, say that again. You said aligned to global standards, like what does that mean, the global standard? Yeah. So roll yourself back to 2021, 2022. Everybody was shouting in S.G. about all the, you know, the ABC of the acronyms going on in ESG. And there were so many global standards, nobody knew which one to do how to do it and to effectively go forward. And it was a mess. So in working with different groups, I mean, BlackRock and Orion were the two companies that came to me to suggest to do this, but then I included Sibanye on the operator side, I included BMO Dowling's on our legal side. There were a number of different entities. What we did is we amalgamated, so we mapped out 35 global standards and we wrote mining specific, right size frameworks, exploration, development production. So that and, and, and then anchored every single question into those global standards. So we used the global standards but came up with a Digbee framework which was right sized and therefore addressed that confusion. There's been an attempt to try and make this idea of risk pay, environmental risk, all this sort of stuff. There's been a movement to sort of charge a premium for the environmental, environmentally sourced products. Yeah. The London Metal Exchange recently sort of said that maybe they're going to start looking into a different pricing system, which would alleviate some of these issues that you're talking about, making the responsibility over risk pay. Yeah. How's that going? So, Christian, it's a really good question. There are two or three angles on this. First of all, I don't see the risks. I don't see the metals premium being a, despite the LME announcement quite recently, being a significant part of the commodity environment. But what I do see, and it's almost the inverse in a way is and this is I think been proven today, is off-takers giving a preferred status to particular assets or companies as a result of responsibly mined commodities and therefore avoiding discounts in the future. So I just feel it's difficult to move to green premiums on a big basis in these liquid markets. And I kind of see more likely this responsible operator thing where you can effectively get off takes on that. I think that's my short answer to it. That's not to say you're not going to have some contracts. I mean, LME already have some contracts in nickel and other things which do have some grain premium. So I'm not saying they're not going to exist, but I think if you're looking at the big picture as to what is going to be the, you know, the big volumes and the big values, I think it's I think it's probably more likely to go down the route I've just said. So how are you calling it then, Jamie? This latest volatile moment for risk and responsibility, is it boom, bust or BS? I mean, I think my view is I maybe I'm a naive optimist, but it’s just a matter of when, isn't it? I mean, I've been here for too long. The cycles always have become cycles. And it's amazing how many times we try to call this next up cycle and we keep on getting, you know, kind of our kneecapped. You know, it's inevitable to me that the demand ultimately is going to continue to go up. Commodities is, as Anthony said at the beginning of the podcast, we still need mining so on and there's ever increasing requirement because of reputational risk to avoid the reputational damage which mining has historically been involved in terms of its legacy. So I think we're getting there. It's just well, it's taking a long time. Yeah, well at some point, you know, there will be shortages, right? It's just a matter of whether that's tomorrow or the next day or ten years from now. But if you don't if you don't build it, but you continue to increase consumption, eventually it's not going to work. I think that's right. I mean, we just want it to be in our lifetime. Absolutely. I think it's great that you're helping now to try to bring that capital back in because the longer it goes without having these fund flows and the longer it goes without Western capital building this global supply chain, the more, you know, China continues to have control globally on natural resources think that, you know, by creating these reports and doing this this type of thing and allowing the BlackRocks and Orions of the world to invest, it's a great product and it's important. So I really appreciate you coming on. And can I just add one thing? Can I just add one thing? I mean, just relating to what you just said, look, everybody talks about rebranding the mining industry and I mean, I agree with that, but I get frustrated when people talk about it without actually having a plan to do it. You know, we've got a really, really great opportunity for transformation at the moment. And, you know, when does money start to flow into real assets as opposed to the tech world? You know, at some stage it's going to happen simply because the economics of business, the sector trades on 3 to 4 times cash flow used to trade on somewhere between ten and 14 times in the 1990. So and you go back to all of these other things. So what can we do to effectively align ourselves as an industry to modern day finance and what can we do to enable them to raise their confidence and trust so that they can begin to put money into it? And I think if we can if we can give these investors something easy to understand and do that, we can definitely begin to encourage that capital to begin to flow our way. If the cycle on prices obviously needs to come through as a tailwind as well. I agree. And on that note, thanks for joining us, Jamie. Christian, any last words before we go? Don’t forget to click subscribe. I appreciate it and best of luck to you Jamie. Thank you very much indeed.