Positive Signs are Showing: A Golden Dawn for Mining Industry ESG? Exploring the Past, Present and Future Role of Gold (AU) in our Global Economy.
Great news! Newmont Corporation (NEM) is now the latest mining company to also be stepping up compliance and sustainability efforts and setting a strong example to the industry, its suppliers and its investors, so, basically, the entire value chain from A-Z (Bloomberg 2020). It is the latest senior miner who has reduced its carbon emissions and also - at the same time - set new ambitious ESG goals for the future. Let us hope the days are soon finally over where scandals like Rio Tinto's (RIO) careless destruction of Aboriginal sites in rural Australia last year, forced child / slave labour in many parts of the third world, irreversible environmental destruction, deforestation, pollution (and so on...) is soon a thing of the past.
ESG and value-focused ETFs this year saw a record net inflow of 19.0 bn USD as of Q3 which is already on track to double all of recent inflows (CNBC 2020). In other words, you have to almost be blind, to not notice a clear trend here - a trend which these days is breaking out to new all-time highs, promting new hopes, not only for stakeholders + public confidence but also new hope for our planet and the environment.
The year 2020 - is a turning point for gold in this repect. The Mining & Metals industry is, according to industry commentators, at a crossroads now: Standing before the dawn of a new decade, the industry is facing a double reality-check from both the daunting macroeconomic outlook and the way in which the industry is going to position itself for a new set of ESG and compliance challenges going forward (Campbell, Tivey & Wright 2020).
So, how is the industry likely to respond and how is it already responding to these new sets of challenges?
Recent data, from this year, shows that the industry is now responding by putting action behind the words. Investors are rewarding the champions of ESG and compliance in global rankings. Billions of dollars in investment-seeking risk capital and funding are now inaccessible to the losers + not to mention trouble with local campaigners and regulators.
In an inquiry among industry insiders and stakeholders, the answers strongly suggest that environmental concerns are now - by far - the most dominant driver for innovations and capital investments (Campbell, Tivey & Wright 2020). Although all the signs are, so far, encouraging - this has been a long and far from won battle. Let us take a look at where the industry is coming from, in order to better understand where we stand now and - ultimately - where we are heading for.
Part of the argument for gold (AU) is its total uniqueness, it is unlike anything else we know as an asset class, in history, and in terms of its physical and chemical composition. So in the final part, we zoom in on the chemical + physical composition of Aurum (AU).
A Tainted Reputation Based on Centuries of Destruction and Bloodshed
Let us start by looking at why it even matters. Why is all this even important? And for this, we need, a couple of examples - just two out of many I could have chosen. Ever since the dawn of humankind, when the easy gold was removed from riverbeds and open fields, humans have gone though tremendous efforts to find it deeper and deeper in the earths crust in search of the shiny soft metal. Mostly, with absolutely devastating and often irreparable results and which often leaves behind total destruction and sites now so barren and toxic that it will likely not be fit for human or wildlife habitation for hundreds - if not hundreds of thousands of years. No surprise the mining industry - and thus gold (AU) has often struggled with its reputation - Not just among investors / stakeholders but maybe especially in the eye of the general public. Because from day one, the search for gold was riddled with bloodshed and total destruction. Here are a few such grizzly examples from history, to illustrate this point.
Firstly, we have the Anaconda Copper (CU) mine in Bute, Montana. This used to be called the "Richest Hill in the World" in the 1950s the mining / excavation strategy of the time reached a new destructive level - typical for the industry around this time (Scott 2018).
Innovations and technological advances now made it possible to simultaneously cut costs and increase supply, drastically, by - instead of digging deep down, tracking and following the rich veins of copper, now they could instead, literally, "excavate everything".
Massive dig sites began to appear, large enough to be seen from space, which, basically, destroyed absolutely everything in its radius. In Bute, the dig site is 1 mile across and deep enough to easily fit the rebuild World Trade Center in the middle of it - standing upright - with comfortable room to spare. On top of this: The pit is now filled up with toxic dilute acid. This toxicity is lethal to any wildlife unlucky enough to land on or near it including insects, birds, aquatic life and well - absolutely anything - except perhaps the most primitive and hardened microbes.
An areal view of the now-closed mine in Bute, Montana, now turned tourist attraction.
