opportunities, challenges and agenda for the future

Opportunities, Challenges and Agenda for

the Future

0

Dr. Kevin Telmer, Ph.D.

Executive Director, Artisanal Gold Council

Dubai Precious Metals Conference, 2014

Dedicated to improving the opportunities, environment, and health of millions of

people involved in Artisanal Gold Mining

• Based in Canada with projects and linkages in more than 25 countries on 3

continents

• Deep field knowledge with Artisanal Gold Mining communities from decades

working with miners, governments, and industry

• Many collaborations

1

Introduction


2

Africa


Ghana


Burkina Faso


Mali


Senegal


DR Congo


Nigeria

• An important development opportunity which can contribute directly to poverty alleviation and regional development.

• Although social and environmental problems are common in this sector, there is also great opportunity to transform mineral wealth into lasting local development

Kenya


Mozambique


1. How can we get that 8kg ingot produced responsibly

and delivered to the international market so that it can

be sold as socially responsible produced gold?

2. Is it more or less responsible than Industrial Gold?

3. Perhaps both sectors can be socially responsible?


FDI

Exports

Gov Revenue

GDP & GNI

Employment

ASM LSM

Tanzania-ASGM 500,000 vs 10,000 LSM

LSM triangle from: The Golden

Building Block, World Gold

Council, 2009

ASM Triangle: Telmer, K. (2011) First meeting of the

OECD-hosted working group on gold, 4 May 2011,

Paris.

Dubai Precious Metals Conference, 2014 15

Global Artisanal Gold Sector

• 400 tonnes of gold from 70+ countries

• 15% of annual gold production (Sept 2012)

• Value: USD$20 billion

• 15 million miners; 90% of gold mining workforce

• Secondary economy - 100 million people

• Building block for rural development


ASGM compared to LSM ASGM is Better...◦ More energy efficient (joules/unit gold)

◦ Releases less greenhouse gasses (CO2/unit gold)

◦ Produces less waste rock and tailings per unit gold

ASGM is Worse...◦ Releases significantly more mercury

◦ Those who use cyanide use about twice as much per unit of gold produced

◦ Do not practice waste or land management


Coal burning24%

Primary production of non-ferrous metals, 10%

Large Scale Gold Production, 5%

Cement production 9%

Artisanal Gold

Mining37%

Consumer Product Waste,

5%

17Mercury Emissions

UNEP 2013


Does not call for a prohibition of mercury use

within the ASGM sector

Proposes a gradual reduction by way of

measures that promote the adoption of

mercury-free practices

Requires the creation of a National Action Plan

(NAP)


Minamata Convention: Annex C

National Action Plan (NAP) guidelines

NAPs must include:◦ Actions to eliminate worst

practices

◦ Steps to formalize the sector

◦ Conduct ASGM inventories

◦ A public health strategy

◦ More…


ASGM compared to LSM ASGM is Better...◦ Employs more people

◦ Employs local people

◦ Immediate income for the ‘rural poor’

◦ Easily integrated into the informal structure of the community

ASGM is Worse...◦ Associated with loss of traditional occupations

◦ Significant heath and environmental concerns

◦ Unorganised can cause social instability/conflict

◦ Associated with child labour, lack of safety


FDI

Exports

Gov Revenue

GDP & GNI

Employment

Gold Mining

LSM

ASM


Which is more complicated for due diligence?

Which pays more into the local economy?

Domestic ASM

Domestic LSM

On Site

Buyer

Region Buyer

ExporterIntern. Trader

Refiner

RefinerMine Smelter

L

B

M

A

70% 80% 90% 95% 98% 99%L

B

M

A10g 100g 10kg 50kg 100kg

1000kg

10Miners

30Miners

5Miners

International

International


Site boss

gets 70% of

LME

Loan

$175,000

5 Field Gold Shop 1 kg Gold/week

(profit = $7000-costs/week ea.)

Costs: Food,

Shelter, Transport,

Equipment, Fuel,

Purification,

Security, Staff

100 Site Bosses 50g Gold/week

(profit $700-costs/week)

1000 Miners 5 g Gold/week

(profit $70-costs/week)

$200,000

5 kg Gold

$140,000 5 kg Gold

$70,000 5 kg Gold

1 Financier 5 kg Gold/week

(profit = 25,000-costs/week)

5 kg Gold

Inte

rnatio

nal

Go

ld B

uyer

LME price:

$40,000/kg

50:50 Split

Refin

er

Export


ASM miners37M (70.4%)

Illegal Security forces

4.5M (8.3%)

Merchants2.8M (5.7%)

Gold shops3.6M (6.8%)

Financiers3.7M (7.1%)

Claim holders1M (1.8%)

Division of profits(USD per year)

ASM miners5300

(88.0%); 7000 USD

Illegal Security forces

200 (3.3%); 22000

Merchants250 (4.1%);

11000

Gold shops50 (0.8%);

71000

Financiers25 (0.4%);

149000

Claim holders

200 (3.3%); 5000

Labour Force& income


Can we make a Business Plan?

