Environmental and Social Responsibility for Accessing CapitalBy Alejandro Ehrenberg | Fri, 05/22/2020 - 13:07
Q: How has Santa Cruz Silver interpreted the government’s decree to halt all non-essential activities due to the COVID-19 outbreak?
A: The authorities have not been clear enough in letting us know how to proceed with regard to labor laws. It is hard to discern what industries are included in the decree. Not even the oil and gas industry is clear on this. Just like miners, oil companies are not 100 percent sure whether their activities are essential to Mexico’s economy or not. Sectors that have been defined as essential, like steel, depend on mining, so it is strange that mining has not been formally declared as essential, too. As the decree is confusing at the federal level, we are working at the state level to gain some clarity. We have noticed that one of the political effects of the pandemic has been that states are taking matters into their own hands and filling the gaps that the federal government has left open.
In any case, Santa Cruz Silver is a responsible company and is following all health recommendations to protect its workers. In fact, following these recommendations does not imply a big shift for us. The fact that our activities are underground precludes significant agglomerations of people from taking place. We have implemented stricter controls for entering and exiting the mine; for instance, we take everyone’s temperature.
Q: What is your expectation for silver prices and how will it guide your strategy in the coming months?
A: Silver has not reacted in the same way as gold, which has increased in price since the onset of the pandemic. Technical analysts expect silver to reach US$17 per ounce in 2020. That is not a marvelous price, but it is good enough, as we can start selling our production at US$16 per ounce. To that, one has to add the fact that the US dollar is getting very expensive in comparison with the Mexican peso. That is good for us, because we sell in US dollars, while most of our costs are in Mexican pesos. We are expecting an exchange rate in 2020 of MX$25-30 to the US dollar.
Q: The Zimapan mine is undergoing auditing by the Initiative for Responsible Mining Assurance (IRMA). In what state of the process are you?
A: IRMA has finished auditing the mine. The plan is to have Zimapan certified, which will take the remainder of 2020. Our goal in this first audit is to fulfill 75 percent of IRMA’s requirements. Every year, we will audit again to eventually reach the full certification. The first mine in the world to seek certification is in Africa. That makes Zimapan the first mine on the American continent to enter into this process with IRMA. We believe that we cannot do business properly unless we behave responsibly regarding the environment and society.
Q: How does the auditing for the certification work?
A: The process for certifying a mining unit begins with filling out a number of questionnaires and forms that IRMA sends to the interested party. After the paperwork is completed and backed by documented proof, IRMA defines a date for a live inspection. We arranged video conferences and face-to-face meetings with authorities ranging from the Undersecretary of Mining to the municipal president. They also conduct several interviews at the mine. They had a conversation with me in which they strove to understand my personal business philosophy. They then spoke with workers at all levels of the operation to see if my philosophy translates into the way the company relates to its workers.
Q: What role do ESG principles play in accessing capital?
A: It is very important that the Mexican mining industry seeks certifications by independent parties such as IRMA. Recognitions like CSR are also good, but the level of credibility that a certification provides is superior. Just like the stock exchange requires us to be 43-101 certified, society and investors demand that we are environmentally and socially certified. Having a strong corporate responsibility profile is attractive for investors and differentiates a company in the market.
For example, we have temporarily closed our Veta Grande mine because we are striving to fulfill the Ministry of Environment’s requirements to the utmost. We are working to make sure our tailings are safe and stable. We are undertaking geo-technical work at the mine to demonstrate that our tailings are not a risk. We expect to be back in operation in 2021. The markets have taken this temporary halt favorably, as it demonstrates honesty and responsibility on our part. A strong ESG profile also enables us to seek support from institutional investors while the stock markets regain stability.
Santa Cruz Silver Mining is a Mexican silver mining company with two producing silver projects (Veta Grande and Rosario, including the Cinco Estrellas property and Membrillo prospect) and two exploration properties, the Minillas property and Zacatecas properties.