“Your net worth to the world is usually determined by what remains after your bad habits are subtracted from your good ones.”
Benjamin Franklin
The current geopolitical situation, with the military conflict in Ukraine as its apex, a banking-sector crisis, inflationary pressures, and persistent high interest rates, has created an environment that is conducive to increased investment in gold. As a result of growing demand, gold mining companies have a prime opportunity to flourish. However, in order to attract more investment to the sector, mining companies must capitalize on the rising value of gold and demonstrate a strong commitment to sustainability, including a clear path to achieving net zero emissions, when presenting their case to institutional investors.
Over the last 4 years, we have provided ample coverage of the relationship between ESG and gold mining companies. As part of the In Gold We Trust report 2019, we detailed how the term fiduciary obligation had taken on a new meaning in light of ESG factors. For the In Gold We Trust report 2020, we focused more specifically on the environmental component of ESG, in response to the institutional drive towards decarbonization. Following this, the In Gold We Trust report 2021 featured guidance for tailoring an ESG-focused gold portfolio, again taking into account environmental considerations, in light of the Paris Agreement developments. Finally, the In Gold We Trust report 2022 continued the focus on environmental factors with coverage of COP26, the resulting paradigm shift to a low-emissions economy, and its meaning for goldproducing companies.
Thus, in this year’s In Gold We Trust report, we feel a redressing of the balance is necessary to disperse the limelight more equally across all 3 facets of ESG, starting with the “S”, the social side of gold mining. This comes as there seems to be a perception amongst some media outlets that mining is somehow socially destructive. Of course, there are a few sad cases of this, including the recent travesties with child labor in a Democratic Republic of Congo-based cobalt mine. However, for the majority of gold mining companies, healthy relationships with local communities are commonplace. Therefore, this idea that mining is predominantly an exploitative process could not be further from the truth.
Photo Credit: World Gold Council
As a means of proving this truth, this chapter will primarily utilise the social lens of ESG to review “The Good, the Bad and the Ugly” for gold mining sustainability practices, whilst aiming to be less ambiguous than Clint Eastwood’s “man with no name” character in the famous spaghetti western film. This section will showcase the exemplary community engagement work being carried out by gold mining companies today – particularly by our premium partners – before outlining the risks to this in automation, cultural degradation and resource nationalism. Finally, the chapter will conclude by reviewing a selection of gold investment products that fulfill certain ESG criteria.
Companies that uphold ESG principles and prioritize community engagement have the potential to mitigate conflicts, cultivate strong relationships with local stakeholders, and ultimately enhance shareholder value. This draws from John Elkington’s theory of the triple bottom line of “people, planet and profit”, which posits that companies’ commitments to social and environmental concerns should be proportionate to their commitments to profits.
To achieve success in community engagement, companies proactively engage with local stakeholders, invest in community development initiatives, and establish transparent and meaningful consultation procedures. Importantly, these policies and consultations must lead to actual measurable changes and investments in the community.
In recent years, gold mining companies have made significant progress towards these outcomes. For example, AngloGold Ashanti has successfully provided healthcare services to over 360,000 community members and trained over 3,000 local entrepreneurs in business management through their community development initiatives. Additionally, their grievance mechanism has effectively resolved over 900 community grievances since 2016.
Similarly, Kinross Gold’s community engagement programs have facilitated over 250 community development projects and provided over 100,000 community members with healthcare services, achieving a 93% satisfaction rate through their Stakeholder Engagement Program.
The financial implication of focusing on the triple bottom line is evident in a study by the International Council on Mining and Metals. It found that companies with high levels of social investment had a return on equity that was 20% higher than their peers. Moreover, a study by the WGC revealed that companies with the highest community scores achieved a total shareholder return of 63%, compared to just 14% for those with the lowest scores.
As a means of shining the spotlight on further positive examples of minerstakeholder engagement, we now turn our attention to the way ESG principles are being implemented by some of our Premium Partners in gold and silver mining. Below, we provide a brief summary of each partner’s ESG activities.
