3. Addressing the Upstream Obstacles

While much discussion, rightly, has concerned the downstream obstacles to increased LBMA GDL refining of ASM gold, if upstream obstacles are not also addressed, the likely result of downstream reforms will be dispiritingly little change in the status quo. This section looks more closely at the upstream obstacles and at ways to mitigate or remove them.

Many, particularly within civil society, have urged that LBMA members accept ASM gold that has been ‘legitimately’ mined, but thus far, GDL refiners will still only accept ASM gold that has been mined legally. This means, at a minimum, that artisanal miners must be working on sites where they are legally permitted to work, that they sell to those who are legally permitted to buy, and that all applicable and legal taxies and levies are being paid along the way.

The arguments on this issue between LBMA members and NGO campaigners is part of a broader debate between compliance-focused and continuous improvement/risk mitigation focused approaches. With the compliance approach, criteria are established by refiners, that can be derived from OECD guidance, that are then judged either to have been complied with or not in the ASGM supply chain, and if they are not complied with, refiners do not source. With the continuous improvement/risk mitigation approach, ASGM supply chain conditions and practices that are undesirable may be accepted in the early phases of engagement as long as there is evidence of good prospects for improving them over time.

Advocates of continuous improvement/risk mitigation point to the OECD’s responsible minerals sourcing guidance, which explicitly advocates this approach. The OECD guidance, in its gold supplement, recommends that supply chain actors “manage risks that do not require termination of the relationship with a supplier through measurable risk mitigation. Measurable risk mitigation should aim to promote significant and measurable improvement within six months from the adoption of the risk management plan”.¹¹

Advocates argue that this is more conducive than a compliance-based approach to building and maintaining supply chain partnerships, and more generally to progressive improvement in the ASGM sector. Advocates of a compliance-based approach, meanwhile, point to the need, particularly with regards ASM legality versus legitimacy, for LBMA members to obey and not disregard the laws of their various jurisdictions. They have also noted that the LBMA itself in its RGG, and many of the refiners’ stakeholders, including auditors and banks, appear unwilling to accept the risk mitigation approach, insisting that trading relationships are either compliant or they are not, and red flagging any that are non-compliant.

We support the OECD guidance’s emphasis on risk mitigation and continuous improvement and agree that this approach is conducive to supply chain partnerships that have the potential to grow production levels of responsibly mined, ASM gold. We accept however, that it is not us but rather it is GDL refiners who will be the ones facing reputational risk and financial loss in situations where deviation from compliance in the name of continuous improvement results in catastrophe and scandal. We have thus opted to accept GDL compliance requirements as they are, and to frame our report and its proposals accordingly.

We note, however, that legal ASGM, where miners have a legal right to mine where they are mining, and where they and others in the supply chain are paying all the taxes and levies that they should be, is a high bar. Precise figures do not exist and even estimates are hard to find, but circumstantial evidence strongly suggests that much or even most of the world’s, and particularly Africa’s ASGM does not meet this bar and is unlikely to for the foreseeable future.

There are several reasons for this. One important reason is that in many countries, for at least a decade and in some cases more, the legal position of artisanal miners has been weakening. This has been in large part an intended or unintended consequence of governments strengthening the legal position of LSM to attract new international mining investment. The strengthening of the legal position of LSM, particularly in Africa, has had the desired result. International mining companies have entrenched themselves across the continent over the past two decades, encouraged by World Bank-inspired mining codes that have bestowed upon them strong legal title, including the right to have artisanal minersremoved from their concessions, and have since then steadily expanded their African footprint. LSM expansion has boosted countries’ official mining production and export statistics and benefited government and/or political leaders’ personal coffers too.

It has also come at a cost. Artisanal mining is one of Africa and Latin America in particular’s biggest employers, not just for gold but for other minerals too. A consequence, intended or unintended, of mining investor-friendly legislation, and, in some cases, also because of government irritation at systemic tax evasion in the sector, has been that the legal position of artisanal mining has deteriorated, and ASM miners have been progressively marginalised. In a related development, these miners have found that their physical space to operate has kept shrinking, with what many regard as their customary right to mine snatched from them in their own neighbourhoods because of permits issued in far-away capital cities and international bourses, enforced by the police and army.