This is a disaster waiting to happen: Again and again, as migratory birds in their tens of thousands land on the water to rest (yes, it sits perfectly at the crossroads of two major migratory paths for birds). And that is just the damage ABOVE the surface. BELOW, there are appx. ten thousand miles of mineshafts and tunnels which were excavated using highpowered tools to pulverize anything unfortunate enough to get in the way. The rocks around contain iron pyrite, which, when mixed with oxygen and water, produce sulfuric acid which has now created an entire toxic pool of water where almost no living organisms can survive for thousands of years - and with a PH value near zero.
"Giant Mine"
Another standard example, I like to use, is the "Giant Mine" in N.W. territories of Canada. This one also contains thousands of km of mineshafts, an open pit and underground chambers the seize of city buildings on the inside. In the 20th century more than 200,000 metric kg of gold (AU) were extracted from this site - in today's money this would equal around 10 bn USD, give or take, and corrected for market fluctuations.
One of the biggest problems with this particular site was that it - over the course of its lifespan - also produced a lethal bi-product of over 200,000 metric tonnes of toxic arsenic dust - enough to kill every living human being on the planet - multiple times over. In 2004, the operating mining company went bankrupt as the gold reserves went to zero. Net result? The whole shabang was just left there - on the spot - for someone else to do the clean up - or rather, to fund, operate and maintain the permanent and extremely cost-intensive care and maintenance which has to last for many centuries. Yes, centuries - not months or years.
Fine arsenic dust has no scent, no taste and is easily diluted in water. The new containment plan, is to permanently deepfreeze the rocks around the chambers containing / storing the toxic arsenic dust - at minus 5 degrees celcius - using modern thermo-syphoning technology (Scott 2018). This is extremely expensive, of course, but the risk of the fine dust escaping into the environment or atmosphere is simply too great. The estimated cost to the taxpayer: Over 1bn USD over the next 100 years. And then, well another 1bn USD over the next 100 years... (assuming alternatives / technolocial innovation have not improved which they likely have, but still.).
The question, of course, one could ask, is what happens - AFTER us humans are long "done and dusted", and no one is around to maintain the site + cooling systems (ibid. 2018). And so, whoever or whatever - one future day - digs down into this particular site - is, well, in for an extremely nasty and lethal surprise.
Gold is a Necessary Diversifier for Portfolios to Mitigate Financial Risk
We like to teach our children early, about the difference between "nice to have" vs "need to have". With gold, it is the latter (although, admittedly, it can also be the first). But instead of trying to explain why, I refer to the industry's most resourceful and esteemed experts and hopefully save me the embarassment of trying to explain why, for myself. For many years now, a report published by the insightful and lovely people at Lichtenstein-based investment- and wealth management fund Incrementum AG are doing the brilliant job of crunching the numbers and spelling out, in clear language, the details for investors around the world concerning the underlying economic drivers of the price of gold (AU) in our current economic and financial environment. Current pioneers in studying the yellow metal and spreading the important message that gold is a "need to have" for economically and historically proven reasons which, is what they understand and explain better than anyone else, in my view, at least.
Their annual publication is widely regarded as the most comprehensive report as well as modern study of the r?le of gold in our global economy, in the financial system and in modern portfolio construction and asset allocation. A perfect blend of theory and practice and I hightly suggest you check it out for yourself to get the full picture of what is happening behind the scenes. The WallStreetJournal called their annual In Gold We Trust Report for: "The gold standard of all gold studies". I thus refer to their work for the details in relation to this aspect of gold.
The Macrofundamental Argument In a Nutshell
The issue - also read my lastest post on where the global economy is likely headed sooner or later - is that gold is not just shiny and nice to wear around the neck or the wrist for a bit of "bling-bling". In modern portfolio-construction and risk-management, gold (AU) is arguably also the most consistently effective hedge we know against several devastating forces and biggest risks in the global financial system. Perpetually relevant risks like fiat currency debasement, inflation preassure and risk from the unknown (infectious disease pandemics, asset bubbles, real wars + currency wars, terrorism, cyclical downturns, natural disasters, regime shifts, geopolitical instability, the upcoming 25th Solar Maximum Cyclical Disruptions to sensitive electromagnetic technologies, microcircuits and networks expected in 2025-2030 (NASA 2020)... and so on).
One of the reasons for the stabilizing effect that gold has on portfolios is because of its inverse relationship to equities, as the data below shows.
