Source | Times Business School
Author | Chen Jiaxin
Edit | Zheng Shaona
Editor's note: As one of the world's top 10 listed mining companies in terms of gold resources and production capacity, is Zijin Mining worth investing in for the long term? The company's MSCIESG rating has been lagging behind its peers, and it has remained at "B" so far in 2022, and its performance in corporate governance, biodiversity and land use, and labor management still needs to be improved.
Recently, gold prices have broken through record highs, and Zijin Mining (601899. SH) is also expected to break through record highs.
According to the annual report, as of the end of 2023, Zijin Mining's gold resources and production capacity ranked first among major listed mining companies in China and Asia, and ranked among the top 10 listed mining companies in the world.
While leading in gold resources, Zijin Mining's ESG ranking lags significantly behind its peers.
According to the MSCI website, Zijin Mining's MSCI ESG rating is B, which is one step behind (B, CCC) and is in the bottom 34% of the 96 companies in the metals and mining precious metals industry.
In the three dimensions of environmental, social and corporate governance, Zijin Mining's scores (10 points in each category) were 3.3 points, 2.4 points and 4.8 points, respectively, with the social responsibility dimension (S) scoring the lowest.
Specifically, Zijin Mining lags behind in corporate governance, corporate behavior, biodiversity and land use, community relations, and labor management indicators.
According to the ESG report, in 2023, the number of Zijin Mining employees and contractors died at 11, a year-on-year increase of 267%, in addition, in 2023, Zijin Mining employees were prone to frequent corruption incidents and the number of community complaints also increased significantly year-on-year, and there is great room for improvement in these aspects.
On April 23, Times Business School called the Zijin Mining Board Secretary Office several times to inquire about corporate governance, biodiversity and land use, and labor management, but the calls went unanswered.
- ESG Overview: Rated B for two consecutive years, in the bottom 34% of the industry
Zijin Mining is a large multinational mining group. At the operational level, according to the announcement, Zijin Mining is mainly engaged in the exploration, development and mining engineering research, design and application of copper, gold, zinc, lithium, silver, molybdenum and other metal mineral resources on a global scale. Zijin Mining has more than 30 large-scale and super-large mineral resource development bases in 15 overseas countries and 17 provinces, autonomous regions and municipalities in China.
Zijin Mining leads China in terms of copper and gold resources and production capacity, ranking among the top 10 in the world, with copper resources of about 75 million tons and gold of about 3,000 tons, in addition to more than 13 million tons of equivalent lithium carbonate, 3 million tons of molybdenum and 15,000 tons of silver resources, and is expected to become one of the world's most important lithium, molybdenum and silver producers in the next five years.
In 2023, Zijin Mining's operating income will reach 293.403 billion yuan, and the net profit attributable to the parent company will reach 21.119 billion yuan.
In terms of ESG, Zijin Mining's MSCI ESG rating is B, which is one notch behind (B, CCC) and in the bottom 34% of the 96 companies in the metals and mining precious metals industry, as shown in Chart 1.
From the perspective of rating changes, as shown in Chart 2, Zijin Mining's ESG rating was CCC from September 2019 to November 2021, and Zijin Mining's ESG rating was upgraded to B in December 2022, and has not changed since then.
According to the GICS industry classification standard, Zijin Mining belongs to the precious metals and minerals industry, and MSCI attaches great importance to the performance of enterprises in the three dimensions of environmental, social and corporate governance in this industry, with the weights of each score being 34%, 33% and 33% respectively.
As shown in Figure 3, in terms of the environment, MSCI assesses the toxic emissions and waste (14.2%, weighting, the same below), water intensity (10.3%), biodiversity and land use (9.5%), on the social side, MSCI assesses the health and safety (13.2%), labor management (10.6%) and community relations (9.1%), and in terms of governance, MSCI assesses the corporate governance of the companies in the sector (33% ) to conduct assessments.
According to the MSCI website, Zijin Mining is lagging behind in corporate governance, corporate behavior, biodiversity and land use, community relations, and labor management, average in health and safety, and good in toxic emissions and waste, and water stress, as shown in Figure 4.
Environment (E): Water resource utilization efficiency has improved, and biodiversity has lagged behind
In terms of toxic emissions and waste, MSCI evaluates the potential environmental pollution and toxic or carcinogenic emissions generated by business operations, as well as the strength of environmental management systems.
According to the ESG report, Zijin Mining's main sources of wastewater in its operations include wastewater from the mining process, wastewater from ore processing, discharge from ore leaching and flotation processes, and wastewater from processes such as smelting, refining and refining. Zijin Mining prioritizes the purification and recycling of all wastewater, and monitors the concentration of all effluent wastewater online for the small number of water pollutants that need to be discharged.
Zijin Mining's hazardous waste mainly comes from the smelting process, including lead arsenic filter cake, copper telluride slag and white soot from copper smelting, and cyanide slag from gold smelting. Zijin Mining entrusts a qualified third-party organization to dispose of hazardous wastes that cannot be recycled or disposed of in accordance with the requirements of the country where the project is located, and tracks their treatment qualifications, disposal technologies and disposal methods.
In terms of water stress, MSCI assesses companies based on the water intensity of their operations, the level of water stress in the areas in which they operate, and their actions to manage water-related risks and opportunities.
In recent years, Zijin Mining's water recycling rate has been increasing, from 91.29% in 2019 to 94.80% in 2023, and the water intensity of fresh water has also been decreasing, from 332.33 tons per million yuan in 2019 to 225.39 tons per million yuan in 2023.
According to MSCI, Zijin Mining is performing well in terms of toxic emissions and waste, and water stress.
In terms of biodiversity and land use, MSCI assesses the potential impacts of companies on biodiversity in the areas in which they operate, as well as the efforts made to manage the environmental impacts of their operations.
