2do Foro Peruano-Alemán de Minería y Recursos Minerales

“Extracción de Materias Primas y Desarrollo Sustentable”

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Formalization as an Important Aspect for

Sustainable Mineral Supply Chains

Dr. Klaus Steinmüller

October 2016, Lima, Peru

Contents

Formality in Mining

Sustainable Supply Chains Definition

Trigger - Central Africa

Laws and Guidelines

Governmental and Private Initiatives

Situation in Peru Relevance for Peru?

Recommendations for Peru

Mining and processing of mineral resources is done:

Based on a valid mining right and

In the frame of valid permits regulating:

Environmental issues covering the whole mining cycle

Health, safety and treatment of employees

Social and Community issues

Payment of fees, royalties und taxes

What means Formality in Mining?

Formality is regulated through:

National legislation

International agreements, e.g. on human rights, protection of workers (ILO),

protection of species, etc.

Internationally recognized voluntary standards, e.g. UN Global Compact,

company standards (e.g. ICMM, GRI), IFC Standards, OECD Guidance, EITI,

etc.

Generally no problem in Industrial Mining

Mining rights exist

Permits exist

Operation is done within acceptable standards

Fees, royalties and taxes are paid

Challenges regarding Formality in Mining

But a problem in Artisanal and Small-Scale Mining*

Mining rights do often not exist

Permits are often not available

Operation is often done outside acceptable standards

Fees, royalties and taxes are often not paid

*Artisanal and Small-Scale Mining = ASM

Generally no problem in Industrial Mining

Mining and Processing

is safe and environmentally friendly

socially friendly and considers human rights

Supply chain is generally short and transparent

Sustainable Supply Chains - from Mine to Consumer

But a problem in Artisanal and Small-scale Mining

Mining and Processing

is often not safe and environmentally friendly (accidents,

environmental impacts)

is often not socially friendly and does not consider human

rights (child labor, forced labor)

Supply chain is generally complex and intransparent, prone for

conflict financing, smuggle and money laundry

Sustainable! Product is mined and processed environmentally and socially friendly

Supply Chain is simple und traceable until the consumer

Certification and Due Diligence in the

supply chain (BGR keyrole)

Mining and trading of Gold, Tin-, Tantalum-

and Tungsten ores* in the Eastern DR Congo

is financing armed conflicts

Illegal trade with „Conflict Minerals“ in the

whole Great Lake Region

Consumer demands for „conflict-free“

resources

ASM is an important livelihood for thousands

of people in the Eastern DR Congo

> 50 % of the Tantalum ores come from this

region (important for the electronic industry)

Trigger – Sustainable Supply Chains for mineral resources

*Tin, Tantalum and Tungsten = 3T

UN Report 2005

Embargo?

Laws and Guidelines regarding Supply Chains für 3 T and Gold

USA: Dodd-Frank-Act (2010): § 1502 (Conflict Minerals Act): Requirements for US

companies, listed on the stock exchange, to report on 3T and gold in their supply chain

for manufacturers, mandatory, for DR Congo und neighboring countries

OECD Due Diligence Guidance (2011) for responsible supply chains of minerals (3T and

gold) from conflict-affected and high-risk areas, 2016 supplement for the sourcing of gold from

ASM

Core items:

Establishment of a Management System (setting standards,

system for control and due diligence in the supply chain)

Risk Assessment and Risk Management of the supply chain

Independent Audits for selected points in the supply chain,

Publication of a Report on due diligence in the supply chain

Company requirements described according to their position in the

supply chain

for exporters and importers, voluntary, valid worldwide

§

Draft EU Regulation (March 2014) on

due diligence obligations for

European importers of Tin, Tantalum,

Tungsten and their ores and

concentrates and Gold

Due diligence obligations (risk

assessment, risk management and

reporting) for all importers of ores and

smelter products

Supervision through a national

authority

Still under negotiation, adoption is

planned at the end of 2016

for importers, will be mandatory, valid

worldwide

Laws and Guidelines regarding Supply Chains für 3 T and Gold (cont.) §

EU Regulation on Due Diligence obligations on mineral resource supply

chains, following OECD Guidance

Traceability in the Supply Chain of 3T and Gold

Kleinbergbau Mine/

Aufbereiter

Lokaler

Exporteur

Verhüttung

(Smelter)

Industrieller

Produzent

Elektronik-

Industrie

Endver-

braucher

UPSTREAM DOWNSTREAM

Erz (Mineralkonzentrate) Verarbeitete Metalle und Produkte

Number of Producers

Certification of Mines and Export

Certification

of smelters Reporting Systems

Artisanal

mining Mine/

processor

Local

exporter Smelter Industrial

producer

Electronics

industry

End

user

Mineral concentrates Metals and manufactured products

BGR Support to sustainable Supply Chains through Certification

Rwanda

CTC mineral certification

pilot project

2008-2011

DRC Rwanda Burundi

DR Congo

BGR module:

National certification system

for the 3T minerals and gold

2009-2017

ICGLR

BGR module:

Support to the Regional

Certification System

2011-2017

BM

Z c

om

mis

sio

ns

Regional Certification Mechanism

1. Inspection, mine site

certification (CTC)

2. Traceability

in the supply chain

3. Audit of Exporter

Mine

Small

Trader

Trader

Export harbor Audits, certification and monitoring done by regional/local authorities