Gold has, time and time again, proven, to protect diversified investors in gold from the normal - albeit sometimes - brutal swings in cyclical market economies. But gold, well, it just does what it always does: It lies there and shines, like it has done for millions, even billions of years, and sure, it does not produce any return (zero return) like Buffett's farms (equities) or fixed-income does. A main reason and often mentioned argument for its relative unpopularity among investors.
But then again, it also has zero risk (longterm downside potential). It is a cyclical commodity, which means that it, like all comoditties (to some degree at least), experiences selling-preassure mid- to late-cycle as alternative asset classes become, periodically, the more attractive investments - for a while - outshining gold. However, using the set gold price of 35 USD in 1934 and the price of 1,650 USD per ounce as of April 2020, a price appreciation of approximately 4,500% can be deduced for gold. From February 1971 to 2020, the DJIA has appreciated in value by 3,221% (Investopedia 2020).
As a result, I conclude that gold is a worthwhile long-term investment and or hedge / diversifier in terms of risk-mitigation: It is the undisputed heavy-weight champion of presserving the holder's purchasing power over the aeons of time.
However, once again, I urge readers to consult the #IGWT reports for the most relevant and accurate figures and a ton of more details, surrounding the long term performance of gold versus other asset classes etc. The point I make: Gold has an unstoppable, easily explainable, macrofundamental upward primary trend trajectory. Despite periodically slumping in relative terms to alternatives.
Gold (AU) is physically and chemically totally unique in its composition because it does not errode, corrode, radiate, dissolve or depricate in ANY way whatsoever. It exists entirely independently of our global financial system and so has zero counterparty risk or risk of default / bankruptcy. It also cannot be technolocially disrupted by a more mature technology such as cryptocurrencies can. Gold is unhackable, uncreatable, unreplicable and indestructable. All of which are important qualities when it comes to the forward-looking, long-term viabiliy or value proposition of physical gold for investors seeking refuge from negative performances in other markets.
On the contrary, gold is practical for investors because even smaller amounts in metric kilos or troy ounces can store a tremendous amount of concentrated value. Unlike first-gen cryptocurrencies which are volatile like a stormy ocean, gold is not. Sure, the spot price fluctuates a fair bit ever since 1971 (Bretton Woods Legislation: Abolishment of the Gold Standard by US President Richard Nixon) with the basic economic forces of demand and supply, but the price is somewhat stable and so-much-so that it is recognized as LEGAL TENDER in several countries such as South Africa (Krugerrand), The People's Republic of China (Chinese bullion coins issued by the Central Bank of China) and The United States of America (American Golden Eagles - approved by congress as legal tender).
Gold is one of the heaviest elements known, and in our periodic system, gold - together with the other precious metals - therefore has a unique and very advantageous chemical composition for making it a permanent store of value. Let us now look at this important aspect of gold more closely.
Photo: Physical gold coins and bullion. Selection of investment-grade products from various suppliers, some of which, are recognized as legal tender status on par with national fiat currency.
The Reality Around the Uniqueness of Gold
There is nothing else around like it. Gold is impossible to (re)-create in the lab and will forever be: The only source of gold scientists know of today is from the most destructive forces known in nature: Gold atoms are formed by the chemical process known as: Thermo nuclear fusion of some of the heaviest elements - besides gold itself.
This incomphrehensibly energy-intensive chemical reaction is something humans will never achieve artificially or be able to control. Not even our sun has enough energy to even produce a fraction of the energy needed for this kind of reaction - just yet.
This is because gold atoms are formed naturally inside the heart of dying massive stars as they eventually reach, what is known, as the Chandrasekhar Limit which is now commonly accepted to be 1.4 times the mass of the sun. Any white dwarf reaching this hard limit is destined to collapse inwards from the immense preassure of their own weight, in their exact moment of death, in what is known in cosmology and astrophysics as either a Type I or Type II Supernova / Hypernova / Kilonova.
A process also known as gravitational collapse or implosion. This, again - in an absolute nutshell - happens as the star suddenly runs out of the fuel (for example hydrogen and helium) to sustain its nuclear reactions, which produces the outward preassure, to balance it out for its entire lifespan - until now. As this gravitational counter-weight dissapears in the fraction of a moment, the result is always inevitable, resolute and powerful beyond our understanding.
