Communication is a crowded two-way street

In the fast-paced world in which we live, relevant communication can be drowned out by a sea of white noise. Everyday, at home and in the office, we are flooded with e-mail, regular mail, junk mail, faxes and phone calls. It is often difficult to distinguish what is useful or significant in this mountain of garbled thought.

This is also true of communication in the mining industry. A multitude of companies try to attract the attention of analysts and investors, oftentimes mixing incomplete factual information with promotion and hype. Investors and analysts, inundated and bewildered, usually end up scratching their heads trying to derive something meaningful from the messages. As a result, companies can miss the mark, in part because of information overload but also because it may not be giving the precise information the investment community wants to hear.

A recent PricewaterhouseCoopers global survey, Digging Deeper – Managing value and reporting in the mining industry, echoes this view concluding that mining companies are not as good as they think they are in communicating relevant information to the investment community. This type of communication, termed “value reporting” in the survey, must be improved for greater transparency and disclosure. By improving transparency and disclosure, the survey suggests, companies could benefit from improved access to capital at a lower cost.

One of the more interesting findings of the survey was the significant gap between mining companies’ perception of how they communicate value to the market as compared with the views of the analysts and investors. More than half of the mining companies interviewed believed they worked proactively to initiate or maintain contact with the investment community. Only 23% of investors and 9% of analysts agreed.

In the survey, 28 mining executives, 31 institutional investors and 35 analysts from around the globe were asked to assess the relative importance of 32 value indicators, applicable to the mining industry. These indicators ranged from tangible financial indicators, like segmented income and income per share data, to social and environmental indicators through to corporate guideline indicators such as country risk tolerance and other long-term strategies.

Interestingly, mining companies rated social and environmental indicators higher than did institutional investors and analysts. Perhaps the lower rating by analysts and investors is somewhat short-sighted since these factors can be very important in securing the licence needed to develop a mine. Analysts and investors were more interested in understanding corporate objectives and policies such as hedging strategies and return on equity thresholds.

Of the 32 indicators, investors and analysts identified 22 and 17, respectively, as being of great importance; only a few of these would be viewed as traditional financial indicators. Mining companies identified fewer still, principally the more traditional financial indicators. In total only nine were universally agreed upon as being important by all three groups.

Why is there this discrepancy? To be fair, the management of a mining company might consider some of the information requested by investors or analysts to be proprietary or overly difficult to obtain. Nevertheless companies should try to be more transparent and provide better disclosure. For their part though, the investment community also shoulders part of the blame, for not communicating with mining companies. Without proper feedback as to what is needed and why, the situation is unlikely to improve. By agreeing upon what value indicators are most relevant, subsequent communications should become more effective and, if we’re lucky, might also lessen the volume of garbled thoughts we receive.