In the land of the midnight sun – Yukon, Canada – Victoria Gold Corp is making substantial efforts to integrate with its community. In 2022, a USD 1mn payment, derived from Victoria’s Eagle Gold mine revenue, and a further USD 270,000 was remitted to the First Nation of Na-Cho Nyak Dun (FNNND) under a mutually created Comprehensive Cooperation and Benefits Agreement (CBA). This agreement establishes the communication process between Victoria Gold and the First Nation and facilitates ongoing transparent and respectful communications, while providing stability throughout the life of the Eagle Gold Mine and Victoria’s exploration activities.
Additionally in 2022, in connection with its Eagle Gold Mine, Victoria paid contractors and service providers USD 197mn, of which 62% (USD 123mn) was sourced locally in the Yukon, despite its being a small jurisdiction with a population of only about 44,000 people. You can find out more about Victoria Gold’s commitments to responsible mining in their annual sustainability report.
In 2022, Hecla Mining demonstrated its dedication to the social element of ESG with a direct economic impact of more than USD 891mn in its communities, which included USD 278mn in connection with its Casa Berardi gold mine based in Quebec, Canada.
The USD 891mn in total direct economic impact comprised more than USD 65mn in payments of taxes, royalties, and license fees; more than USD 1mn in other royalties; and USD 738,000 in scholarships and donations, suggesting that education is a priority for Hecla Mining. According to the company, the funds go to local governments and community organizations to support schools, hospitals, roads, and other essential infrastructure, along with vital economic development like job creation and skills training. You can learn more about Hecla Mining’s ESG activities in its recent sustainability report.
In Ghana, Asante Gold has strengthened community ties by making significant social investments, specifically in the area of education. The company has awarded 71 fully funded scholarships to students from within its catchment area, whilst also donating a computer laboratory to the Bibiani Nursing Training College, an institution with approximately five hundred female students. These investments into local infrastructure come in addition to its ownership and operation of the Mensin Gold Bibiani Limited Basic School, which has approximately four hundred students.
According to a 2021 study by McKinsey, women represent an estimated 8 to 17% of the global mining workforce, which is a challenge that Asante is also working to address. This is evident in its Promulgation of Women in Mining Policy, its Establishment of Women in Mining Chapters, as well as its appointment of women to key management positions such as General Counsel, Process Manager and Group HR Advisor. You can find more about Asante’s ESG activity on its website.
Caledonia Mining’s ESG activity follows suit, with its community-part ownership model actioned in their Zimbabwe-domiciled Blanket gold mine. According to CEO Mark Learmonth, “Caledonia takes a targeted and strategic approach to social investment by identifying the critical needs of the communities around Blanket”. As part of this, the local community owns a 10% share of Blanket, is represented on the board of directors, and has received USD 5.1mn in donations and advance dividends since 2012.
Caledonia Mining also expanded its CSR strategy in 2022 to encompass an additional Conservation pillar, which adds to its existing pillars of Education, Health, Agriculture, Women and Youth Empowerment, and Charity. These topics are centered around the United Nations Sustainable Development Goals, and you can learn more about their ESG activity on their website.
Staying in Africa, there are further parallels between Caledonia Mining’s approach and that of Endeavour Mining – a company embedding itself within the West African community in which its operations are based. According to CEO Sébastien de Montessus, 95% of employees are from host countries and 57% of senior management at the operational level is West African.
In 2022, Endeavour Mining’s total economic contribution was USD 2.2bn, which included USD 563mn in taxes, royalties, dividends and other contributions to governments, as well as USD 1.1bn through the procurement of goods and services from national and local suppliers. This equated to approximately 80% of the group’s total procurement being spent in West Africa, dispelling the myth that mining companies refrain from domestic spending. You can learn more about their ESG endeavors on their website.
Not to be confused with Endeavour Mining, Endeavour Silver is a company that is successfully continuing the pattern of miner-community engagement. In its Sustainability Strategy 2022-2024, the “People” pillar covers the “S” part of ESG, with the ambition here being to “[i]ncrease positive social impacts for people in our workforce and in the communities where we operate”.
