Canada will soon put in place an initiative by the G8 that sets reporting requirements for payments made to foreign and domestic governments by Canadian companies in the extractive sector. The US and Hong Kong have already established similar policies, which the G8 had agreed to at least consider after their meeting in Deauville, France in 2011. Canadian companies are responsible for roughly half of global mining, and after an extensive consultation process, they will have to adhere to the fully enforceable rules.
International Council on Mining and Metals (ICMM) president Dr. Tony Hodge supports the move, suggesting the regulations will raise the bar for the industry. The ICMM, set up to comply with the Global Mining Initiative (PDF), is made up of 18 mining companies, including three of the major Canadian players; Barrick Gold Corporation (NYSE:ABX), Goldcorp Inc. (NYSE:GG) and Teck Resources Limited (NYSE:TCK). With these companies already on board, and a time frame of perhaps two years just for consultation and framework development, the Canadian mining industry may have a relatively easy time adjusting to the new rules.
Still, mining and extraction companies that already have established good corporate practices, as well as healthy revenue streams, will be well placed to comply with any new regulations.
We decided to search through Canadian mining companies for those with some level of corporate responsibility initiatives in place. From those results, we screened for stocks with strong sales trends by comparing growth in revenue to growth in inventory over the last year. Since inventory represents the portion of goods not yet sold, faster growth in revenue than inventory is considered an encouraging sign.
To limit our results, we then searched for strengthening liquidity, only including those companies with inventory decreasing as a percentage of current assets.
We were left with three companies, operating primarily in the mining of gold and silver, and decided to focus on the two small caps: AuRico Gold Inc. (NYSE:AUQ) and Silver Standard Resources Inc. (NASDAQ:SSRI).
For an interactive version of this chart, click on the image below. Average analyst ratings sourced from Zacks Investment Research.
Do you think good corporate practices boost the balance sheets of these companies? Use the list below as a starting point for your own analysis.
1. AuRico Gold Inc. : Engages in the exploration, development, and production of gold and silver mines and projects in Mexico.
- Market cap at $1.21B, most recent closing price at $4.92
- Revenue grew by 95.04% during the most recent quarter ($64.89M vs. $33.27M y/y). Inventory grew by -51.3% during the same time period ($79.14M vs. $162.5M y/y).
- Inventory, as a percentage of current assets, decreased from 33.51% to 19.15% during the most recent quarter (comparing 3 months ending 2013-03-31 to 3 months ending 2012-03-31).
- Returns since 5/13/13: 1.03%; compared to Barrick Gold Corporation (-2.19%) and IAMGOLD Corp. (NYSE:IAG) (-5.48%).
The company has an official policy regarding corporate social responsibility, emphasizing that 'operational excellence' is more than impressive shareholder returns. AUQ has operations in Canada and Mexico, and for each location, has "a sustainable community development strategy that follows best practices and maintains effective communications between community members and the company."
This week AUQ announced a dividend reinvestment plan, commencing with the July 2013 dividend. Eligible shareholders will be able to reinvest cash dividends paid on their stock. The program will include a maximum 5% discount to the stock's current trading price, and AUQ will bear any commissions or administrative costs. The company's intended annual dividend for 2013 is $0.16 per common share.
2. Silver Standard Resources Inc. : Engages in the exploration, development, and production of mineral resource properties in Argentina, Australia, Canada, Chile, Mexico, Peru, and the United States.
- Market cap at $583.01M, most recent closing price at $7.22
- Revenue grew by 27.73% during the most recent quarter ($49.06M vs. $38.41M y/y). Inventory grew by -26.67% during the same time period ($79.31M vs. $108.15M y/y).
- Inventory, as a percentage of current assets, decreased from 21.54% to 12.08% during the most recent quarter (comparing 3 months ending 2013-03-31 to 3 months ending 2012-03-31).
- Returns since 5/13/13: 6.02%; compared to Silver Wheaton Corp. (NYSE:SLW) (-2.19%), First Majestic Silver Corp. (NYSE:AG) (-2.66%) and Hecla Mining Co. (NYSE:HL) (10.41%).
Corporate responsibility at SSRI currently focuses on both the environment and the people affected by its business operations. This includes a safety management program, with a goal to "instill in everyone an awareness of risk, and a sense of interconnectivity." And the company actively engages with the communities where it works, assisting with infrastructure and supporting education.
Deutsche Bank recently upgraded SSRI from Sell to Hold. Currently, the company's consensus price target is $15.95. Dundee Securities analysts gave SSRI a neutral rating on 6/4/2013, and those at BMO Capital cut their target price to $12.00, from $16.00, and rate the stock as a market perform.
*Accounting data sourced from Google Finance, all other data sourced from Finviz.