Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
A radical thesis: If I had a million dollars to invest in a single mine, I would go meet the mine’s Health & Safety Officer. If they impressed me, I would invest. If they did not, I would get on the next plane and fly to the next mine on the list.
Some background to this idea: I have worked on mines and on big civil engineering construction sites where accidents and death were almost common and routine. Luckily those days are past. I learnt while working on the OII project over three years, that you can indeed undertake $100 M of work with no accidents or fatalities. I ascribe this success to one person, namely Jill Saminango, a short Hispanic lady who brooked no opposition when it came to working safely. Her motto was: “If you cannot do it safely, find another way.”
She kicked people off site, never to return, if they violated health & safety procedures. She even got a project manager removed when he fought her on a point of safety. The next project manager made of point of this oft-repeated phrase: “You are all personally empowered by me to stop work if you see it being done unsafely.” Twice this happened, and both times the work-stopper was commended.
I believe that a mine at which the Health & Safety officer is empowered and competent can, and will mine safely and with no work stoppages. Thus my point that if you are contemplating investment in a mine, take a look at its H&S officer, its H&S pogram, its accident record, and it profitability. I cannot prove it, bu I suspect that there is a correlation between a good H&S record and profitability.
Just consider the mines that have shut down, are shut down, and that have failed because of H&S violations and the death of workers. At this link is a story that almost proves what I assert here. I quote in part:
The lawsuit was filed on Feb. 1, 2012, in the United States District Court for the District of Idaho. It alleges that Hecla and its directors misled shareholders by issuing false statements in violation of the Securities Exchange Act of 1934. Hecla mines precious minerals, including gold, silver, lead and zinc. The minerals are sold to smelters, consumers and other precious metal traders.
The complaint claims that Hecla experienced operational problems at its Lucky Friday unit, including safety concerns, but failed to disclose these issues to its shareholders. The problems ultimately proved so serious that the Mine Safety and Health Administration (MSHA) fined Hecla and ordered the company to close the mine, the lawsuit alleges.
Specifically, MSHA claimed that safety concerns contributed to the death of one miner in an April, 2011 accident. MSHA conducted a full inspection of the mine and on Jan. 5, 2012, ordered that it be closed so that unsafe material could be removed.
On Jan. 11, 2012, Hecla announced that it would close the Lucky Friday mine for up to one year to address safety issues. As a result of the closure, Hecla estimated that its silver production in 2012 would be reduced from 9 million ounces to 7 million ounces.
The lawsuit alleges that Hecla was obligated to disclose to the public and investors that the Lucky Friday mine was unsafe and the extent of any safety violations.
Following the company’s announcement regarding 2012 silver production, Hecla’s stock fell $1.23 per share, closing at $4.61 per share on Jan. 11, 2012, a decline of more than 20 percent, and continues to trade below class period highs.
There are countless other similar stories. I leave you to seek them out and decide how they affect your investment strategy.