In order to execute on this objective, Endeavour Silver have revamped their onboarding process to better position new hires for success and to reduce turnover, whilst also having improved lodging and recreational facilities to make living conditions more comfortable for workers who live on-site. In addition to this, Endeavour Silver have updated its Safety Management System to align with ISO 450001 – the global standard that strives to reduce occupational injuries and diseases – and have increased funding to support more community
programs and events, including public health services and educational initiatives. You can learn more about the ESG policy of Endeavour Silver in their most recent ESG report here.
In a different manner of community involvement, Agnico Eagle Mines demonstrates the ability of mining companies to take social responsibility in times of adversity. In 2022, employees from Agnico’s Eagle’s Fosterville mine were involved in helping communities in Central Victoria recover from devastating floods that hit the region late in the year. As part of this, Agnico pledged AUD 750,000 to help the community recover from this event, in addition to USD 5.6mn in health-related community investments across the organization.
Moreover, Agnico has also contributed to improving access to higher education for hundreds of people in the Municipality of Ocampo, in Mexico. Since 2005, Agnico’s team have been working with local teachers, parent committees, schools and government officials to support the development, construction and operation of local post-secondary education centres and services. You can learn more about Agnico’s ESG commitments here.
In Mexico, amidst a backdrop of resource nationalism, Minera Alamos is proving to be resilient when it comes to community engagement. According to President Doug Ramshaw: “Where we operate, we strive to not only support the communities in the vicinity of our operations but, in essence, seek to become part of that community”. This approach is apparent within the management teams of Minera Alamos’ workforce, which comprise a majority of Mexican nationals.
As part of this commitment to providing employment to the local community, qualified residents from both the ejido and the municipality areas will have preference for employment once the mine is operational. You can read more about their ESG activities, as well as the progress of their Cerro De Oro, Santana. and La Fortuna mines on their website.
Despite being one of the smaller mining companies operating in Northern Europe, Finland-based Aurion Resources remains committed to the highest caliber of ESG practice. According to CFO Mark Serdan, “Aurion strives to operate at or above global standards, understanding that we are guests in the communities we operate, we must be good stewards of the environment where we operate, and must be excellent ambassadors for the industry we operate in.”
The practical application of this includes regular discussions and good co-operation with local stakeholders, working with third-party contractors and service providers that are local, and employing a majority of team members from the community. For more information on Aurion Resources, you can visit their website.
Clearly, gold mining companies are stepping up to the plate when it comes to serving the needs of the communities in which they operate. The range of ESG activity is diverse and the quality of stakeholder relationships appear to be high.
However, the tempestuous gale of automation seeks to blow the gold mining industry off course, as it reduces companies’ ability to integrate communities through employment, with artificial intelligence taking the jobs instead. If history is anything to go by, this technological shift will require effective strategic planning to navigate.
In the initial phase of the Industrial Revolution, a significant proportion of employment opportunities were still connected to the agricultural sector. However, with technological advancements and the introduction of novel machinery, a growing number of laborers were able to abandon farming in favor of factory work. By the mid-19th century, the agricultural workforce had dwindled to less than 10% of the British population, compared to a staggering 90% only a century earlier.
The transition from agriculture to industry was not without its obstacles. The new factories were typically situated in urban centers, necessitating workers to uproot from their rural abodes and relocate to the cities. This caused issues such as overcrowding, pollution, and various social problems – themes that were reflected at the time in the sorrow-laden poetry of English romantic poet William Blake. Additionally, the new industrial jobs were often perilous, with employees being subjected to risky conditions and extended work hours.
Notwithstanding these challenges, the Industrial Revolution instigated unparalleled economic expansion and technological advancement. It ushered in new industries and commodities, laying the foundation for the world we live in today.