Several GDL refiners told us that they would take more ASM gold if it came from artisanal miners present on LSM permits, who are working constructively with the LSM permitholder, thus enabling them to refine the gold with confidence. The few sites where this does happen are responsible for much of the ASM gold currently being refined by LBMA GDL refiners. We fully support initiatives to build more cooperative and less combative relationships between LSM and ASM, and have long advocated the model in which LSM allows artisanal miners to work a portion of their permits, buying their entire output of gold ore for a fair price, on condition that certain standards are adhered to by the artisanals, including the prevention of the worst forms of child labour.12 Ideally, LSM operators would play an active role in ensuring that these standards were adhered to. Where LSM operators are unwilling to engage in such extensive cooperation, other, perhaps less demanding alternatives exist, including:

• Toll treating ASM ore from their permits;
• Removing the mineral overburden to facilitate ASM access to gold seams;
• Facilitating the transport of ores to processors; and
• Providing pre-financing.

Another country is Peru. There, according to one mining operator we spoke to, it has become “simple, easy and cheap” for ASM miners to apply for ASM mining permits. Data on all registered miners is available on the national mining department’s website, which makes it easier for buyers to trace ASM gold and to conduct due diligence.¹⁶ Peru is one of the main countries of origin for responsibly mined ASM gold currently refined by GDL refiners.

Another country where the government has been trying, tentatively, to improve its relationship to ASM is Ghana. Ghanaian President Nana Akufo-Addo came into office in 2017 following an electoral campaign whose main theme was combatting corruption. Corruption is and has long been rife in Ghana’s ASM gold sector and Akufo-Addo’s administration was initially hostile, seeking to crack down and to collect more taxes and levies. Results, however, were both disappointing and unpopular, and the government has since changed course. According to Martin Ayisi, the CEO of Ghana’s Minerals Commission, at an estimated 1.6 million ounces (45.4 tonnes) per year, Ghana is the largest ASM gold producer in Africa, and the government recognises that ASM has a key role to play in the country’s mining sector. Ayisi said the government is trying to make the process for ASM miners to receive licenses less onerous, and to find suitable places for them to mine. Significantly, the government has also purchased 100 small-scale gold ore processing plants to be distributed to ASM miners to boost gold recovery rates.¹⁷

SBG’s work has resulted in over 10 tonnes of responsibly mined ASM gold being refined by LBMA GDL refiners since it began in 2013. In 2022, it is estimated that SBG’s ASM gold will total around three tonnes.²⁰

In many jurisdictions, the incentive for ASM miners to formalise and legalise their status is a negative one: to reduce the cost and the degree of the harassment and coercion to which they are subject from the authorities as illegal miners. Working against this, as discussed above, is the difficulty and expense of becoming legally registered and also compliant with the state’s environmental requirements for mining operations. Another major disincentive is the tax liabilities to which legal ASM are exposed.

This is particularly true in countries like the DRC, where the legal tax burden on ASM is high, and the cost of evading these taxes by bribing officials and smuggling can be lower.

One answer is for governments to reduce this tax burden. But this is often very hard to accomplish in practice, and in countries where the effort and cost of tax evasion is low, does not always make much difference, since some tax is always higher than no tax. The same is true concerning the costs of registration and environmental compliance, which will always be higher than mining without either.

Another way is for the formalisation of ASM miners to be linked to increases in recovery rates from the gold ore they mine, for example by the provision of access to semi-industrial crushers to formalised miners. This would not only mitigate the environmental harm associated with artisanal processing, but would also provide extra revenues that could enable the miners to pay the taxes, registration fees and costs of compliance with environmental requirements that come with formalisation and legal mining. Sources working with and buying from artisanal miners have estimated that artisanal processing typically recovers under half of the gold contained in ore²¹, implying that there is plenty of scope to increase recovery rates with semi-industrial or industrial mineral processors. That is the thinking behind the decision of the Ghanaian government, referenced earlier, to distribute semi-industrial processors to artisanal miners.22 It is also the logic behind an innovative and successful project initiated by LBMA GDL refiner PX Precinox to source and refine responsibly mined ASM from Peru, via a Canadian ore processing company called Dynacor.

Dynacor has a crushing plant in Veta Dorada, Peru, currently capable of processing 430 tonnes of ore a day. This capacity is anticipated to rise to 600 tonnes of ore per day during 2022. Dynacor sources from legal, formalised Peruvian ASM miner co-operatives on which it has conducted a measure of due diligence.

