Striking gold: Partnerships for sustainable small-scale mining

1 July 2014

Small-scale miners in developing countries have sought to profit from increased gold prices on international markets. But ensuring sustainable social and environmental conditions through responsible mining require concerted efforts and partnership from actors across the supply chain. 

The rising price in gold has prompted a dramatic increase in Artisanal and Small-scale Mining activities (ASM) in developing countries in the last few years. Nowadays, ASM is carried out by an estimated number of 15 million miners worldwide, indirectly provides around 100 million people with a living, and accounts for about 20 percent of global gold production. This “gold rush” has accentuated a wide range of environmental, social, and economic problems, including deforestation, mercury emissions, contamination of water, child labour, health and safety, war financed through conflict minerals as well as links to informal trade structures, and money laundering. Public and political awareness of such problems in the minerals supply chain is however growing. An increasing number of consumers want to be assured that their gold was produced in a sustainable way. Brands and retailers are looking for solutions to respond to the increasing demand for sustainably produced gold.

In the past mining production was simply delivered against payment, nowadays consumers, retailers, and industry increasingly request documented evidence of compliance with ethical and legal standards of production and traceability along the supply chain. A legislation to address these demands has been put in place in the US – the Dodd-Frank Act – and similar efforts to regulate conflict minerals trade are currently being discussed in the EU. In 2012, the Organisation for Economic Cooperation and Development (OECD) developed a multi-stakeholder process, the Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas and its Supplement on Gold, which includes a special appendix for the artisanal and small-scale gold sector.

different stakeholders of gold and jewels supply chain from the Swiss economy— the country with largest gold refining capacity which hosts about 50 percent of the world’s—have founded a non-profit organisation called “Swiss Better Gold Association” (SBGA). A recent national public-private partnership between the SBGA and the Swiss State Secretariat for Economic Affairs, dubbed the Better Gold Initiative (BGI), aims to support the implementation of the OECD Due Diligence Guidance by creating a direct mine to market path for sustainably produced ASM gold.

Peru has been selected as a pilot country for BGI, implemented through the country’s ministry of environment. According to estimates, some 100,000 illegal and informal miners are producing a value of around US$2900 million of gold each year in the country, also implying a significant loss in annual tax revenue. Alarmed by this situation, the Peruvian government put in place a legal package of laws and decrees to start controlling the sector in 2012. These include, among others, the definition of illegal and informal mining, definition and timeframe for a formalisation process, mechanisms for environmental control, control of trade and use of chemicals like mercury and cyanide, and new penal laws for illegal mining related confiscation of property, money laundering, and organised crime.

From sustainable mine to market

The BGI’s overall objective is to build simple market mechanisms that honour a producer’s compliance with standards on traceability, accountability, labour conditions, and environmental, social, governance, and community relations performance. Consistent with the established objectives, an implementation strategy at a systemic level has been designed, which aims at generating a “mine to market” sustainable gold value chain. In order to accomplish this, the project is structured around four complementary components along the value chain. The BGI works to (i) strengthen the capacities of artisanal miners, in technical, organisational, environmental and social terms, (ii) facilitate the certification of responsible mining operations, (iii) collaborate with the Peruvian government to generate incentives for responsible mining, and (iv) generate the conditions to bring the Swiss demand for better gold closer to certified and strengthened producers. This takes advantage of a market opportunity and facilitates sustainable development through international trade.

 

Producers and institutions

A project management unit is responsible for setting-up, organisation, and implementation of the first component through a Business Service Platform (BSP) for ASM. The BSP is the mechanism that ensures that ASM can access services that allow them to move towards formalisation and meet standards for future certification focusing primarily on aspects of technical assistance, training, audits, and certification.

