· 6 min read
Investment in artisanal mining formalization is commercially realistic.
This is the first in an ongoing series of articles. I am thrilled with the opportunity to share perspectives on topics that matter and where visibility will support shifts in outcomes on development as well as the dignity of work. My upfront focus in these articles will be on the artisanal mining sector, describing how formalization delivers paradigm-changing opportunities that deliver financial value along with step changes in social outcomes.
Artisanal mining (ASM) is vast, largely informal and conducted largely manually. There are 45 million miners spread across 80+ countries. Including their families, there are 230 million individuals fully supported by ASM or one out of every forty people. Participants in the low-tech sector work in generally manual ways, often mining with shovels or even by hand. Although diverse, many of these miners are near the bottom of economic hierarchies, experiencing deep poverty, unsafe work conditions and vulnerability to corrupt actors that siphon value that was rightfully generated by the miners.
Formalization – definitions and context
Formalization of ASM can be game-changing, but first, what is formalization?
- Estelle Levin, founder of Levin Sources and a recognized global expert on artisanal mining, defines formalization as ‘the transition toward organized and professionalized systems of production in and through which responsible business conduct and sustainable development are more feasible and desirable, and thus more likely’
- Formalization supports sustainable development, enhanced dignity and productivity for miners along with greater respect for human rights
Formalization solution design varies across locations, is rooted in local socio-economic realities and centered around the voices of miners and the communities that they extend from. Transitioning toward more stable and more equitable business relationships is at the heart of the process, which generates social as well as financial value. Key elements may situationally involve:
- supporting the organization of miners into cooperatives, associations or companies
- facilitating approvals of land rights for mining, an essential foundation for long-term stability
- equipping and training miners while supporting the transition to good practices that increase productivity while mitigating social and environmental impacts
- transforming the intermediate value chains that stretch from miners to refiners in cases where non-value-adding intermediates have taken advantage of power positions
- implementing strong safety practices, including the elimination of mercury and other toxic substances
- digitization, infrastructure development and the enhancement of small-scale processing that integrates with mining locations
- gender mainstreaming
- training in the avoidance, minimization, mitigation and remediation of environmental, social and governance impacts in line with ASM-specific standards such as CRAFT, Fairtrade and Fairmined
As you can see, there is a wide scope of potential solutions depending on situational realities.
In future articles, I will be describing details of what success looks like, how productivity gains translate into broader development, and how formalization enhances the dignity of work. Along with this, I will also dig into the economic significance of the sector, which generates significant quantities of a broad variety of minerals while fully supporting one out of every forty persons alive on a global basis. Put simply, ASM is at the front end of most global value chains, while being the second largest economic sector in large parts of the world, only behind agriculture.
In this article, I would like to highlight the commercial realism of investment that supports formalization.
Compelling value for investors
In short, productivity increases in ASM generate increased financial value. Equipping, training and shifting miners to good practices multiplies productivity compared to largely manual approaches that are not tied to productivity-oriented process methodologies.
What do the economics look like?
Using gold as an example, baseline facts include:
- ASM gold miners produce ~20% of the world's gold, or 720 tons/year. The market value of this annual production is US $46B
- There are 15-20 million artisanal gold miners operating globally which means that the average miner generates $2,300-$3,100 of market value annually; miners may personally receive 70%+ of this market value
Shifting miners from differentiated manual approaches toward equipment-based good practices multiplies productivity.
- a two-fold increase in productivity means that the average miner would generate $4,600-$6,200 of market value annually; a five-fold increase in productivity, which is easy to see given today's manual approaches, means that the average miner would generate $11,500-15,500 of annual market value; a ten-fold increase in productivity would mean $23,000-$31,000 per miner. Just think about what this means for investment in rural communities in ASM producer nations
Formalizing one group of artisanal miners, 1,000 individuals, requires upfront investment in the order of $100-200K. This funding covers equipment, training and broader analysis and support costs needed for shifting financial and social outcomes. This upfront investment also supports the mitigation of potentially adverse environmental and social impacts that could result from formalization if left unchecked. When looking at this very small investment relative to the significant productivity increase, it is clear that formalization is financially attractive.
The above numbers focus on financial productivity starting with miners themselves. Along with these benefits, broader gains from formalization include:
- reduced reputational risks for downstream customers that can better ensure that responsible mining standards are in play
- sustainable development in communities that neighbor mining, given that benefits from formalization and stable business relationships catalyze broader growth in the region
- enhanced dignity of work for miners themselves, which includes lower safety risks, reduced mercury and broader toxic material contamination and diminished vulnerability to corrupt intermediates
These stakeholder benefits are important supplements to the financial benefits that result for miners, investors and broader value chain players from productivity increases.
In summary
As you can see, ASM is a sector with compelling opportunities that combine financial and social value with the ability to increase critical minerals supply which is essential for transitioning toward net zero.
I am very much looking forward to diving deeply into this article series in the coming months, describing different aspects of ASM-related dynamics and opportunities. I hope and believe that everybody who reads this series will find it both interesting and informative.
illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.