PX Precinox has developed standards specially designed for processors sourcing from ASM and supplying the refinery, and has entered into a partnership with Swiss NGO, Earthworm, to evaluate the supply chain between artisanal miners and Dynacor, and to make recommendations for improvements in Dynacor’s responsible sourcing practices. The evaluation was conducted in February 2022, and includes recommendations both for Dynacor and for PX Precinox, including for the improvement of its standards. Dynacor delivers partially refined gold to PX Precinox, from which it refined 3.35 tonnes of (mercury- free) gold in 2021, 16% of the LBMA GDL refiners’ ASM total for the year. According to Dynacor, what has motivated ASM miners to bring their ore to its processing plant at Veta Dorada rather than elsewhere, is that the company has proved itself reliable, particularly when it comes to payments. It is also because of its superior gold recovery rates that are achieved by designing Dynacor’s processing methods specifically for the typically more heterogenous composition of gold ore supplied by ASM miners compared to LSM. This means Dynacor’s prices to miners are competitive with those of other processors, and have enabled artisanal miners to more than cover the additional taxation, registration and compliance costs that they incur by operating legally.²³

Some commentators, while acknowledging the significance and apparent efficacy of the PX Precinox model, have cast doubt on its wider applicability, with some claiming that it only works because PX Precinox is able to charge its clients a premium when it sells the resulting gold. While it is true that PX Precinox charges a 1% premium on its responsibly mined ASM gold products, this is to pay for community projects in mining communities and is not because the refiner is buying partially refined gold from Dynacor at an inflated price. PX Precinox buys from Dynacor at a market-related price, suggesting that this model may indeed have wider applicability.²⁴

3.1 What the LBMA can do

3.1.1 Lobbying to improve regulatory environments for ASM

GDL refiners have told us that one of the main obstacles discouraging them from taking more responsibly mined ASM gold is that the regulatory environments in which mining is taking place are problematic. We have asked the refiners, in turn, what they consider are the key features of regulatory environments that they need to see in order to consider sourcing ASM gold.

First, as discussed earlier, refiners say they require ASM miners to be operating legally, fulfilling all relevant licensing and registration requirements, on permits where they are allowed to be, and with everyone paying all the taxes and levies they need to be paying. This in turn requires the process of acquiring mining licenses, permits and environmental impact assessments to be practicable and sufficiently accessible and inexpensive for the capacity and finance constraints of the ASM sector. It also requires the tax regime not to be punitively high for ASM.

Second, refiners are looking for an accessible database of authorised, registered miners, to make it more possible for either them or the processors crushing their ore from whom they source to conduct due diligence.

Third, refiners want an accessible database of all legal ASM concessions, for the same reasons. ASM concessions should not be granted in World Heritage sites and other protected areas.

Fourth, refiners told us they are looking for adequate legislation concerning ASM and the environment, a permit system to drive compliance, with an inspectorate to make sure that the rules are being followed.

Additionally, one refiner told us that its preference is for government-controlled buying houses for ASM gold to ensure that all taxes are being paid, preferably with enough purchasing centres to ensure that the ore does not need to travel very far.

This is because the greater the distance ore has to travel before being sold, and the more intermediaries it passes through, the harder it is to establish traceability.²⁵

Government-controlled buying houses, however, do not necessarily provide stability and reputational risk mitigation for GDL refiners purchasing ASM gold, as two African examples, Ethiopia and Zimbabwe, and one in Asia, Mongolia, demonstrate. Ethiopia was for a while a promising place from which to source traceable, responsibly mined ASM gold, but its conflict with Eritrea has since rendered the country a Conflict and High-Risk Area (CAHRA). Zimbabwean ASM gold is largely traceable, and apparently mostly responsibly mined. But reports of corrupt payments to Zimbabwean officials pose severe reputational risks for refiners sourcing Zimbabwean ASM gold. ²⁶ The Mongolian government established a monopoly of gold through the central bank, Mongolbank, after the collapse of the Soviet Union in 1989, kept taxes on ASM gold miners’ income at 2.5%, and passed legislation covering ASM that the Swiss development agency supported the Mongolian government to draft. That legislation, however, has been changed a bewildering 34 times by the Mongolian government since 2007, leaving ASM ‘stuck in a quagmire of ever-changing legislation’. ²⁷

This issue of the ever-changing environment in which state-owned buying houses operate is comparable to the evidence presented by Dr Gavin Hilson concerning instability for ASM in its relations with LSM.28 Hilson argues that peaceful, mutually beneficial, cohabitation of ASM with LSM on the same site is unlikely for two reasons. First, Hilson says that rises in the international gold price can have the result that areas of LSM sites initially considered as uneconomic to mine industrially and which have been left to ASM to mine, can quickly become more viable, leading to conflict when ASM miners are then evicted. Secondly, as LSM companies and their mining assets change hands, there can arise just as frequent changes in LSM company policy towards ASM, leaving ASM miners in a permanently insecure situation.

