Franchising and Artisanal Miners

Gold panning

“The desire of gold is not for gold. It is for the means of freedom and benefit.”

Ralph Waldo Emerson

 Introduction

Imagine a river in equatorial Africa or a tributary running down towards the Amazon.  Near the shores of the tropical river stands a red sign emblazoned with a golden M.  Don’t go there expecting a hamburger and fries.  While it may look like the golden arches of McDonalds, it is in fact the golden M for the Global Mining Franchise (GMF), where miners go to sell their gold.  In the future we may recognize that the franchise model of the ASM sector led to the creation of greater wealth generated by artisanal miners, a reduction in the loss of life, a decrease in pollution and greater gold recovery.  Importantly, it is not the artisanal and small miner that is being franchised but instead the gold purchasing storefronts.  In view of that what is GMF and how did it come about?

Gold Today

The story of GMF begins with the recognition that gold reserves amount to around1.8 billion ounces.  There are no more large gold strikes to be had.  Some might try and mine gold from the ocean bottom, but these efforts are both costly and high risk and use largely unproven and expensive technology.[1]  A more profitable and likely strategy is the development of a business model that brings together artisanal and small mining (ASM) under the leadership of large mining businesses.  The most recent round of ASM gold mining exploded across the globe beginning in 1980 when Serra Pelada in Brazil attracted more than 80,000 miners from around the globe.  ASM has now become a major contributor to gold mining around the globe, and since 2004 accounts for 15% of total gold production, yielding 350 tonnes of gold per annum.  Equally important, since the mid-2000’s the price of gold, which hovered around $400/ounce, is now valued at around $1700/ounce.  Given that no new large gold finds are anticipated and that ASM has the capacity to rework tailings and small deposits, it seems that the only way large mining companies can profit from gold is to organize the ASM sector.  The GMF will have to rely upon the ASM sector to mine the gold and will also have to develop a buying network that allows them to purchase gold from miners at profitable rates.

The Problems of ASM

Large-scale gold mining requires capital, expertise and the capacity to effectively manage risk.  Unlike large-scale mining, artisanal mining has few barriers to entry; it requires very little capital, virtually no expertise and no capacity to manage risk.  It is the low threshold to entry that makes it attractive to many and also makes the ASM sector problematic.  The difficulties in working with the ASM sector are many.  The sector is highly inefficient in gold recovery rates, so it does not operate at optimal profitability.  An additional challenge of working with the ASM sector is that many, if not most, are located in countries with poor infrastructure, insufficient governance and high rates of poverty.  This results in environmental, social and economic problems.

The environmental problems include:

  • Water siltation, which leads to problems with drinking water for local villagers and problems with fishing
  • No landscape rehabilitation
  • Loss of organic layers of soil
  • Lack of tailing disposal management
  • Deforestation
  • Water contamination with metals, oil and gasoline
  • Mercury and cyanide pollution

These environmental problems impact local communities creating both acute and chronic health problems.  In addition, environmental impacts can also diminish the productivity of agriculture and aquaculture, which have a further impact on poverty.

The social problems include:

  • Prostitution
  • Disrespect to cultures (conflict with ‘natives’)
  • Degradation of moral values
  • Drinking and drug problems
  • No stable communities as ASM workers migrate to other areas when the easily extractable gold is depleted

Social ills created by the ASM sector contribute to the stabilization of society and may reduce the social capital and resiliency of the local population thus making poverty alleviation more challenging.

The economic problems include:

  • Tax evasion
  • Money laundering
  • Increased grocery prices in mining villages
  • Gold smuggling

The economic problems generated by the ASM sector, like the social and environmental problems above, diminish the capacity of local populations to redress their poverty.  Yet, despite these challenges some 100 million people are living directly or indirectly from ASM.  Evidently, ASM has a significant impact upon the livelihoods of a large number of people.