Fast-forwarding to the present day, we stand at the brink of yet another technological revolution that has the potential to revolutionize our work and lifestyle. The automation revolution, already underway in various sectors, including the gold mining industry, is expected to accelerate in the forthcoming years, with significant implications for both the workforce, the workplace, and neighboring communities. According to a recent report by McKinsey, automation adoption in the mining industry is predicted to surge by 50% over the next ten years.
The effects of automation on the gold mining industry will be profound. It is estimated that nearly 80% of mining jobs can be automated, depending on the mine type and particular duties involved. As mentioned in the In Gold We Trust report 2019, mining operations, exploration, and site-remediation data will all become digital, automated, and processed by AI.
Clearly, automation is already gearing up, and for gold mining communities this could have catastrophic consequences. Many of these communities depend heavily on mining for employment and economic growth. Therefore, as jobs become automated, local workers will have fewer opportunities to find employment in the industry, leading to a potential loss of skilled labor from the area.
The consequential effects of this shift reverberate across to infrastructure and local services in the community. Gold mining communities typically have a wide range of supporting businesses and services, including transportation and logistics, food, and accommodation. As jobs in the mines evaporate, these auxiliary businesses will also experience the negative effects, leading to a more extensive economic downturn in the region. This may be particularly significant in regions where mining is the primary industry and where there are limited alternative employment opportunities available.
Furthermore, the implementation of automation could potentially worsen existing social and economic disparities. Workers who possess higher levels of education and skills may have better chances of finding alternative employment or retraining opportunities, leaving those with lower levels of education or skills at a disadvantage. As a result, social and economic inequality within the community could increase, with the most vulnerable individuals being affected the most.
A further adverse outcome of automation would be the erosion of cultural heritage. For many remote communities, mining is not only a source of employment but also a way of life that has been passed down from generation to generation. The loss of jobs would profoundly affect this, disrupting the social fabric of these communities and leading to a sense of isolation and fragmentation.
From our point of view, mining companies should establish a stronger alliance with local communities by building on existing relationships. A way to achieve this is through sharing ownership with the community, making them partners, as with the aforementioned Asante Gold’s providing a 10% share to the community of its Blanket gold mine.
Furthermore, community engagement has become increasingly important before, during, and after gold mining operations. Without it, companies risk not obtaining permits or facing strikes or riots; whilst with effective community engagement, benefits can be garnered such as acquiring social consensus to operate, building local support, and improving environmental and social performance.
We are of the view that government should have more of a “light touch” approach to economic matters; therefore we support the idea of voluntary cooperation among individuals. The concept of community partownership embodies this ideal, allowing for a productive partnership between mining companies and local communities. By sharing in profits and decisionmaking, the community becomes invested in the success of the project, encouraging cooperation and mutual benefit.
Not only this, but community part-ownership of gold mining projects presents a compelling means to advance socioeconomic and economic well-being, while also providing advantages to the mining company and avoiding nationalization. In The Road to Serfdom, Friedrich August von Hayek once asserted, “The system of private property is the most important guarantee of freedom, not only for those who own property, but scarcely less for those who do not”.
As the global economy continues to evolve, this approach may become even more vital in ensuring that resources are optimally employed to benefit all stakeholders. Considering the upward trend in commodity prices, it is conceivable that governments may become increasingly eager to assert control over such resources in the coming decade, just as in the past.
Ultimately, to alleviate the adverse impact of automation on gold mining communities, several potential solutions could be implemented. One approach is to concentrate on establishing new industries and sectors that can generate employment and economic growth in the region. However, to achieve this successfully, communities must be able to control their destiny and not rely on a central decision-making entity. Economic freedom is crucial in this regard, as without it liberty cannot be attained.
The conventional model of mining, whereby companies own and operate projects while communities are relegated to passive bystanders, has come under fire due to its detrimental environmental and social impact, as well as its potential to engender conflict between mining firms and local communities.
Consequently, calls for nationalization of mines and the imposition of substantial royalties have grown louder, as a means of ensuring that mining profits are shared equitably, albeit primarily with the central government, rather than with local communities.
