Silver and Gold I/II: Mining in the Ukraine, .ru?

Mining calls for brave workers, and brave investors. As a native of a country where mining is a primary industry [which country is not, it is just how much technology is deployed to dig, and how much the world wants whatever lies beneath?], I empathize with tensions between digging and not digging, jobs versus environment, leasehold versus royalties. Despite the multi-year surge in commodity prices which offered boom time for all mining firms the past five years, sustainability remains a mega-theme, from the long range thinking on political access to the few remaining ore bodies profitably extracted, to the basics of managing mines safely. Anglo Platinum’s [JNB:AMS] CEO Ralph Havenstein, apparently left in 2007 at parent company Anglo American’s insistence due to the company’s appalling safety record.The socio-geo-political connections were drawn to a blunt point by the world's greatest band ever in their track Silver and Gold, on their opus Rattle and Hum September 1998, referencing the role of business with countries with less-than-optimal socio-political regimes, like the old apartheid regime in Pretoria.

The warden says "The exodus sold."/ If you want a way out.../Silver and gold, silver and gold [more lyrics below].

Mines are long term ventures. Even environmental problems one inherits when purchasing an existing mining claim may be dealt with over the longer lifetime of an ore body, anywhere from 10-40 years. Remediation efforts may be more easily monitored in a Google Earth world. The work of the Extractive Industries Transparency Initiative [EITI] has been influential in concentrating the minds of mines listed in Europe. Although the holding companies and financial structures are above ground, mines and miners are inextricably tied to the earth itself. All mines are long-term investments, more like a hard asset class.

So how are the major Russian-owned or -listed firms with ownership and equity exposure in the non-Russian world walking the line this week? Nervousness must be the after-effect in the aftermath of Mr. Putin/Mr Medvedev’s deployment of the under-employed Russian military in the Caucasus these past weeks. It certainly met Mr. Murdoch’s goal of mingling more politics in the business pages of the WSJ with institutions walking a fine line. Fair to suggest that the military action changes the case study model answers for ROI [return-on-investment] for the Baku-Tbilisi-Ceyhan pipeline, and review the EIAs if it is cut [the BTC was described as the worst pipeline in the world]. I am not sure how to interpret the alleged internet attacks by Russia on Georgia though [see FutureTense 15 August 2008, the denial of service attacks - which flood targets with malicious data - allegedly curtailed Georgia's ability to spread its message and communicate with the outside world]. While the Olympic Russian and Georgian [read Brazilian] women’s beach volleyball teams were made to play nice in the spotlight of the false friendship of the Olympics, geopolitics and investment time horizons were playing out for real somewhere between the Baltic and Tbilisi. Well, I guess if you are signed on to a sport where some misogynist has you play in glorified underwear, chances are you are not holding the winning hand, yes?

Buying a WSJ page, .ru?

If your country’s ruler is able to move markets with a few comments like Putin did leading to the Russian markets wiping off US$60bn in a day after comments about a certain firm...

Speaking at an industry conference this week, Putin, Russia's former president and now prime minister, spoke five sentences critical of one of his country's big steel companies, Mechel, and its billionaire chief executive, Igor Zyuzin. In a sign of Putin's enduring power in Russia and around the world, that criticism came with a price: about $1.2 billion per sentence in lost shareholder value. IHT 25 July 2008

...paying for a full page B&W spread in the US’s major business paper [WSJ A11 Tues 19 August 2008] must have seemed like the least a Russian mining company may do [estimated advertising cost US$ 30-50k for Wall Street Journal US edition]. Market Vectors Russia ETF (RSX) is down 36% from its June 2008 high of US$59. The Russian action in Georgia has made all types of people, and investors, nervous.

Foreign investors have pulled billions of dollars out of Russia in response to its invasion of Georgia. Official figures show the sharpest fall in the country's foreign currency reserves for a decade [US$16.5bn], since the 1998 defaults. Marketplace.org Friday August 22

The expensive TV advertising campaign for investing in Georgia these past months on CNN International and other media has unfortunately just evaporated into goodwill fresh air. The upside? Well, the name-recognition pitch will no longer be required, everyone knows Georgia is the parking lot for Russian tanks, just next to Armenia [postscript: see some fresh interactions on GlobalVoices.org after the announcement].

Nothing makes a portfolio tank [more puns?!] like having a major sunk hard asset investment disappear from the quarterly statement at some state-decreed fire-sale price. Never has Norilsk Nickel's [JSC MMC Norilsk Nickel (ADR)(OTC:NILSY)] decision to buy a piece of the heartland been made to look like such a brilliant idea; Norilsk Nickel bought Stillwater Mining Company in Montana in 2003, the US's only palladium producer. Making the proactive step of trying to pitch themselves as the winning mining bet for investors rattled by Russia's actions this past week was a good start "A Global Leader in Metals Mining"- pointing a long way from centuries of Caucasus in-fighting but relying on the pages of the WSJ and news clips to describe mines “from Siberia to Montana”. Apparently the Board pitched a Putin ally for the Board [Putin ally put forward at Norilsk Nickel; APJuly 29, 2008]. But the arresting factoid that undermined their effort comes in the suffix to their web URL, “.ru”, the Russia acronym. Before launching a compelling story for being a diversified world-class player, maybe the more capitalist, and less country-specific, URL suffix “.com” is the better advertising and business spend. I am no Russia expert, and as always defer to the personal stories and local analysis you will find well below the hyperbole at the national level, I analyze and opine imperfectly from a distance. I look forward to more fact and more substance in thinking through investors purportedly integrating sustainability into investment thinking in Russia.