"The Chandrasekhar limit is the mass above which electron degeneracy pressure in the star's core is insufficient to balance the star's own gravitational self-attraction. Consequently, a white dwarf with a mass greater than the limit is subject to further gravitational collapse, evolving into a different type of stellar remnant, such as a neutron star or black hole." - Wikipedia, 2020.
However, newer research even suggests, that this may NOT EVEN be the actual source of gold atoms, newer papers, have recently (published as recently 2017-2020) suggest that gold atoms are, in fact, produced - in even more extreme conditions than that - viz. when some of the densest stellar objects we know, neutron stars, are colliding / merging. Completely new heavy elements, such as AU / PT / PD / AG, are then created and subsequently blown away for millions of lightyears across the cosmos and distributed across the surrounding galaxies like ours in the form of dust and particles, eventually settling on other planetary bodies such as planets or comets or just remaining in celestial clouds of gas and dust where solar systems, like ours, eventually form out of.
So, in a way, gold is everywhere - even our bloodstream contain microscopic levels of pure gold particles. But 70%-80% of gold which formed along with our planet Earth is forever inaccessible to humans, deep inside the eternal molten inferno of the inner and outer cores of the centre of our planet.
Photo: A typical Neutron Star with its visible magnetic poles and magnetic field lines. These objects are, after Black holes, some of the densest object in the known universe.
A tablespoon of neutron star material would weigh more than 1 billion U.S. tons (900 billion kg). That's more than the weight of Mount Everest, Earth's highest mountain. Neutron stars are the collapsed cores of massive stars. They pack roughly the mass of our sun into a sphere with the diameter of a smaller city (Wikipedia 2020).
These astonishing facts all add up to making physical gold (AU) completely unique in every way possible. We know of nothing else even close to it - even among the precious metals themselves. Gold has likely therefore been worshipped and admired by mankind for millenia - ever since the first - human ancestors ever saw a nuggest of pure gold for the first time - it has acted as a recognized store of value, a proto-type of intrinsic, unquestionable, pure value. The physical value-core of all fractions. It has been the subject of our dreams and reason behind the rise, prosperity and fall of countless of Empires and Kingdoms throughout our recorded history.
Photo: Pair of colliding neutron stars in their final dance of death and arguably the birthplace of the very heaviest elements known - such as gold atoms. The inevitable collision produces no sound - at all. It produces ripples in the fabric of space-time only detectable by gravitational wave observatories here on earth such a LIGO. Fun fact: According to esteemed mathematician and cosmologist Sir Roger Penrose from Oxford University, world famous for his pioneering research into the origins of the cosmos (and known for his groundbreaking contributions to the theory of cyclic formal cosmology, quantum superposition, quantum non-locality, twistor theory and the Age of Black Holes etc.), the resulting gravitational waves from these collisions go out all the way to reach infinity (Penrose 2020).
Such collisions are so immensely powerful that there is mounting evidence that the heaviest of such collisions (such as e.g between merging ultramassive black holes at the centre of massive galaxies) produce effects which are powerful enough to be visible from the universe even AFTER OURS through the cosmic microwave background radiation (ibid. 2020).
In 2020, Sir Roger Penrose received the Nobel Prize in Physics for his groundbreaking contributions to cosmology and to our understanding of the universe and is already widely regarded as being at the same level of iconic astronomers Albert Einstein or Sir Isaac Newton.
Gold is for Eternity
We know, from several contributions to the anthropological and archaeological records, that pre-historic cultures - around the world - such as the ancient Egyptians often already knew of the qualities of gold as actually being eternal. We know this because, for example, Eqyptian tombs often are found containing mummies of members of high Eqyptian society and culture (mostly the beloved pharaos themselves) and they were given everyday necessary objects (jewellery, ornaments, shoes, combs, sandals etc.) made out of pure gold for their final, but, eternal journey.
Gold is even regarded by some cultures, such as the Inca Empire, as, quite literally, being: The sweat of the sun, whilst in ancient Greek culture it was thought to be: The excrement of gods.
Photo: Octopus Frontlet, Moche culture, Peru, AD 300–600. Inca pure gold artefacts (Getty.edu 2020).
A Golden Dawn for ESG and Compliance?
As the section preceding has shown, gold is completely unique as and has no alternative neither in terms of its place in history, forward-looking value trajectory, but also in terms of its physical and chemical composition and unique qualities. But its importance and fundamental strengths have often been overlooked because of the concerns explained in the first part. This all could slowly be changing now.