Also to ensure compliance with standards the BGI is built around three certification schemes; the Fairtrade Standard and Fairmined Gold Standard, both newly revised for gold applicable to artisanal and cooperative structured mines, as well as the complementary standards of the Responsible Jewellery Council (RJC) certification system for industrialised small and medium scale miners. These certification systems assure the buyer that the gold extraction and production is carried out in a socially and environmentally responsible manner with the objective of strengthening the certification systems of the Fairtrade, Fairmined, and the Responsible Jewellery Council to broaden their impact.

 See figure 1 here.

Policy and demand

The objective of this component to support governments in the implementation of the new ASM legal framework, and share lessons learned from the BGI in the international arena, including extension options. With regard to the latter, feasibility evaluations are being conducted in Bolivia, Colombia, Ghana, and Mongolia. The BGI maintains a close relationship with all important stakeholders. Public policies for ASM formalisation, together with promotion and regional dialogue around the topic, and discussion in relation to mercury, namely to create a strategic plan in the context of the Minamata Mercury Convention forms part of this component.

The Swiss Better Gold Association (SBGA) is responsible for the implementation of the fourth component, which aims at strengthening the SBGA as a multi-stakeholder platform to advance sustainable development in the gold value chain. It encourages the demand for better gold among industry stakeholders, thus targeting those higher up the value chain, namely the watchmakers and jewellery brands, as well as investors. Members are committed to buying the full amount of gold produced by participating mines and reinvesting a contribution of US$1 per gram of better gold purchased back into a Corporate Social Responsibility (CSR) Fund, which supports social and environmental projects in ASMs that are certified or in the process of certification.

 

Future benefits and lessons learned

After one year of implementation the BGI system is fully operational. A first entire BGI gold supply chain from the Peruvian SOTRAMI mine, an association of 160 miners, has been implemented. Between September 2013 and April 2014, around 150kg of gold was delivered to Switzerland through this supply chain. Reflecting on this pilot project, certain evaluations could be made regarding the future benefit miners and communities will derive from the BGI especially in Sub-Saharan Africa given that a large number of African countries have artisanal and small-scale gold mining. These include the payment of high gold prices guaranteed by Swiss refiners, as well as guaranteed purchase of miner’s entire gold production. The system also facilitates the recovery of VAT which can improve governments’ revenue.

Importantly, a high gold price does not generate sustainable development but in fact more mining can produce more problems, especially from an environmental and social perspective. Therefore, sustainable solutions require common efforts between producers, industry, government, civil society as well as multi-stakeholder collaboration are useful instruments in this respect. It is worth specifying that certification itself is not the objective, but rather demand for certified production has to be created and matched with production. Certification and sustainable production will be increasingly important to keep ASM in the formal supply chain, although certification must be coupled with good governance capacities in the mining regions. Certification schemes must also be integrated into national strategies, policies, and legal frameworks.

The price tag for certification and labelling can be very high, due to premium, labelling, management, and transaction costs for separate handling through the supply chain, so it is very important to find ways to control these to raise market acceptance. It is also important to include services such as transformation, logistics, transport, security, etc. The inclusion of partners with capacity to immediately scale-up finance or pre-finance is crucial, as ASM requires immediate payments.

 

Conclusion

It is very important to maintain a balance between available certified supply and the existing demand. After the first positive example with SOTRAMI, the market interest and demand seemed to grow much faster than the potential certified supply, as it takes a long time for mining operations to achieve certification. BGI may have to consider re-evaluating its sourcing options. Too much focus on Fairtrade and/or Fairmined certification may not adequately fulfil better gold demand in the future. It will also be important to give attention to RJC certification for small and/or medium sized industrialised mining operations.

BGI looks to African countries to also meet the demand for responsibly produced gold. A large number of African countries have artisanal and small-scale gold mining, but not all have the necessary conditions for responsible production. Countries with a diverse gold mining sector, including a stable – as opposed to a gold rush based production – formalised and organised ASM sector, good governance and functioning institutions in the extractive sector on all levels – national, regional, local – transparent and competitive mineral and trading politics, as well as safe and peaceful environments, are some of the important conditions required for a successful future BGI intervention in African countries. 

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