Africa and Latin America

Fair gold

08/06/2012 – by Pedro Morazán, Marie Müller

Essays

Workers leaving an informal gold and copper mine in Peru

Workers leaving an informal gold and copper mine in Peru

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Trade in primary goods is booming. Gold is in especially strong demand because, in view of the global financial crisis, investors increasingly want to store wealth in gold. The world-market price for gold has quadrupled in the last decade, attracting millions of small-scale miners to this industry. Many work in extremely harsh conditions – for example, in Peru or the Democratic Republic of the Congo. By Pedro Morazán and Marie Müller

Gold is a coveted good. The price has risen to currently $ 1,600 per ounce. Not only traders want to profit from this boom, prospectors want to do so too. They include small-scale miners who work in gold exploitation.

According to estimates, at least 25 million people worldwide are small-scale gold miners, and they support 150 to 170 million people. Experts reckon that small-scale miners’ share of world production ranges from 12 to 25 %. That is well above the market share of the biggest private-sector company. The Bonn International Center for Conversion (BICC) and the Südwind-Institut have investigated whether organising small-scale miners in cooperatives and certifying gold will help to improve the situation of the people concerned.

Example: Peru

Peru’s economy depends on the export of mineral commodities and agricultural products. Gold plays an important role: In 2011 alone, 170 tons of gold were extracted, and gold sales amounted to 37 % of na­tional export revenue.

Apart from large-scale extraction, Peru also has middle- and small-scale mining. There are more than 100,000 small-scale or “artisanal” prospectors. They account for around 30 % of the country’s total gold production.

Gold mining has been done for many generations. In the past few years, rising gold prices attracted ever more people to the mining areas. Contrary to their expectations, however, the new small-scale miners do not make a lot of money. A large share of their earnings is spent on food, which tends to be overpriced in mining regions.

Small-scale miners, moreover, live in a situation of permanent legal insecurity. They do not meet the conditions required to obtain legal mining licences. Accordingly, they are easy targets for corruption and black­mail. Typically, they do not have access to bank credit.

In all regions of small-scale mining, accidents due to falling rocks, landslides or unsafe machinery occur frequently. Other risks arise from the use of highly toxic mercury, which is applied for separating gold from gravel, sand and mud. Some 40 to 70 % of Peru’s miners have been contaminated through skin contact or inhaling poisonous mercury vapour.

Child labour is common in the mining areas of Peru, and particularly so in the gold business. Children often start working between the ages of three to six, helping their families with the washing of gold. By the age of six they dig and hammer rocks; at the age of nine, many are sent down hole. Some even operate dynamite blasts. To transport minerals to the surface, they carry baskets which weigh up to 35 kilogrammes on their backs through narrow tunnels.

Damage to the environment mainly results from incorrect use of mercury, which contaminates the ground and water. In some regions, miners also clear the rain forest in order to search for gold.

The Peruvian government has tried more than once to improve the living conditions of small miners. However, due to corruption and poor law enforcement, such measures have come to no avail.

There is a new approach to tackle the chal­lenges. The idea is to certify gold that is produced in acceptable conditions. The concept is being promoted by the Alliance for Responsible Mining (ARM), which was founded in 2004 and is based on fair trade initiatives. ARM aims to apply social and environmental standards and improve working conditions in small-scale mining. Certification serves as a tool to help to organise artisanal miners and formalise their business. It is also hoped that certification will boost production in a way that respects social conditions and environment.

Since 2010, ARM and the Fair Trade Labelling Organisation (FLO) have set standards for fair trade gold. The main prerequisite for certification is miners’ membership in a kind of cooperative. ARM and FLO speak of “artisanal and small-scale miners’ organisations” or ASMOs for short. If an ASMO meets the standards, it gets a certificate, thanks to which associated miners will achieve a price for their gold which is at least 95 % of the world-market level plus a bonus of 10 %. On top of that, they get an additional five percent if they respect additional environmental criteria. In 2011, the first mines were certified according to the ARM/FLO standards.