And so my impression, from seeing the new data, seeing news like this today with industry leaders Newmont Gold Corporation (NEM) + Barrick Gold Corpotation (GOLD) cutting emissions and setting new ambitious ESG goals, as well as from listening to industry insiders with current stakes in areas where there are archeaological sites of interest, indigenous tribes living nearby or maybe where there are some important environmental concerns all of which calls for a responsible and careful exploration, prospecting, extradition and eventual natural mining-site restoration: It seems, more and more, as if, miners are seing ESG/compliance as an OPPORTUNITY now..., to decrease their marginal costs of production as well as increasing their market share going forward based on new ambitious and investor-backed ESG goals (by securing more investment and popularity - also in the form of more index-exposure for wider ETF coverage etc.) and NOT just as a cost-intensive operational risks which needs to be "dealt with" as often in the past.
In sum, I have come to believe that: The winning miners of tomorrow are top ESG performers and more and more miners AND their suppliers are seemingly ready to put action - not only empty words - behind this new reality.
This is great news, because it paves the way for gold as a more socially, environmentally sustainable and also more economically attractive asset + portfolio diversifier which can now play a more prominent role in preserving the wealth of our nations, institutions, public as well as private investors in uncertain times such as these, and doing so, without destructing our planet, our only home, we know.
Thank you for your time and I wish everyone a safe week in markets.
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Sources and Credits
Disclaimer: I am not a journalist and therefore the published text is simply a totally unprofessional reflection of my thoughts and ideas of the matter based on recent data and inspiring sources. All of which are credited and listed below for further exploration. I am also not a holder of any academic qualification in physics+chemistry, although it is kind of an interesting hobby to me, pls if you see any errors just inform me so I can correct, this goes also for all the rest, I am trying to be as accurate, rational and objective as pos. :-))
Bibliography
Action behind words from Newmont Corporation (NEM), Barrick Gold Corporation (GOLD) + others: A Bloomberg paid article.
Getty.edu (2020) Online: https://www.getty.edu/visit/cal/events/ev_1852.html.
Bloomberg News: https://www.bloomberg.com/news/articles/2020-11-12/world-s-top-gold-miner-sets-new-targets-to-cut-carbon-emissions?utm_medium=social&utm_content=business&utm_campaign=socialflow-organic&cmpid=socialflow-linkedin-business+&utm_source=linkedin
NASA (2020) - Online: https://www.nasa.gov/feature/goddard/2020/what-will-solar-cycle-25-look-like-sun-prediction-model.
Incrementum AG + The #IGWT Report: https://www.incrementum.li/en/
Action behind words from Newmont, Barrick Gold + others: A Bloomberg paid article.
https://www.bloomberg.com/news/articles/2020-11-12/world-s-top-gold-miner-sets-new-targets-to-cut-carbon-emissions?utm_medium=social&utm_content=business&utm_campaign=socialflow-organic&cmpid=socialflow-linkedin-business+&utm_source=linkedin
Thank you especially for incredible people Anton Petrov, Sir Roger Penrose and also Tom Scott for being an inspiration and helping me understand the utter destruction that mining has historically has created as well as the known origins of gold. Thank you all. This article would not have been at all possible without the inspiration and idea which you guys have provided me with.
Also many thanks very much to the wonderful team at Incrementum AG + #IGWT, fund managers Mark Valek and Ronald Peter Stoeferle. You guys are an inspiration to many.
"The Berkeley Pit in Bute, Montana" - Tom Scott:
https://www.youtube.com/watch?v=n-Ej2EtE744
"Giant Mine" - Tom Scott:
https://www.youtube.com/watch?v=E4nZDSLdIiM
A. Petrov on Neutron Star Collisions (WhatDaMath):
https://www.youtube.com/watch?v=ixV0dBOHFbI
Mining & Metals 2020: ESG front and Center (Campbell, Tivey & Wright 2020):
https://www.whitecase.com/publications/insight/mining-metals-2020-esg-front-and-center
Sir Roger Penrose, University of Oxford:
https://www.youtube.com/watch?v=hAWyex1GKRU
"ESG Sees Record Inflows" - CNBC:
https://www.cnbc.com/2020/09/19/esg-sees-record-inflows-in-2020-top-issuer-talks-staying-power.html