Key points:
- What's the value of these ESG reports then?
- Antofagasta released their tax report and the shares dropped 5%
- Perhaps ESG isn't usefully shareholder value creating then?
Antofagasta (LON: ANTO) shares fell 5% at open in London before rising slightly to a 3.3% loss on the release of the annual tax report. This is one of those reports that is not a legal requirement but is part of this new found desire to please stakeholders. That's the ESG – environmental, social and governance – fashion that has swept through society and parts of the investment community. Be open, tell everyone how much good is being done and shareholders will be rewarded with a higher share price. Doing good for society will make people love the company more, d'ye see?
The problem here is that it doesn't, on the available evidence, seem to be true. Antofagasta has revealed exactly how much tax it pays, as ESG rules desire that it should, this then wipes 3 to 5% off the value of the company. Not the intended result at all. The report itself is about what anyone sensible would expect anyway. It's here, near the entirety of operations are in Chile so tax is near entirely paid there. There's profits tax at 27%. Then on top there are mining royalties – and yes, there should be – and on top again varied payments to municipalities and so on. There's almost no ability to play with international rules, given the production concentration, and there isn't any such playing.
So it's not entirely obvious that releasing such ESG reports is in fact achieving the goal, of increasing the corporate valuation by releasing ESG reports. We might just shrug and accept that that's another investment fashion of no great use.
Also read: The Best Copper And Mining Stocks To Watch In 2022.
We would, in fact, expect a rather better response from Antofagasta shares for two reasons. Copper is booming on the back of the EV and renewables revolution and Antofagasta is a mature copper miner producing in volume. Each $1 rise in the copper price feeds through straight to the bottom line. It's also true that the Chilean constitutional congress has just ended. There were, along the way, suggestions that Chilean mining law should be entirely torn up. Talk of nationalisation, of recision of licences. The usual talk, that is, once the entire system of settled law is thrown up in the air for reconsideration. As it happened the wilder voices lost out. Which is good because some of the more extreme suggestions could have been an extinction level event for Antofagasta as a mining company.
Given that those troubles are now passed, the long term valuation of Antofagasta likely depends upon the copper price. Falls in that come directly off the bottom line, rises add to it in proportion. As to the lesson we might take from today's events perhaps it's that the ESG ideas aren't, in fact, all that shareholder value increasing. A report detailing the taxes paid, a report that shows absolutely no games and substantial tax payments leads to a fall in the Antofagasta share price. Given that everyone else doesn't seem to be paying much attention to ESG then perhaps we shouldn't be either?