Poorly trained people, engaging in unsafe and dangerous practices, dominate the ASM sector.  In many places ASM is secondary employment.  The result, according to the International Labour Organisation (ILO), is that some 9 million women and 2 million children are involved in the ASM sector, while the household men do other work (e.g. agriculture).  Due to the lack of training and unsafe work conditions some 10,000 artisanal and small-scale miners die annually.  By logical extension the number of significant injuries that occur in the ASM sector must also be high.  The net result of death and injury would be to further poverty and dislocation within the given community.

In addition to the ASM sector, poor safety and environmentally unsound practices affect not only the mining community but others as well.

The lack of training also leads to inefficient mining and processing practices, often resulting in poor rates of gold recovery.  For example, studies of Brazilian ASM show that miners often do not have the capacity to either concentrate or grind completely or even partially liberate the ore.   In addition, the ASM sectors’ practices for liberating and recovering gold ore contribute to a number of environmental and social ills.  In particular the extensive use of mercury and cyanide are problematic.  Mercury (and its close cousin methylmercury) creates numerous difficulties in the environment, though the environmental consequences of vaporized mercury are as yet unknown.  For humans, however, the consequences of mercury intake are well documented.  There are two ways in which mercury impacts people: inhalation of mercury vapor or intake of methylmercury through the consumption of contaminated fish.  When the amalgam is burned in the open air, without the benefit of a hood for example, it becomes available for inhalation.  Inhalation of mercury vapors causes blood mercury levels to rise and can result in such symptoms as gingivitis, exaggerated emotional responses, tremors, impaired cognitive function, and sleep disorders.[2]  Another way in which mercury enters the environment occurs when the whole ore is amalgamated.[3]  Droplets of mercury get caught up with the tailings and enter the environment.  Once in the tailings mercury can be oxidized and methylated forming the toxic methylmercury.   Methylmercury can enter the food chain via fish where it is bio-accumulated and can later be biomagnified through predation and scavenging.   Once in the food chain mercury can find its way into humans via fish consumption.  In humans mercury accumulates in the brain causing motor neurological problems and ultimately death.

Among the main problems in using mercury in ASM is its excessive use, often resulting in no improvement of gold recovery.   For example, mercury is often added to the grinding circuit where it serves no useful purpose and results in 80% of the mercury being lost.  In burning the amalgam inappropriate or no ventilation is commonplace, resulting in excessive exposure to poisonous vapors.  It should be noted here, though, that while the artisanal miner is often faulted for misuse of mercury, the volume of mercury used by the miner pales in significance when compared to the mercury used by small mineral processers.  The mineral processors far exceed the artisanal miner when it comes to poisoning the environment and populations with mercury.  Of course, these small mineral processors are part of the ASM chain. Generally speaking mercury is poorly understood, badly handled and widely misused throughout the ASM sector.

Efforts to alter mercury’s use have met with scant success.  Legally traded mercury, exported from one country to another, is often “intended” for dental use, for example.  At its destination it may be sold by pharmacies but is purchased by people in the ASM sector.  Recognizing this practice some international pressure has been brought to limit the export of mercury. For example, many countries now ban the export of mercury, such as the US Mercury Export Ban Act that comes into effect in 2013.  “The Act’s three main provisions are:

  • Export of elemental mercury is prohibited from the U.S. beginning January 1, 2013.
  • Federal agencies are prohibited from conveying, selling or distributing elemental mercury that is under their control or jurisdiction. This includes stockpiles held by the Departments of Energy and Defense.
  • The Department of Energy (DOE) must designate one or more DOE facilities for long-term management and storage of elemental mercury generated within the U.S.”[4]

Banning the export of mercury may be one worthy step, but as long as domestic mercury production exists as well as countries that refuse to ban the export of mercury it will persist as a problem.