Source: Federal Reserve St. Louis, World Bank, Reuters Eikon, Incrementum AG
In Chile, copper is a key battleground, due to the country’s being the world’s top producer, although lithium is a more recent subject of the government’s resource nationalism attempts. Here, the proposal of Chilean President, Gabriel Boric is to ensure a government majority stake in all future lithium projects, which by his plan would see mining companies partner with a not-yet-created state-owned producer as minority stakeholders. This follows in the footsteps of a fellow leftist in Mexico, President Andres Manuel Lopez Obrador, who enforced a comprehensive lithium nationalization in 2022, and later sanctioned a new state-run lithium company, LitioMx.
Importantly, the drive towards resource nationalism is not confined to Chile and Mexico. The trend spans across a broad swath of Latin America, into Peru and Bolivia, to the point where it is “now almost commonplace”, according to Peru’s former energy and mining minister, Ivan Merino. Argentina, which has kept its doors open to private investment, is the exception. This trend is highly problematic, in our view.
Governments’ preference for control over valuable commodities, combined with their associated thirst for anticipated financial returns, is an obstruction to private-sector capital and expertise. As a byproduct of this, regional frictions that are not conducive to an effective mining process will start to emerge, should this trend of resource nationalism persist.
One of these frictions would be an ineffective handling of social issues that arise from mining. Firstly, governments lack private-sector knowledge synergies when it comes to navigating the social problems that arise from mining. Secondly, governments’ ability to finance solutions to social issues depends on the stability of government balance sheets, which are not incidentally embarking on unsustainable debt trajectories.
Despite this pessimistic outlook, it must be noted that a plethora of mining companies currently trade with undervalued Latin American assets. Clearly, the attractiveness of these opportunities will be boosted when the political pendulum in South America inevitably swings back from left to right. This phenomenon will facilitate the displacement of resource nationalism and pave the way for community part-ownership to better resolve issues such as automation.
Ultimately, the latter solution is superior to resource nationalism, as it involves mining companies harnessing their capital and expertise to integrate with the communities in which mines are established. Where resource nationalism seeks to control, community part ownership seeks to proactively remediate, allowing for the social issues plaguing the mining sector to be more holistically addressed. As mentioned, gold mining companies are leading the charge on the social front through their adherence to ESG. Consequently, this is driving increased demand for responsibly produced gold.
Amid a climate of economic uncertainty, central banks are increasingly turning to gold reserves as a safeguard against inflation and a store of value. As demand and prices for gold continue to rise, mining companies face mounting pressure to meet production targets, often at the expense of the environment and local communities.
Consequently, this has provoked an increasing demand for responsible gold as consumers become more aware of the impact of their purchases on the environment and society. The gold mining industry has responded to this demand with various initiatives, including the World Gold Council’s Responsible Gold Mining Principles and the LME Responsible Sourcing.
One notable development is the Responsible Jewellery Council’s (RJC) Chain of Custody Certification. This is a system that allows gold mining companies to demonstrate that their gold has been responsibly sourced, processed, and traded. To achieve certification, the company undergoes an independent audit of its practices to ensure that they meet the RJC’s standards for responsible gold mining. The certification process also includes an audit of the company’s supply chain to ensure that the gold is tracked from the mine to the final product, providing assurance that the gold has been responsibly sourced.
Similarly, the LME’s initiative requires brands listed on the exchange to undergo a third-party audit to demonstrate compliance with responsible sourcing standards. This helps companies access new markets and customers that prioritize responsible sourcing and build trust with consumers through a transparent and standardized framework.
The RJC’s Chain of Custody Certification and the LME’s Responsible Sourcing initiative are notable developments in the gold mining industry’s efforts to meet the growing demand for responsible gold. The benefits of these initiatives include providing a standardized framework for companies to demonstrate their responsible gold mining practices, building trust with consumers, and complying with regulations related to responsible sourcing of minerals. These efforts help companies differentiate themselves from competitors and comply with regulations such as the European Union’s Conflict Minerals Regulation.
With this in mind, we can now progress to review a selection of responsibly sourced gold mining ETFs.
