Responsible Sourcing Newsletter: April 2022

It’s fair to say that the artisanal gold sector has both a PR and a marketing problem.

Since the advent of the OECD Due Diligence Framework a decade ago, LBMA has maintained a commitment to Artisanal and Small-Scale Mining (ASM). It remains one of our key strategic priorities.

And yet, while we recognize the importance the sector plays in local livelihoods in producer countries, we also recognize its proximity to social and political instability in many countries and the lost economic promise borne by smuggling and the continued marginalisation of the sector by producer countries.

Despite employing an estimated 15 million miners and producing between 15-20% of the world’s annual gold production, less than 1% of that material comes through LBMA refiners. These figures demonstrate the stark challenges and realities facing the sector: most LBMA refiners have chosen a policy of avoidance over engagement, or even risk mitigation.

Front and centre at LBMA’s Sustainability and Responsible Sourcing Summit, held in London in March 2022, was identifying opportunities to change the narrative and reimagine the ASM sector.

Re-thinking basics: Why de-risk something that cannot be de-risked?

During the Summit, guests to both a workshop and panel session examined a range of factors and approaches that could change status quo thinking and deliver on the overall objective—increasing direct sourcing of ASM material by Good Delivery List (GDL) refiners. What can be done to de-risk ASM material for LBMA refiners? Is this even possible? Are due diligence and audit frameworks like the Responsible Gold Guidance too unrealistic, setting unobtainable expectations and demands? What role can big miners and NGOs play to help ASM material gain legitimate market access to LBMA refiners? What are the levers required for NGOs, industry and development donors to incentivise governments in producing nations to fully appreciate the sector’s potential, and act accordingly?

The discussion hinted at some of the ways current thinking needs to change. On the use of mercury—one of the biggest environmental bugaboos of ASM material—the consensus was that efforts (and public messaging) should shift away from complete elimination toward the responsible use and disposal of it instead.

On whether audit and due diligence frameworks are too rigid, Jennifer Peyser (Vice-President of the Responsible Minerals Initiative and former executive director of American NGO Resolve) advocated for “progressive due diligence”—essentially a scalable but more accessible process by which ASM material and suppliers could be mentored and integrated into more formal supply chains.

There was a spirited debate around collaboration between large scale miners (LSM) and ASM actors—and the limits to such cooperation. The World Gold Council, our Summit partner, issued a timely report on this very subject with several case studies that highlighted positive cooperation between the two. Other speakers cautioned how the power imbalances and the disparate economic interests of LSM and ASM actors actually impede sincere and sustainable cooperation.

One thing most agreed on was there has to be a greater acceptance of risk; and that the current over-emphasis is unrealistic and counter-productive to improving sourcing habits. As Professor Gavin Hilson, chair of Sustainability in Business at the Surrey Business School and a leading authority on the environmental and social impacts of ASM mining in sub-Saharan Africa, asked: Why de-risk something that cannot be de-risked? His advice for anyone contemplating a business relationship with the ASM sector: invest in building solid relationships with the miners; prepare for the long-term and for things to go wrong; and when they do, be ready to work with your partners to mitigate and mentor them through the crisis.

Joanne Lebert, whose organization IMPACT piloted the first legal and traceable exports of ASM material from Congo, emphasized how context matters, that what may work in one jurisdiction is not necessarily transferrable to other areas—globally, regionally, or even in the same country. While IMPACT’s Just Gold programme has expanded to Cote d’Ivoire, the administrative faiblesse of Congo’s pilot led her organization to pivot from proving legal ASM exports were possible to the more critical priority of strengthening the policies and processes of the country’s mineral bureaucracy.

Paradigm shift required

During a separate panel discussion, LBMA Chairman Paul Fisher called on industry to see ESG mitigation not as a cost but rather an investment in the future.

The same argument could and should be applied to ASM. Why? Because the continued marginalisation of ASM material has several negative implications for the gold sector writ large.

The first is that market exclusion reinforces the economic and political marginalisation of the sector and the communities involved; emboldening the indifference by producer countries to formalise miners or implement a supportive legal and regulatory framework within which miners can more safely work. It also undermines peace and security in high-risk areas by potentially fuelling corruption or funding conflict, thus requiring heightened due diligence requirements for businesses. Thirdly the loss of tax revenues undermines the economic sovereignty and the ability of governments to use those revenues for the public good, thereby perpetuating underdevelopment. Finally, it poses a legitimate governance issue for the gold industry and end users. ASM material still gets into legitimate global markets via trading centres with lax due diligence requirements. There it gets relabelled as recycled material, masking its origins, and bypassing any semblance of due diligence. None of this is in the interests of the gold industry.

The gold industry—miners, refiners, and end users—all have a self-interested role to play. With the sector accounting for as much as 20% of annual production, the first step is to reimagine the sector as a business opportunity, rather than a tokenistic stab at CSR. Secondly, industry actors need to commit to long-term and sincere engagement with the sector. The best way to demonstrate that commitment is to grow an appetite for risk mitigation—rather than avoidance—and work through any sourcing issues an ASM partner may encounter. Doing so would go a long way in overcoming the mistrust many ASM actors have toward the formal gold sector, and why they maintain loyalty to actors within the illicit market. Thirdly, it requires a broad acceptance that for durable change to come, the challenges facing the ASM sector are fundamentally ones of under-development. And for this reason, foreign donors will have to provide sustained, multi-year funding to projects aimed at fixing the foundational challenges facing the sector—as the Swiss government has shown with its 7-year funding commitment to the Swiss Better Gold Association—and move away from the shorter, one-off project funding most donors currently prefer.

As we move forward together on this renewed engagement with the ASM sector, we should be guided by the advice of one Summit participant: Focus on making progress, not perfection.

Next Steps

The Summit also served as an opportunity to introduce Gregory Mthembu-Salter, the consultant LBMA has hired to research ways GDL refiners can increase direct sourcing of ASM material.

Mthembu-Salter brings a wealth of experience to the job. A journalist and former member of the UN Group of Experts to the Democratic Republic of Congo, Mthembu-Salter consults widely in the area of gold and natural resource management, and was one of the original architects of the OECD Due Diligence Framework for conflict-affected and high-risk minerals.

In parallel to Mtembu-Salter’s work, LBMA has convened an ‘ASM Working Group Plus,’ comprised of LBMA refiners and leading ASM practitioners. In addition to providing a forum to build trust and exchange insights and information, this group will serve to provide guidance on actionable ways by which LBMA refiners can up their processing of ASM material. The working group will also offer guidance and commentary to the draft report prepared by Mthembu-Salter and help to define the key ingredients for a possible ASM Good Delivery List by which proven sourcing schemes—whether by NGOs, governments, or other actors—would be given special recognition by LBMA members and industry partners.

A final report will be released to coincide with the LBMA/LPPM Global Precious Metals Conference in October 2022.