Initial data show that the approach can help to improve the working conditions of poor miners and to reduce environmental damage. But a fully functioning state with mechanisms of regulations and sanctions is needed too. Controls by certification agents cannot make up for the failures of a corrupt state. There are still major problems regarding digging rights and concessions in Peru.

Example: DR Congo

Around 90 % of the primary commodities extracted in the Democratic Republic of the Congo (DRC) originate from artisanal mining. According to World Bank estimates, this sector employs between 500,000 and 2 million small-scale miners.

The issues are pretty much the same as in Peru. In the DRC, gold extraction has a similarly long history. A lot of work is done manually with simple tools such as pickaxes, shovels and washbowls. Many miners work informally and are not registered.

Informal business, however, does not exempt them from charges and taxes. Various authorities impose local controls on the access to gold deposits. Public institutions sell tickets for prospectors and traders. They sometimes levy additional charges far above those required by law.

Furthermore, traditional authorities such as village chiefs control the access to some of the land, and they too collect money. In some places, public and traditional institutions cooperate, but in other places, they are in conflict, and sometimes violently so. Tensions become especially pronounced when multinational corporations obtain licences for areas in which many small-scale miners are active. In the region of South Kivu, for instance, Canada-based Banro took up gold mining. As a consequence, many poor miners lost their livelihoods.

In the DRC, the certification of mineral commodi­ties is a touchy issue. The reason is that mining and the trade in commodities contributed to financing the wars in the years 1996 to 2003. Today, the USA’s new financial-markets law (Dodd-Frank Act of 2010) requires companies to report in public on how they avoid funding Congolese militias even indirectly by buying metals like gold, pewter, tantalum and
tungsten.

The sad truth is that, in the east of the DRC, even the announcement of the new rule hurt small-scale miners substantially because there is no way of guaranteeing a transparent supply chain. Today, many major corporations simply do not buy commodi­ties from the DRC any more.

To improve matters, the DRC introduced a compulsory system for the mineral trade based on certified trading chains (CTC) in March last year. Neighbouring Rwanda served as the role model. In Rwanda, Germany’s Federal Institute for Geosciences and Natural Resources (BGR) did pioneering work on certifying mineral resources. The DRC’s CTC approach is designed to meet the regional rules that apply in neighbouring countries too.

The downside, however, is that it is hardly possible to introduce this system nationwide in the short or even medium term. The reasons include fragile security, limited state capacities and powerful economic interests that are involved in the illegal resource industry. Nonetheless, certification can contribute to an improvement of the living conditions of poor miners in some areas. But for this to happen, the miners must organise and exert public pressure.

The CTC criteria were defined by the BGR and the Congolese government, but there are still uncertainties about how exactly to implement them. It remains quite a challenge to fulfil the core preconditions for certification, including legal concessions and formal cooperatives. Since the majority of mineral deposits in the eastern DRC are licensed to ­major corporations, there are hardly any possibilities for small miners to obtain legal digging permits.

Conclusion

In order to succeed, certification for small-scale ­extractive industries must take into account the ­following issues:
– Procedures: as many interest groups as possible should take part in elaborating the certification criteria, including small-scale miners and intermediary traders. Implementation, moreover, needs independent supervision to guarantee legitimacy.
– Balance pros and cons: certification should offer some financial incentives. The FLO is considering a trade bonus. It is doubtful, though, that this bonus will cover the costs of relevant investments.
– The main condition for successful certification is the access to legal franchise. In the east of the DRC, this will depend on pragmatic and mutual consent between concession owners, representatives of small-scale miners and state agencies.
– Organisation of miners: the experience in Peru shows that certification can only be imple­mented where small-scale miners become organised. The particular way they organise should fit their needs and not be predefined by other agencies.

The examples show that it is possible to improve the situation of small-scale miners. The prerequisite, however, is a close cooperation of international institutions, miners’ organisations and public ­authorities.

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