Extending the Ladder: Linking Investment to Improved ESG Performance for Small-Scale Mines
This is a joint article between The Fairtrade Foundation and The Impact Facility.
Artisanal and Small-Scale Mining
The Artisanal and Small-Scale Gold Mining (ASGM) sector provides an income for 16 million miners and workers globally, contributing around 15% (600 tonnes) to the annual supply of gold.
Miners and workers often labour in precarious and informal contexts, as part of family-run businesses or loose co-operative structures. However, over the last decade in particular, there has been growing momentum in support of ‘responsibly mined gold’ from ASGM sites. In parallel, it has become increasingly clear that if the ASGM sector is to improve its environmental, social and governance (ESG) performance and deliver gold at economically viable volumes, miners will require access to finance that incentivises ESG and productivity improvements in parallel.
Fairtrade Gold – Connecting Mines and Markets
Fairtrade has worked with ASGM operators and communities since 2012, developing and deploying the ‘Fairtrade Standard for Gold and Associated Precious Metals’, a recognised marker for good practice. ASGM sites that comply with the criteria articulated within this standard can become Fairtrade-certified and sell their gold on ‘Fairtrade terms’ into international markets. These terms include a secure minimum price and an additional $2,000/kg premium payment for investment in mine and community projects, such as sanitation and school facilities or income diversification activities. Fairtrade-certified mine sites are based entirely in South America, recovering anywhere between 50kg and 300kg of gold per year, depending on the size of their system of production and sophistication of recovery techniques used.
Downstream, increased consumer scrutiny is driving demand for Fairtrade-certified gold, with more than 400 jewellers, fashion houses, manufacturers, banks and technology companies either sourcing Fairtrade gold or using it in their finished products. Today, the demand for responsibly mined gold through Fairtrade and other responsible mining schemes radically outstrips supply, calling for new approaches and strategies to grow the base of responsibly mined gold.
The Birth of The Impact Facility for Sustainable Mining Communities
In 2015, Fairtrade transported the same certification-based model to ASGM sites in East Africa. Since then, however, it has become clear that deploying a comprehensive compliance framework as a point of entry is not a realistic starting point for the majority of mine sites in this context. These sites tend to have much lower production rates of gold (as low as 4kg to 5kg per year) due to rudimentary equipment and an abundance of pressing day-to-day needs (including unstable and collapsing mine shafts, poor chemical management, inefficient processing techniques), which limit their efficiency and safety.
The impact facility opens up access to technical training asset finance and markets guiding partner mine sites to improve their ESG performance levels
The COVID-19 pandemic has caused the reduction or cessation of mining activities in many East African ASGM communities, in line with government-led lockdown measures. The Impact Facility is currently focused on activities that can be supported remotely and is planning for future investments into mine sites, rather than delivering work that requires mine-level visits.The export of low volumes of gold by many small-scale mines has become compromised, thereby leading to localised price collapses. In these contexts, small miners are caught between the need to sell today to generate cash for food and basic amenities, and the lost future income from selling gold at much reduced prices, highlighting once more the fragile position such miners occupy in global value chains and the importance of supporting improved equity and resilience in ASGM supply chains.
Taking an Inclusive Approach to Drive ESG Improvements
In this context, the case for an alternative way of working became clear. The Impact Facility was created in response to this reality, providing services that help to fill in the ‘missing middle’ between the starting position of most ASGM sites and the often out-of-reach expectations of international compliance frameworks.
In partnership with donors, investors and local capacity building organisations, The Impact Facility opens up access to technical training, asset finance and markets, guiding partner mine sites to improve their ESG performance levels step by step at a pace appropriate to their needs and in line with recognised performance standards, as captured in the Impact Escalator.
A Miner’s Perspective
For miners, the most prominent and visible challenges are often related to productivity, targeting the high-grade ore and doing so efficiency and safety. Many request pumps to dewater shafts or generators and compressors to improve productivity by drilling using compressed air to more easily blast and disintegrate the rocks to access high-grade ore zones.
Miners may also face challenges in securing or maintaining rights to mine on the land. Without security of land tenure, there is little incentive or ability for these enterprises to plan for a longer-term future. Consequently, they typically exploit high-grade ore zones for as long as it is economically viable to do so and then move on.
A lack of geological understanding may also inhibit the ability of ASGM miners to effectively target high-grade ore zones; however, it should not be assumed this is always the case.
Many ASGM miners have a good intuition or understanding of how high-grade gold zones may be best targeted, based on what they observe both at surface and underground.
Without security of land tenure there is little incentive or ability for these enterprises to plan for a longer-term future
The Productivity versus Processing Dilemma
Traditionally, the donor community has often had a different focus, for example, on social and environmental issues such as mercury reduction in processing methods. While these are important pieces of the puzzle, they may fail to address the underlying economic and technical limitations of a small-scale mining enterprise. What is required is an aligning of these two differing visions to make sure future interventions have sustainable impacts in the long run and generate economically viable enterprises.
