ASM Sourcing

Over the past decade, several government development programmes, such as USAID, have invested countless millions, working in partnership with the DRC government, in building responsible ASM supply chains. DRC has been a testing ground for a variety of responsible sourcing initiatives, which started early with successes in the 3Ts, yet lagged behind in the gold sector. The environment in DRC provides a vetting through ‘survival of the fittest’. It is an environment of diverse extremes, so that if success can be achieved here, it can be replicated and achieved anywhere in the world. Each programme developed its own unique approach, but little collaboration existed and, until recently, best practices were largely lost once donor funding for a programme ended. Starting with the first exports of responsible gold in the beginning of 2018, the Fair Congo Initiatives was founded as a social enterprise, with assistance from USAID, to be that ‘missing link’ between the work of development programmes on the ground in eastern DRC and markets in the US, Canada and Europe. Working through groups such as the Responsible Artisanal Gold Solutions (RAGS) forum, private sector actors such as Asahi, Richline, Signet and Fair Congo were able to combine these best practices together and bring to market the first responsible gold from DRC to the US market. Working in collaboration with and aggregating responsibly sourced and fully traced ASM gold from every programme in the country, including Bundesanstalt Fur Geowissenschaften und Rohstoffe (BGR), IMPACT, Peace Direct and the USAID-funded Responsible Mineral Trade (RMT), Fair Congo continues to bring to market ready-to-scale supplies of responsible gold to the US, Canadian and European markets.

Scale And Demand Worldwide

There are more than 1,700 ASM gold sites in eastern DRC, ranging in size from less than 10 miners to several thousand^3. An estimated 11.6 tonnes are produced annually, with each artisanal miner producing approximately 1.17g per week and generating approximately $437 million per year for the local economy⁴. These figures, in addition to the 30 tonnes of LSM gold produced annually, place the DRC firmly as one of the most important African gold producers.

In 2018 alone, there was well over half a ton of Fairmined and Fairtrade gold exports brought to market across the globe, yet these organisations estimate the demand to far exceed 2 tons. As the current demand outstrips the supply and the demand continues to grow, this creates opportunity for progressive downstream actors to fill that demand. As responsible sourcing programmes expand and enter new producing countries, progressive actors should work early to build these new sourcing relationships to secure diversity to their supply as worldwide LSM gold supplies reduce⁵.

Managing Expectations

Accessing economies of scale is possible in the DRC; however, this requires an understanding of the realities faced by small- holder miners and co-operatives. Limited and outdated infrastructure and overworked local governing bodies can lead to slower-than- expected export times and costs. Changes in weather, delays in banking transactions and even local political elections can create a disconnect in the understood realities if you’ve never lived and worked in a developing economy. Starting to source ASM gold is also, a long-term relationship, something that needs maintenance and consistency. Disruptions in cashflow and inconsistent sourcing are not compatible with the survivability of ASM communities who depend on reliable commercial partners. It’s also important that any refining partner has the capacity to segregate and process in small batches.

Risks And Mitigations

Due Diligence and Traceability

After Dodd-Frank was passed, many industry schemes, responding to section 1502, failed to value the existing systems and technical competencies and capacities of the ASM community in an attempt to replace, not strengthen, what had been an operational, if informal, artisanal sector and reactionary economic landscape. This top-down approach doesn’t have the sustainability that more organic methods, such as the CRAFT Code does. While creating sustainable self-reliance, it was important that Fair Congo recognised the importance of local experience, learning lessons about how to integrate knowledge and respect for traditional culture, and its integration in the formal economy. As the first commercial operator to implement OECD DDG in the region, Fair Congo continues to develop and implement a grass-roots framework which can contribute to a viable pathway for co-operatives to responsibly bring their gold to market at scale. Frameworks such as these create a constructive environment where artisanal producers can implement effective due diligence specific to their operating environment and work towards continuous improvement.

Cash Flow

Artisanal sourcing often requires some level of advanced payment, especially in areas like the DRC where the informal capital markets can be well established, although, financial management capacities in the upstream ASM supply chain can often be limited.

As inventory is rarely held by producers, it is key that the aggregator, whether a financially stable co-operative or exporter has a consistent and reliable cash flow to purchase ASM gold as it is produced. Even though well-established informal capital is locally available, it isn’t consistently available and is often managed by very untrustworthy people, which provides an opportunity for well-funded formal aggregators to replace the informal ones through reliability. Additionally, by using the formal banking system and keeping financial transactions as cashless as possible, it allows the traceability of payments further upstream more than ever before. Fair Congo takes it even further by aggregating all advanced payments in the US and is implementing a mobile money platform into its sourcing sites.

Rewards

Sourcing Portfolio Diversification

Artisanal gold production is never consistent as it ebbs and flows for a variety of reasons from weather to available manpower. Just as with investing, it’s important to diversify to hedge risk. It’s inevitable that as LSM production capacity decreases, gold values are likely to increase due to scarcity, which in turn will incentivise more rural workers to enter into the ASM space. This combination of factors has the potential to increase the global ‘primary’ production input from ASM from its current estimated 20%6 to even greater numbers. As artisanal sites vary in size and capacity, having a diverse group of artisanal sites mitigates the disruptions in inventory flows and spreads the risks from potential regional instability.

Progressive Industry Lead

As seen throughout different industries, those who take greater risks and take the lead with progressive, socially focused business models often increase their market share to become industry leaders in the long term. While risks from sourcing ASM gold can be high relative to LSM, the rewards can far outweigh those risks if the actors implement the appropriate risk management approaches.

CSR, No Longer Just Philanthropy

While having a CSR budget is an important line item to maintain, there are other ways to enhance a corporation’s positive social impact without adding cost.

By sourcing responsibly from ASM, companies can meet the public’s, and their shareholders’, demands for social responsibility while adding little to nothing to their operating costs. This, in turn, allows ASM actors to professionalise and access markets that pay consistently and responsibly. As they do, they are able to reinvest in organisational management and address more fundamental challenges in a way that fits international market standards and regulations.