Investing in the honest truth

Because the truth matters to investors, stock market regulators ought to demand the truth from mining companies with controversial operations in the poorer countries of the world.

If they don’t, they’re not just letting down rural, Indigenous communities in countries such as Guatemala, they’re failing investors who count on the honesty of Canadian stock markets, according to a Justice and Corporate Accountability Project submission to Ontario’s Independent Capital Markets Modernization Task Force.

The 51-page submission to the task force, which is charged with reforming rules that govern the Toronto Stock Exchange and other markets operating in Ontario, lays out how investors have lost money over the years when mining conflicts that TSX-listed companies sought to downplay or deny hit the headlines and stock prices immediately took a dive.

The TSX claims about 47 per cent of the world’s publicly listed mining companies are listed on the Toronto Stock Exchange and the TSX Venture Exchange and more than half of all mine financing over the last five years was completed by companies listed on its exchanges. Almost $41 billion in mining company shares were traded on TSX exchanges in 2019.

“The company is saying, ‘Oh well, the people love us.’ They don’t mention the three or four assassinations that have never been solved,” Shin Imai, Justice and Corporate Accountability Project founder and Osgoode Hall law professor, told The Catholic Register.

“If they’re required to do that — this is in part the theory about disclosures — then investors who aren’t reading the newspaper in Guatemala but are reading the press releases from the company, they will be informed and there will be pressure on companies to behave better because they have to actually reveal this stuff and then people (investors) will react badly.”

Imai argues that investors need a baseline of relevant, factual information and they should be able to get it from the companies they’re invested in. For faith-based investors who want to engage with companies to improve their behaviour, rather than simply dumping the stock, such information is vital, he said.

“If the company itself has to tell the truth, then we have a set of facts we can work with,” said Imai. “For those who want engagement, I think that it helps engagement.”

The Justice and Corporate Accountability Project submission traces a long series of setbacks for investors in Tahoe Resources, a TSX-listed company that for 10 years owned the Escobal Silver Mine in Guatemala.

With Church support, including projects and groups partly financed by the Canadian Catholic Organization for Development and Peace – Caritas Canada, local communities have over more than a decade objected to the mine and its environmental practices, with plebiscites that consistently returned above 90 per cent of votes against the mine.

Meanwhile, the Tahoe Resources website claimed the mine had the support of community leaders and company CEO Kevin McArthur told the Business News Network, “the communities they love us.” The company did not disclose to investors legal judgments in Guatemala against the mine or mention the violent conflicts surrounding it. 

Currently, OSC regulations require “identification of any known legal, political, environmental or other risks that could materially affect the potential development of the mineral resources or mineral reserves.”

It is largely left to companies themselves to determine what could “materially affect” mine plans.

For ethical investors, such as the Archdiocese of Toronto, getting reliable information about mining conflicts is important, but they’re not relying on disclosure regulations to fill that gap, said Archdiocese of Toronto chancellor of temporal affairs Jim Milway.

“Of course you want disclosure. Disclosure is good. That’s kind of an apple pie statement,” Milway said.

But rather than another line added to the bottom of press releases, Milway counts on the archdiocese’s investment managers to do the digging and tell him what’s really going on with companies the archdiocese is invested in.

“I’m not countenancing outright lies, but there’s only so much the regulator can do,” said Milway.

“There are portfolio managers, the guys who make the calls as to which stocks to buy, who will sit with management and grill them. But they also go on tours and they read the local press, if they’re doing their job.”

The Ontario Securities Commission, which regulates the TSX, should ensure “truth in advertising,” said Imai.

Tahoe, which was then operated from head offices in Nevada under a board of directors dominated by Americans, said in a 2015 prospectus that it chose to list in Toronto because of the lower regulatory burden. 

“Regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer will be significantly more than the costs incurred as a Canadian foreign private issuer,” Tahoe wrote in its prospectus.

“We don’t want our companies exploiting local communities,” said Milway. “We hope that our managers are onto that kind of stuff.”

The Independent Capital Markets Modernization Task Force is expected to issue its final report before the new year.