The Sprott ESG Gold ETF and the AuAg ESG Gold Mining UCITS ETF are two ETFs that enable investors to gain access to responsible gold mining companies. A key advantage to ETFs of this kind is that they offer investors an opportunity to invest in responsible gold mining without having to undertake their own due diligence. Moreover, the ETFs provide investors with exposure to a diversified portfolio of companies, which helps to mitigate the risk associated with investing in individual companies.
The Sprott ESG Gold ETF (SESG) aims to establish trust, transparency, and traceability in the sourcing of gold. Currently, the gold is sourced directly from Agnico Eagle Canadian mines, including Canadian Malartic. However, over the long term, the ETF is able to source gold from other North American operators that meet Sprott’s ESG screening criteria. The mines from which the ETF sources gold must also comply with the World Gold Council’s Responsible Gold Mining Principles (RGMPs) and Towards Sustainable Mining (TSM) standards. Recycled gold and gold from any nonapproved mines are excluded in Sprott ESG-approved bars.
The majority of the fund is expected to consist of fully allocated unencumbered physical gold bullion held by the Royal Canadian Mint on behalf of the fund, which qualifies as Sprott ESG Approved Gold. As of May 2023, the fund holds a combined 6,982 ounces of allocated and unallocated gold, with a total net asset value of almost USD 14mn.
Introduced in July 2021, the AuAg ESG ETF is an product which invests in goldrelated companies and prioritizes ESG criteria during the selection process. This process evaluates environmental factors such as carbon emissions and water usage, social factors such as labor practices and community engagement, and governance factors such as board composition and executive compensation. Canadian companies dominate the ETF’s portfolio, making up 65.4%, whilst US companies represent less than 8.0%, despite the US’s being the fifth-largest global gold producer.
Source: Solactive, Incrementum AG
A further characteristic of the AuAg ESG ETF is that it limits each company to a position of around 4% in the portfolio, as well as creating an equal-weighted design to avoid concentration risks. This helps to prevent the combined weighting of two companies from reaching 25–35%, whilst also providing more exposure towards smaller large-cap and mid-cap miners. Thus, a higher return potential for the AuAg ETF is possible, versus marketweighted ETFs, in a bull market for gold.
Source: AuAg Funds, Incrementum AG
In summary, the AuAg ESG ETF is an investment product for those seeking to invest in the gold industry while integrating ESG factors into their investment strategy. Along with innovative investment vehicles such as the aforementioned Sprott ESG Gold ETF, these funds can alleviate the burden on investors of creating their own ESG-themed investment models, all while ensuring financial performance is not compromised.
By adhering to ESG principles and engaging with the community, gold mining companies can foster positive change and pave the way for a more sustainable future. As demonstrated through our premium partners’ actions with respect to community engagement, there are multiple reasons to be optimistic about this future, especially considering how far we have come since the abhorrent conditions endured during the Industrial Revolution.
There are further reasons to be optimistic, as well. Consumers and investors are becoming increasingly aware of mining’s impact on the environment and local communities. Responsible sourcing initiatives and certifications, such as Fairtrade Gold and the Responsible Jewellery Council, provide more options for those seeking to ensure that their gold purchases are ethically and sustainably sourced.
However, the responsibility for sustainability and ethical sourcing does not solely lie with the miners and the jewelry industry. Consumers also have a role to play in creating demand for responsible gold and holding the entire supply chain accountable for their practices. By choosing to buy from companies that prioritize sustainability and ethical sourcing, investors can send a strong message that they care about the impact of their investments.
In conclusion, the increasing demand for responsible gold is a positive trend that has the potential to drive constructive change in the industry. While there is still much work to be done, we as investors can all contribute to creating a more sustainable and responsible future for the gold mining community. Ultimately, with the existence of challenging headwinds such as resource nationalism and automation, the importance of creating an environment where miner-community engagement can thrive is a priority that cannot be stressed enough.
To receive the annual In Gold We Trust report and Chartbook with related charts, subscribe to our In Gold We Trust Newsletter.