According to the ESG report, Zijin Mining's mining and smelting activities are often accompanied by unavoidable land disturbances, loss of vegetation and ecosystem degradation, which pose a threat to surrounding biodiversity. While Zijin Mining has taken some steps to protect biodiversity, MSCI still believes the company is lagging behind in this area.
3. Social (S): In 2023, the number of employees and contractors will reach 11, and there will be nearly 400 community complaints
In terms of health and safety, MSCI evaluates companies' workplace safety management practices and workplace safety standards.
Safety in the mining industry has always been a top priority, and despite some safety measures, the number of employees and contractor fatalities of the company increased by 267% year-on-year to 11 in 2023, including one of its own employees and 10 of its contractors.
In the "5.14" fall accident of Julong Copper, the number of contractors killed reached 6. According to the ESG report, on May 14, 2023, the Zijin Mining contractor was trapped underground due to the failure of the main hoisting winch during the construction of the emergency escape shaft infrastructure of the drainage roadway project under construction at the Julong Copper Polymetallic Mine.
In the implementation process of the rescue plan of using the sinking winch to lift 6 people out of the well at one time, when it was lifted to a height of about 300 meters, due to the defects in the reducer turbine material used in the sinking winch, the fatigue fracture of the gear teeth cut off the transmission chain, and the wire rope and the hanging basket carrying 6 people continued to fall under the action of gravity, resulting in a large shaft fall accident in which 6 people died.
MSCI believes that Zijin Mining's performance in terms of health and safety is average.
In terms of labor management, MSCI evaluates companies based on the complexity of their workforce (size, labor intensity, and region of operation), the relationship between management and labor, the intensity of worker protection, and employee engagement.
Zijin Mining said in its ESG report that with the development of the global economy, young people's employment concepts have changed, and the number of students and graduates majoring in mining has been declining year after year. Coupled with the public's stereotype of the mining industry's high safety risks and poor working conditions, mining companies face resistance to recruitment and the risk of brain drain. In 2023, Zijin Mining's employee turnover rate is 8%.
In terms of community relations, MSCI evaluates companies based primarily on their management of local community relations, conflict and human rights policies, and efforts to distribute benefits to local communities.
Some of Zijin Mining's mining activities will cause damage to the local environment, and there will be repairs after the mine is closed, and mining development may involve resettlement issues. According to the ESG report, the company received and responded to 396 new community complaints in 2023, a year-on-year increase of 71.4%, and the complaints received were mainly related to community property damage, environmental issues, and relocation.
According to MSCI, Zijin Mining is lagging behind in terms of labor management and community relations.
4. Governance (G): Corruption is frequent, and subsidiaries are prosecuted for illegal mining
In terms of corporate governance, MSCI assesses the impact of a company's governance and ethical business practices on investors, including ownership and control, board of directors, compensation, accounting, business ethics and tax transparency.
According to the ESG report, Zijin Mining has set up a strategy and sustainability (ESG) committee and incorporated ESG into the evaluation of senior executives.
However, corruption still exists from time to time. According to the ESG report, in 2023, a total of 64 Zijin Mining employees were subject to legal or disciplinary action for corruption, compared to nine in 2022, and 16 cases of termination of contracts with business partners due to corruption-related violations in 2023, compared to two in 2022.
On January 4, 2023, Zijin Mining announced that its subsidiary, Urad Houqi Zijin Mining Co., Ltd. ("Wuhou Zijin"), received a Criminal Verdict from the People's Court of Urad Houqi on January 3, 2023 due to illegal mining. The court of first instance confiscated about 460 million yuan of Wuhou Zijin's illegal gains and fined 15 million yuan. The seven people involved in the case were also sentenced to prison terms ranging from three years with a five-year suspension to one year with a two-year suspension for illegal mining.
MSCI believes that Zijin Mining is lagging behind in terms of corporate governance.
5. Suggestions: Improve control and coordinate the interests of all parties
Zijin Mining's MSCI ESG rating is in the lower middle range of the industry, and as a company listed on both A-shares and Hong Kong stocks, upgrading its MSCI ESG rating can help it attract more attention from overseas funds. Times Business School suggested that Zijin Mining strengthen its efforts to combat corruption, ensure the safety of employees, and protect the environment and communities, which will help Zijin Mining improve its MSCI ESG rating.
- Strengthen governance and reduce corruption. Zijin Mining has a large number of employees, with a total of 55,200 employees by the end of 2023, and its business covers many countries and regions around the world, which is difficult to manage. Zijin Mining needs to further strengthen the control of employees and subsidiaries to reduce corruption and illegal behavior.
- Ensure the safety of mining personnel, including contractors. Mining jobs are inherently risky, and the number of contractor fatalities at Zijin Mining has increased significantly year-on-year in 2023. With a total of 30,000 contractors by the end of 2023, Zijin Mining should pay attention to the safety of its contractors in addition to its own employees, so as to alleviate the rate of employee turnover.
- Further enhance environmental and community friendliness. In 2023, Zijin Mining still received hundreds of community complaints, a significant year-on-year increase, involving community property damage, environmental issues, and relocation. Mining work will have an impact on the local environment and residents to a greater or lesser extent, and Zijin Mining should further coordinate the interests of all parties and make appropriate compensation for the interests of the local environment and residents.
[References]
1. Zijin Mining Group Co., Ltd. 2023 Environmental, Social and Governance (ESG) Report
2. Zijin Mining Group Co., Ltd. 2022 Environmental, Social and Governance (ESG) Report
3. Zijin Mining Group Co., Ltd. 2023 Annual Report
4. Announcement of Zijin Mining Group Co., Ltd. on the Receipt of the Litigation Judgment by the Holding Subsidiary