The ASM sector also uses cyanide in gold mining, for example in vat or heap leaching.  Like mercury, cyanide creates environmental problems as well, though different in nature and scope.  There are three classes of cyanide: 1) free cyanide and simple cyanide salts, 2) weak and moderately strong cyanide complexes (also known as Weak Acid Dissociable Cyanides (WAD): cyanides that decompose in weak acid (e.g. cyanides of Cu, Cd, Zn, Ag, Ni), and 3) strongly bound cyanide complexes.  Most cyanide complexes degrade in the environment.  Free and simple cyanides breakdown quickly into the environment.  WAD cyanides can be oxidized forming carbonates and ammonia.  Unlike mercury, cyanide does not bio-magnify.  So that once in the food chain it does ascend the hierarchy causing problems, for example, for those who eat fish.  In addition, cyanide is largely eliminated from the body, unlike mercury that accumulates.  Thiocyanate, formed from cyanide and thiosulfate, bio-accumulates affecting the thyroid gland and can result in hypothyroidism.  So, while not as toxic or persistent as mercury cyanide nonetheless is problematic in its use in the ASM sector.

The perceived or actual misuse of both cyanide and mercury serve as the basis upon which others vilify the ASM sector, leaving the impression of not only environmental risk, but political, social and economic risk as well.

Not only is the ASM sector inefficient, but it is also politically, environmentally and socially risky.  Taken together, this suggests that the ASM sector is unsustainable. What is to be done?

A Model for the Future

The development of a franchising model (GMF, mentioned above) may go some way to improving the lot of the ASM sector, while at the same time proving an economic boon for the global gold mining sector.  Presumably such a company would be publically listed.  For such a corporate entity maintaining profitability means generating revenues while managing risk.  To encourage the generation of revenue the corporation would seek to improve gold recovery, while at the same time diminish its exposure to the risks generated from such unsustainable practices such as the use of mercury in mining.  To that end, the corporation might seek to create an ASM kit, utilizing small-scale innovations and employing appropriate technology.  Unlike McDonalds that utilizes common machinery in its restaurants around the world, ASM gold mining franchises would have a bank of potential solutions for mining needs and would work with local ASM miners to deploy the most effective and appropriate technology.  Examples of some possible technological innovations to be recommended to miners and equipment that could be provided include:

  • Appropriately designed sluices
  • Amalgamation drums which limit the use of mercury
  • Bucket retorts which are easy to make and reduce mercury loss

One major advantage of the franchise model should be increased gold recovery with resulting economic gains.  This is sustainable inasmuch as it appeals to the economic interests of the miners.  Process improvements generate their own internal logic of success.  As other artisanal and small miners see those miners earn larger profits there is an incentive to replicate those profitable actions.  Franchised ASM will engage in activities supported by the corporation, in part because they are paid to do so.  As artisanal miners make only a few dollars a day, practices that increase profitability should prove popular.  In addition to increased profits from better gold recovery the corporation should emphasize environmentally sound practices.  The business case for the corporation doing this is one of risk mitigation, i.e. reducing environmental damage by employing appropriate practices.

Another significant benefit from the franchise model would be improved training for the ASM sector.  Training should be done through an interactive, collaborative and elicited fashion.  Drawing on the practices in areas such as peacebuilding it would be useful to provide training at the grassroots level.  Training cannot be driven by the expert but rather through interaction, dialogue and collaboration. Enhanced training in mining techniques would result in:

  • Improved grinding and concentration, improved gold recovery
  • Increased wealth creation
  • Greater potential for the alleviation of poverty

Improved training also has broader benefits as well:

  • Reduction in the use of mercury
  • Improved and more appropriate use of mercury when used
  • Better and more appropriate use cyanide
  • Improved social conditions through better safety practices

The franchising model should also improve the organization of miners resulting in:

  • More efficient communication channels
  • Improved capacity to gather information about ASM practices and help generate new solutions

One of the challenges for the franchising corporation is learning a new set of skills, as managing and supporting the ASM sector utilizes very different skills than those found in traditional large-scale mining.  The GMF is not a leaseholder of large tracts of land or a minerals processing giant.  Instead, the GMF specializes in managing the purchasing of gold from the ASM sector by establishing gold purchasing storefronts in local communities.  These franchises not only purchase gold from miners, but they also act as consultants in effective mining, providing solutions and equipment targeted to the ASM sector.  Rather than drive change and innovation from the center to the periphery, the franchise model requires collaborative work with local miners, eliciting from them their insights about appropriate change and innovation and finally scaling change and innovation so that it can be utilized in isolated and often lower tech/limited education environments.