Norilsk Nickel has a dedicated page on Sustainable Development, but which focuses on local and regional Russian priorities. perhaps the exposure to mining from the US to Russia to South Africa has helped them become sensitized. The forthcoming CDP coverage in Russia in 2009 may help, and I still hope to explore moving ESG forward with the PRI in EM Project in 2008/9. The evidence is mixed on whether ESG integration is a foreign concept in Russia. Russia was covered in the current EM Disclosure Project, a total of 12 companies, 4 in Materials [metals & mining]. Perhaps on account of the materials sector's exposure to ESG issues, the sector had the most thorough reporting, meeting all five disclosure criteria [see below] with 9 companies, including GMK Norilsk Nickel and Polyus Gold listed in Russia [expect more in future posts on the EM Disclosure Project: Sustainability reporting in emerging markets: Transparency and Disclosure, an analysis of the sustainability reporting in selected sectors of seven emerging market countries by a research consortium led by Calvert AM, SIRAN et al, January 2008].

The work of major money managers seeking firstly, investments in this emerging market, and secondly, capital from local investors [not the billionaire Russians banking in Genève every Summer], is always a balancing act: sustainability investors into the region like Fortis, Allianz and the former ABN Amro AM must be deft traders in only the most liquid names while meeting sustainability theme objectives. Reports from 2006 seem to imply the geopolitical playbook green-washed the re-valuation and re-configuring shareholding of the Sakhalin project using environmental factors as a pretext dating back to 2006. Royal Dutch Shell plc (LON:RDSA) and its partners, Japan's Mitsui and Mitsubishi, were bumped. No word on the Sakhalin Project's environmental performance in 2008 from the Russian EPA. As the people and geography promise, there is a lot of the Russian Federation to enjoy. I appreciated a recent hitchhiking story from Vladivostok to Moscow [as well as some raw capitalism in merchandising Toyotas on the 6,000 miles of the Trans-Siberian Highway]. One day I would still like to make the overland trans-Siberian rail trip, although the 7,100-km 2008 Transsyberia rally offers a competitive route to Ulan Bator - note how Porsche’s HNW sales strategy pitched to the hydrocarbon billionaires the specially adapted US$100k Porsche Cayennes racing across the steppes [after 2 privateers placed one-two in 2006], and now flood the results table. But as an investor, if you did not beat the hot money reaction to the Georgia invasion, you may still want to re-assess your terminal values of the DCF [discounted cash flow] calc on those mines in the Ukraine…

-----------------------------------------------------------------------------------

EM Disclosure Project: Sustainability Disclosure Questions (criteria)

1. Company has public disclosure of sustainability issues? Any disclosure of ESG-related information in any corporate literature or on the company website (this does include basic corporate governance information reported by the company).

2. Company has a separate section of its website and/or annual report addressing sustainability issues? Disclosure of ESG related issues in a dedicated or separate section of the company website or annual report.

3. Company has a current (last 2 years) and stand-alone Sustainability report? Disclosure of ESG related issues in a stand-alone report. The report can be online so long as it is also downloadable. Disclosure can also be included within the annual report.

4. Company references the GRI framework for its stand-alone report? ESG disclosure includes any reference to the use of the GRI reporting framework.

5. Company has sustainability goals and benchmarks? ESG disclosure includes sustainability goals and benchmarks. The company has to disclose both goals and benchmarks (not necessarily in relation to the same indicator) to get a 'yes' for this question. With regards to benchmarks - this can be as simple as disclosure of any performance metrics, e.g. CO2 emissions.

--------------------------

/ Rattle and Hum
// Silver & Gold

In the shithouse a shotgun
Praying hands hold me down.
If only the hunter was hunted
In this tin can town, tin can town.
No stars in the black night
Looks like the sky fall down.
No sun in the daylight
Looks like it's chained to the ground, chained to the ground.

The warden says "The exodus sold."
If you want a way out...
Silver and gold, silver and gold.

Broken back to the ceiling
Broken nose to the floor.
I scream at the silence
It's crawling, crawls under the door.
There's a rope around my neck
And there's a trigger in your gun.
Jesus, say something!
I am someone, I am someone.

Captains and Kings in the ship's hold
They came to collect
Silver and gold, silver and gold.

I seen the coming and the going
Seen the captains and the Kings.
Seen their navy blue uniforms
Seen them bright and shiny things, bright and shiny things.

The temperature is rising
The fever white hot
Mister I ain't got nothing
But it's more than you've got
These chains no longer bind me
Nor the shackles at my feet
Outside are the prisoners
Inside the free (set them free).

A prize fighter in a corner is told
Hit where it hurts - For Silver and Gold
You can stop the world from turning around
You just gotta pay a penny in the pound.