If mines are not increasing productivity or exploring for the next high-grade ore zone, they will struggle to produce sustainable volumes of ore to make on-site mercury-free processing viable. The same goes for building routes to market. Without first establishing a baseline of sufficient production, it is hard to do so at an economically viable scale.
By considering productivity (gold production) and processing (mercury reduction) hand in hand, The Impact Facility hopes to promote more sustainable outcomes and incentivise improved ESG performance.
Investing in ASGM – The Story So Far
Recently, there has been growing interest in unlocking access to finance for ASGM, with a range of recently published research pieces on the topic.1 The Impact Facility has taken the approach that barriers to finance for ASGM can be dismantled over time. Any frontier investment sector will face challenges in being adopted. As we have seen, other impact investing sectors have emerged or are emerging, such as microfinance, energy, gender lens investing and, most recently, refugee investing. With the right structures in place, there is no reason why ASGM could not also attract socially responsible capital. This type of finance provides an opportunity to not only enable business growth in an underserved sector but to also incentivise ESG improvements in parallel.
Building infrastructure to enable investment
The Impact Facility, and other entities such as Barksanem, The Fair Congo project of The Chambers Federation, and SEF Clean Gold Community Solutions are taking a range of investment-led approaches in ASGM with donors and investors willing to be pioneers in this sector to develop the sector expertise and deliver the proof of concept necessary to enable others to invest.
In particular, The Impact Facility has focused on developing the necessary infrastructure, including tools, services and investment mechanisms, to enable flows of impact capital into the sector, responding to the growing interest in unlocking the power of investment finance for ASGM.
These tools span from an initial mine scoping checklist, which is used to make sure a mining enterprise is able to comply with minimum engagement criteria and absorb investment, to a comprehensive ESG baseline assessment, developed in-house in order to measure impact during the duration of a loan or lease-to-purchase agreement.
The Impact Facility installed a pilot ‘PAY PER USE’ facility to manage and run a gravity circuit processing hub for the neighbouring mines to enable mercury reduction in the region. When combined with a ﬁnal smelting stage this approach can eliminate mercury entirely.
The Impact Facility started working with mines in Tanzania, Uganda and Kenya in 2017, and has been supported by a range of institutional donors and partners on the ground. This has enabled capacity building and training to be delivered to partner small-scale mines to prepare them for investments in enhanced processing equipment, the first rounds of which were made in mid-2019. A range of financial mechanisms were considered, including lease-to- purchase finance for productivity and processing equipment and pay-per-use processing hubs. Repayment schemes were designed with miners’ needs in mind, including optional repayment pauses if productivity unexpectedly drops or seasonal rains inhibit mining activities.
This type of finance provides an opportunity to not only enable business growth in an underserved sector but to also incentivise ESG improvements in parallel
Uganda – Piloting the pay-per-use Processing Hub
A few kilometres from the Kenyan border lies the remote village of Tiira in the Busia District of eastern Uganda. In this region, artisanal and small-scale gold mining dates back almost a hundred years and is not only a crucial livelihood for the local population but is engrained its identity. The Impact Facility installed a pilot ‘pay per use’ facility by working with a local service provider, Borassus, to manage and run a gravity circuit processing hub for the neighbouring mines to enable mercury reduction in the region. When combined with a final smelting stage, this approach can eliminate mercury entirely.
However, sufficient volumes of ore are required to make this economically viable. The processing hub approach eliminates the $55,000 outlay required by any enterprise wishing to invest in gravity processing and, by clustering multiple enterprises, there is a greater chance that the processing hub can run at optimum capacity.
Initially, the installation seemed promising. However, it soon became apparent that the adoption of the new processing hub was not going to be as smooth as anticipated. Local miners expressed doubts over the effectiveness of the new system. Behaviour change compounded by lack of productivity in the surrounding mines initially eliminated any incentive for local miners to use the equipment.
To incentivise uptake of the new equipment, a processing competition was held to compare the gravity circuit system with the traditional sluice box technique.
This demonstrated a 20% increase in gold recovery and, as one miner noted, produced a higher concentration of gold, which can enable mercury reduction.
Full mercury elimination is the ultimate goal. In some contexts, including East Africa, even with gravity processing circuits installed, the fine gold can elude the miners, who then resort to reprocessing tailings with mercury. One way around this is to install a smelting centre, where sufficient ore volumes can be generated by multiple smaller mines to make the plant economically viable.
A second round of investments will supply compressors and water pumps in order for local mines to continue producing in return for a commitment to transition to the gravity processing circuit and, once operating at capacity, strive for total mercury reduction.