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27


Easy if the idea simply and clearly written

Discipline required to articulate the business in writing

ensures rigor

If the business cannot be clearly described on paper, its

chances are slim

Applicable to attendees of this conference

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Little is written

Therefore, to integrate it into the formal sector, more

must be written

By who and how much will it cost?

◦ The Gold Industry must do most of the writing

◦ E.g. OECD ASM Sourcing Tool (led by AGC)

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Coherent, consistent customer focused story

Define the market, its prospects, the customers, suppliers and competitors

Credible assumptions and forecasts

How to achieve sustainable competitive advantage

Identifies the potential risks and mitigating actions

Supported by those who must implement it

Contains a description of the individuals involved

Identifies the funding requirement and investor’s expected returns

NOTE: Most business plans are prepared to secure funding.

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Buy ASM Gold for Social and Green Reasons:

Reduce Mercury Use, Improve Environmental

Performance, Reduce Poverty, Create Jobs and

Economic Diversity

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Market: All Gold Markets, Bullion to Jewellery

Prospects: a consistent and resilient source – modern phase 40 years

and continuing; the last gold mine will be an Artisanal Gold Mine

Customers: (a) Gold buyers when undifferentiated; (b) socially

responsible investors/consumers; (c) the black market if not improved

Suppliers: 70+ countries, 400 tonnes Au/year

Competitors: Market players who want to offer socially responsible

gold;

Competition: Who can buy responsibly most easily

32


Assumption: Supply of Artisanal Gold is less susceptible

to gold price fluctuations

Forecast: Supply of Responsible Artisanal Gold will

continue to grow

Forecast: Demand for Responsible Artisanal Gold will

continue to grow

Forecast: Companies first to engage in enabling

delivery of Artisanal Gold to international markets will

prosper

33


Businesses that align with the improvement of Artisanal

Gold will have a marketing advantage over competitors

Businesses that are successful in forging relationships

with Artisanal Gold producers will have improved

access to gold from Artisanal and Industrial Producers

who themselves benefit from good relations

34


There are risks involved with engaging and risks involved in non-engagement

Engagement risks are mainly social – models of collaboration are young or absent

Non-engagement risks can be social, environmental, and strategic

◦ mercury contaminated concessions

◦ Loss of access to a competitor

There is little risk of competition for the resource as the two groups target different sizes and types of deposits

The IFC has some interesting tools to evaluate risk and the net present value of social investments

TBC

35


The business plan to work with Artisanal Miners must be

supported by

◦ more than the CSR department of companies

◦ more than the international donors

36


Executive board members

Advisory board members

Key Staff

37


Pilot projects now allow costs and timing to be well understood

AGC has an operational mercury free processing system and training centre in Burkina Faso that respects local socio-economic systems and intends to roll out more by attracting investors

A social investment fund for 20 million USD with ROI of 30% over five years to improve artisanal gold mining businesses

Initial investment for the pilot system comes from the US Department of State and UNIDO and GEF (Public Donors)

Their focus is Minimata Convention compliance but they understand this is most likely to happen through sector improvement

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Video: http://www.youtube.com/user/ArtisanalGoldCouncil

http://www.youtube.com/user/ArtisanalGoldCouncil


Global SRI market an estimated USD$13.6 trillion as of December 31, 2011 (South

America not included)

40

Global Sustainable Investment Alliance 2012 Report

Global SRI

Market

17%

Global

Non-SRI

Market

83%

2011 Global AUM - USD$79.8 trillion

Europe,

USA

and

Canada,

96%

Rest of

the

World,

4%

Global SRI Market

Current SRI Market – and its growing


• The world’s FIRST socially responsible gold bullion ETF – The Artisanal Gold Fund

• SRI performance is comparable to non-SRI

• A competitive investment vehicle

41

Socially Responsible Investment (SRI) ETF

TM

Dubai Precious Metals Conference, 2014 42

Socially Responsible Investment Physically-Backed Gold ETFs

SPDR Gold Trust

iShares Gold Trust

ETFS Physical Gold

ZKB Gold ETF

Sprott Physical Gold Trust

iShares MSCI USA ESG Select Index

Calvert Equity A

Parnassus Fund

iShares KLD 400 Social Index

Product Differentiation

TM


TM


Funding is required to transform the current Artisanal Gold supply chain into a responsible one that international markets and companies can engage with

It can perhaps be compared to investing in an industrial mine and its products: prospecting, exploring, marketing, permitting, site development, production, sales, closure.

The business advantages for the gold sector are large

Those industrial miners who are earliest to engage with artisanal miners will be most attractive to socially responsible investors

The same is true for the downstream industry including bullion traders, refiners, bullion banks, exchanges, financial firms, mints, the jewellery industry, and service providers

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