Hilson’s view is that the ideal regulatory environment would establish legal ASM sites identified by geological survey as surface gold deposits suitable for ASM, and would keep these sites separate from LSM and reserved for ASM alone. However, coexistence and cohabitation between ASM and LSM do not need to be mutually exclusive, particularly in regulatory environments that actively seek to encourage this coexistence. For example, governments can provide ASM corridors and ASM areas on LSM sites with clear legal status, which would make it more possible for GDL refiners to source from them. An LSM informant working in South America told us how his company had overcome the insecurity and obstacle to formalisation posed by the lack of ASM title rights by signing five-year contracts with ASM miners on its site. This option requires, of course, a regulatory environment in which these kinds of contracts can be made legal. Such contracts could be binding on subsequent LSM permit holders, which would provide more security for ASM miners to invest in better health and safety in their mining practices, to commit to traceability requirements and to only use mercury free industrial, or semi-industrial, processing.

LSM companies are well-placed both to assist with formalisation and to conduct at least some due diligence on ASM on their sites, lessening the due diligence burden on GDL refiners sourcing from this ASM. At a regulatory level and in company policy, the case for both national coexistence and cohabitation of ASM and LSM on LSM sites has been persuasively made by Raphael Deberdt in reference to the highly challenging context presented by the DRC.29 We recommend that the LBMA explores collaborating with the WGC and with other stakeholders, possibly through the OECD forum, in order to clarify the necessary and desirable regulatory conditions to encourage ASM/LSM cooperation, which would in turn encourage GDL sourcing of ASM gold.

More generally, we recommend that the LBMA engage with its GDL members, in the context of the current compliance-focused approach, to determine in more detail what they are looking for from regulatory regimes for ASM. The LBMA and its membership might the engage with other stakeholders, including governments and civil society in ASGM producing countries, to seek to secure the desired reforms.

This task may be more effective if conducted in conjunction with donor governments, as we saw in the case of Oro Legal in Colombia and ASM law drafting in Mongolia, and as appears potentially to be the case with the UK government and Ghana. PlanetGold may also be a beneficial partner to include in any collaboration with the government on the regulatory environment. ³⁰

3.1.2 A Good Delivery List for Processors and Intermediate Refiners

We have shown above that ASM miners require incentives to formalise and legalise, thus rendering their output at least potentially purchasable by GDL refiners, and we have also shown that one of the main incentives for ASM miners to formalise is access to semi industrial or industrial processors, enabling superior gold recovery rates for their ore.

It is common cause, however, that much of the illegality and criminality associated with the gold industry takes place at the aggregating, processing and intermediate refining stages, and GDL refiners are rightly and understandably cautious about which among them they source from. In the PX Precinox case, the refiner has only been prepared to source ASM gold from Dynacor after due diligence of the company and its sourcing practices, and it has now engaged Earthworm to assist it in improving these practices.

Few other GDL refiners, however, appear to have comparable relationships with processors and intermediate refiners of ASM which are themselves committed to responsible sourcing.

We encourage GDL refiners, with LBMA assistance, to build such relationships. If there were more processors and intermediate refiners committed to responsible sourcing, and if they entered into partnerships with GDL refiners, more responsibly mined ASM gold would be refined through the GDL system. Some of the GDL refiners we spoke to agreed, with one saying that it would be “a game changer”. Others were more cautious, saying that the reform would help, but that the extent of its impact would depend on what level of due diligence refiners would still need to do themselves, and also on how the LBMA would react if they sourced from this list and something went wrong.

Since then, the RMI has conducted audits on two Colombian intermediate refiners based on the criteria outlined above. The audits were paid for by the RMI Foundation, which has committed to paying for the initial audits of all candidate intermediate refiners. Intermediate refiners that pass the audits are placed on an RMI ‘conformance’ list. Refiners with issues to address remain on an ‘active’ list. The RMI offers free technical assistance to intermediate refiners on the active list to facilitate their progression to the conformance list. In addition to the audit fund, the RMI also has a fund to finance upstream due diligence, particularly of artisanal supply chains.³²

The RMI’s initiatives present a range of opportunities for the LBMA and its membership. The opportunities include:

• Intermediate refiners on the RMI’s conformance list that also source from ASM are potentially a significant new source of ASM gold for GDL refiners, with much of the required due diligence already undertaken by the RMI;
• Where it is found that intermediate refiners either on the RMI’s active or conformance lists that source from ASGM need to undertake additional due diligence on their artisanal suppliers before their gold can be sourced by GDL refiners, there is an RMI fund that can finance, or part-finance, just that;
• The LBMA and GDL refiners can encourage and facilitate intermediate refiners that source from ASM and with whom they already have some form of relationship to be audited by the RMI, thus advancing the process that can result in these intermediate refiners’ gold being sourced by GDL refiners.