Traceability instrument: Analytical Fingerprint (AFP)

ITRI Tin Supply Chain Initiative (iTSCi), Initiative of the Tin Industry Association

Baseline-Reports: Mineral Producers, Traders, Exporters and Smelters

Marking („tagging“, currently change-over to a digital system) of ores and

concentrates and documentation of the traceability (in databases), independent

risk assessment and audits, focus on conflict standards

voluntary, currently the only accepted system for 3T, conformity with OECD

since March 2011 mandatory in Rwanda, around 100% tagging; started in

several provinces in DR Congo

Industry Initiatives from Mine to Export (3T)

Industry Initiatives from Export to Consumer (3T)

Conflict Free Smelter (CFS) Programme

Initiative of EICC / GeSI (Electronic Industries Citizenship Coalition / Global e

Sustainability Initiative), started in 2008

Annual independent audits of smelters regarding their sourcing and internal “conflict

mineral” guidelines

CFS members have to consider OECD Guidance, iTSCi is recognized as tracing

system

currently over 130 smelters/refiners worldwide conform with the CFS Programme:

45 of 46 Tantalum processors (> 90% market share)

59 of 80 Tin smelters (> 80% market share)

29 of 43 Tungsten processors (> 50% market share)

CFS – conflict free

smelter program

Industry Initiatives from Export to Consumer (Gold)

London Bullion Market Association (LBMA)

accredits gold refiners for complying with OECD standards

mandatory for gold sale at the London Stock Exchange

Responsible Gold Audits based on the certification through

Electronics Industry Citizenship Coalition (EICC)

CFS audit protocol

(currently 65 gold refiners certified, > 85% market share)

Responsible Jewellery Council’s (RJC)

Chain-of-Custody (CoC) Certification

Chain-of-Practice (CoP) Certification

Recognizes certification systems for „upstream“ activities

in ASM, e.g. Fairmined

Sustainable Supply Chain Initiatives in Central Africa

Peru – Relevance for sustainable supply chains for 3T and Gold?

No tantalum mining exists

Tin is mined by industrial mining - MINSUR has own smelter/refiner in Peru,

exports added value

Tungsten is mined by industrial mining - Malaga has off-take contract with Global

Tungsten & Powders (GTP), operation currently on care & maintenance

Most of the gold is mined by industrial mining (Newmont, Barrick, Buenaventura) -

export to Switzerland for smelting/refining

Industrial Mining – Sustainable Supply Chains exist

But around 15 % of the gold is produced by the ASM sector

Introduction of Sustainable Supply Chains?

Peru is not a conflict-affected and high-risk Area!

Peru – Location of Gold ASM

Medio Sur = Ica, Ayacucho

und Arequipa

Peru – Long experience with Gold ASM

1972 - 1992: Banco Minero, Purchase of ASM Gold and support to ASM

1994 - 2002: MIMA, MAPEM and PEMIN projects of the Ministry of Energy and

Mining (MINEM), supporting the ASM sector to get formalized

2000 - 2008: GAMA project of MINEM in cooperation with the Swiss government,

supporting the ASM sector to get formalized

2002 - today: Laws, regulations, action plans and activities to formalize the

ASM sector and to stop illegal trading of gold

Success with Formalization in Puno and Medio Sur, still big problems in

Madre de Dios!

Since 2009: Private Initiatives and Organizations regarding formalization, certification

and responsible supply chains in the Gold ASM sector, e.g.:

Alliance for Responsible Mining (ARM) with the Fairmined Programme,

Fairtrade Gold,

Better Gold Initiative (a PPP between the Swiss Government and

smelters/refiners)

Up to date only few operations comply with the requirements of the Initiatives

Peru – Current situation in the Gold ASM sector

The formalization and certification measures have only a limited impact so far:

The entrance requirements to the initiatives are high and becoming a member is

costly

The initiatives are useful for those ASM operations that are fully organized and

enabled to comply with the standards

The costs for the maintenance and improvement of the standards are carried by a

small market of consumers, who are prepared to pay a premium for the „fairmined/fair

traded“ gold from ASM operations

The Regional Directorates of MINEM (DREMs) of the respective Regional

Government are in charge of the formalization and regulation of the ASM sector, but

there is often a lack of financial resources and staff in order to be able to fulfill

the necessary activities

Private Initiatives

Government

Peru – What could be done?

In order to broaden the impact of the private initiatives:

Peru should enhance its efforts to formalize ASM and implement a traceability

system for ASM supply chains

This should be regarded as a national task, sufficient laws and regulations are

available for this!

The state should:

support gold ASM operations during the whole mining cycle (organization,

planning, exploration, operation, closure)

control and trace supply chains of the ASM sector, from mine to export or to

local/regional processors

Through this:

Operations would be more planable and sustainable regarding technical,

economic, environmental and social issues

A broader market would be created for gold from ASM operations

Lastly, the ASM sector would contribute to an increase of fiscal revenues

Peru – Which measures could be taken?

It is recommended:

to financially strengthen the DREMs and equip them with more staff

to give more competence to the DREMs in regard to the ASM sector

Could Madre de Dios serve as

a pilot project? There are the

biggest problems regarding the

Gold ASM sector!

Muchas Gracias!