The Role of Governments

Governments would have an important role to play in supporting the franchise model.  Steps should be taken to explain and illustrate the model to governments in an effort to assure their support.  In addition, governments must be encouraged to support ongoing educational work that will promote good mining practices.  Perhaps local universities, technical colleges and schools can be called upon to offer support in providing local training.  Governments can, along with local educational institutions replicate training models such as International Training Center for Artisanal Miners (ITCAM), which links The University of British Columba with University of São Paulo, Brazil, Technical University of Machala, Ecuador and the INIGEMM – Ecuadorian Institute of Geology Mining and Metallurgy.  ITCAM is an example of how higher education and governments can work together to build the capacity of the ASM sector.  There is no reason why such a model could not include the GMF as a partner and be replicated in other areas.

Governments also play an important role in the franchise model as development dollars will play a significant role in underwriting the franchise model.  In addition, host governments must have the appropriate legislative and regulatory infrastructure that permits such franchising models and encourages their success.  Governments should be reminded that the franchise is owned and operated by local business people.

What governments should not do is treat the ASM sector as a legal problem.  Passage of legislation banning the ASM sector, for example, fails on a number of accounts.  Such laws are difficult to enforce, especially in areas where the institutions of government are weak or where corruption is a problem.  In addition, treating the ASM sector in such a way creates a criminal problem but will do nothing to actually address the underlying problems.  As such, legal infrastructure should come after conscious raising, engagement and training.  Only then will formal rules and regulations become effective.

In an effort to encourage the development model, the International Finance Corporate should play a minor partnership role in supporting the effort.  The franchise model parallels nicely many of the development goals of the IFC and World Bank.  In addition, bilateral aid agencies such as USAID, AusAid, NorAid and DFID should be sought out as minor partners to further support the franchise model.  Their aid programs will partner governments can play an important role in supporting local education and capacity building in creating a more sustainable ASM sector.

Conclusion

The success that large corporations can have in accessing the ASM sector is largely dependent upon organizational change.  Existing gold mining companies, with their skills sets in large-scale mining are not well suited to take advantage of gold produced by the ASM sector.  Large companies need to develop new competencies and skills.  In an effort to work with the ASM sector the large company that best develops relationships will be the one to best profit from the ASM sector.  The additional capacity that such a company can bring to the ASM sector is innovation resulting in better gold extraction.  Inefficient practices, such as excessive use of mercury, fail to deliver results to the ASM sector, whereas appropriately designed technology for the ASM sector does deliver better gold extraction.

[This was prepared relying on materials from Prof. Marcello Veigas‘s course on Small Mining, and with editorial help from Alejandra Baez.]


[1] Broad, William J., “A Gold Rush in the Abyss,” New York Times, July 9, 2012, http://www.nytimes.com/2012/07/10/science/vast-deposits-of-gold-and-other-ores-lure-seabed-miners.html?pagewanted=all&_r=0 , accessed 11/10/12

[2] Mercury poisoning, http://en.wikipedia.org/wiki/Mercury_poisoning, accessed 11/10/12

[3] Mercury also enters the environment when mercury contaminated tailings are leached with cyanide and deposited in waterways.

[4] “International Actions for Reducing Mercury Emissions and Use,” US Environmental Protection Agency, http://www.epa.gov/international/toxics/mercury/index.html, accessed 11/20/12

This entry was posted in development, extractive industries, innovation, mining, Peace and Conflict and tagged , , . Bookmark the permalink.

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