Stakeholder prosperity bonds – because business is about people

I knew nothing about mining when I retired from DuPont.

After 30 or so years in the corporate world, what I knew was that:

1. Business is fundamentally about people- call them stakeholders, colleagues, customers or employees, relationships make or break value

2. Sound long term strategy and sustainable integration are table stakes for success - business ‘puzzles’ need to fit at conceptual and detailed levels

3. Change management is the grease that facilitates adaptation- technical skills matter, but organizational success is about facilitating adaptation in an ever-changing world 

4. Businesses are all the same and they are all different- even though details vary, all successful businesses have a competitive advantage that the integration of market access, technology and infrastructure enable 

I retired from DuPont in 2019. My goal for the next phase of my career was clear –positive impact on dignity and human rights, delivered in ways that leveraged my background capabilities. Recognizing the reality of the world that we live in, it was also clear that this impact would need to be delivered in a clear bankable context. To that end, I eventually became a Partner at The Blended Capital Group and the Director of Finance at Veridicor.  

What is the profile of mining?

What have I learned in the intervening years about mining?

• The sector front ends pretty much every value chain that exists 

• Success is about value chain integration- mining, refining, logistics

• Mining is about people - communities, artisanal miners and Indigenous nations make or break conflict-free projects based on whether buy-in exists

• Buy-in, otherwise called social license, requires built trust - change management.  Stakeholders need to believe that a nearby mine will improve their lives - prosperity- and they need to feel this happen

• Mining is like any other business - geology and engineering are cool underlying techie aspects of the business, but more basically it is about value chains and social engagement- people

• Mining happens where resources are found - there is no choice.  This often means remote relatively underdeveloped places, where quality social engagement is all the more important.  Mining comes in all shapes and sizes in many of these places, with one-off informal artisanal miners often sharing land concessions with massive global mining companies

• Mining investors are like all other investors- risks and returns are the focus, lack of transparency and disproportionate risks make investors shy away

All that said, it seems that what I learned in the corporate world applies nicely to mining.

What about Artisanal mining?

As I learned more about mining, my focus narrowed towards artisanal mining (ASM).

• The sub-sector is massive – 45 million miners, 225 million people fully supported when including families of miners, another 200 million people selling goods and services to miners.  All in, ASM directly or indirectly supports 6% of the world’s population

• Found in close to 100 countries, ASM produces 20-30% of the world’s gold, 85% of sapphires, significant quantities of copper, cobalt, manganese, tin, and other critical minerals, precious metals and stones

• ASM is 85% informal – robust governance is lacking

• As with larger mines, ASM is the front end of value chains, in this case, largely smuggling based

• Artisanal mining is a reflection of poverty and of people who seek opportunities

• ASM shares land with large mining projects – risks and opportunities are inherently shared between the two, quality of relationships determines whether conflict or collaboration is in play

• ASM lacks access to non-predatory capital – informality, small scale and lack of robust balance sheets preclude scaled capital access

Put simply, although ASM is smaller and broadly informal, it is just as much of a business as large mines, vulnerable but buying, selling and fronting value chains that start with people on the ground.

Stakeholder Prosperity Bonds

ASM is devoid of capital and it shares land with large projects, co-mingling risks and opportunities. At the same time, the world needs more critical minerals, which means that more mining investment is essential, but investors are shying away from mining given risk profiles and opaque visibility on ground-level realities.

Stakeholder Prosperity Bonds are a subset of the $1Trillion sustainability bond market, bringing a conceptual fit that makes sense for the dynamics of mining.

• Regional scopes: ASM professionalization improves lives and productivity, large projects are improved - de-risking, targeted operational improvements such as tailings, and incremental market opportunities through offtake, infrastructure development - water, power and road systems that catalyze development, smaller processing facilities and capacity building, both of which support further development

• Governance – multi-layered governance is strengthened. At a basic level, artisanal miner formalization stands up governance mechanisms through companies, coops or associations. More broadly, aligned ASM/LSM relationships are integrated into governance structures of the companies that operate large mines as well as into ASM-related entities. Further, as professionalized ASM and broadened stakeholder collaboration take hold, stable predictable relationships between miners of various scales and local businesses start to mature

• Critical minerals strategies – as China, the US, EU/UK and others compete for stable secure critical minerals access, bonds that de-risk mining regions through increased collaboration and ASM professionalization can be strategic mechanisms for locking-in increased supply

• KPI’s / investors – mining investment is not keeping up with needs, largely because investors perceive many opportunities as risky and opaque. Along with de-risking mining regions, bonds incorporate explicit KPI’s that tie to interest rate commitments, bringing a different level of line of sight for far away investors who may otherwise find it hard to understand risks in far away mines and whether social engagement is delivering relationships that sustain value

• Integration / value chains – mining front ends the world’s value chains. A focus on mining regions can facilitate integration in many ways, including local processing, offtake agreements that funnel product in specific directions, along with validation and traceability that are fundamental controls for sustaining responsibility

All in, the nature of sustainability bonds address key constraints that would otherwise create excessive risks, potential disruptions and lack of investor engagement in mining ecosystems, especially as related to smaller scale ASM.

In summary 

This short paper started by describing what I had learned through the corporate part of my career, something that can be summarized by saying that business is about people. What I have learned over the last 7 years is consistent, mining, including ASM in particular, is fundamentally about people.  Derisking relationships happens when stakeholders feel listened to and where they understand how mining project solutions improve their lives, both financially and beyond. From an investor perspective, de-risked mining regions are inherently more attractive, but visibility is fundamental, with investors needing to understand choices before they engage. This is the combination of factors that has led to stakeholder prosperity bonds, and why this subset of the $1Trillion sustainability bond market makes sense given the dynamics of ASM and large mines in the vast sector that fronts almost all global value chains.

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