Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
It’s been labeled “blood gold,” a jarring phrase that ties one of the world’s most valuable metals with brutal mining practices and illicit profits that legitimate miners and refiners are rushing to end.
With miners facing increasing pressure to guarantee the provenance of gold, the group that oversees the world’s largest bullion market is seeking new ways to securely track each step from the mine to the jewelry store.
The goal: Stop the metal’s use as a convenient financing tool for South American guerrillas, armed African rebels and drug traffickers.
The push got new urgency in May when Elemetal LLC, previously one of the biggest U.S. refiners, was sentenced on charges linked to illegally mined gold from Peru. This weekend, the London Bullion Market Association meeting in Boston will probe the use of blockchain and other digital ledgers as a solution.
“The industry has opened itself up to various bad actors in the past,” said Peter Grosskopf, the chief executive officer of Sprott Inc., a Toronto-based money manager. Now the pressure is on “to verify provenance as a natural part of how you’re going to sell and trade gold going forward.’’
On May 24, Dallas-based Elemetal was fined by U.S. District Judge Federico Moreno as a result of the plea agreement. It was also put on supervised probation for five years, and restricted from buying precious metals from outside the U.S. At the time, the company said in a statement that it cooperated with the probe and would move forward with “exclusively domestic-focused business.”
The company didn’t return phone calls and an email this week.
Jeremy McDermott, a co-founder of the InSight Crime research institution, is the one who labeled the illicit sales of the metal as “blood gold.” Illegal sales surpassed cocaine as the main source of income for illegal groups in Latin America, police have said.Beyond financing rebel activities, the illicit mining fuels prostitution, child labor and widespread environmental destruction, according to findings by the United Nations
Fighting among armed groups in Colombia over rich gold deposits has forced hundreds of thousands to flee their homes, contributing to the nation’s roughly 7 million internally displaced people. Gold producers are under pressure on falling prices, with metal down more than 5 percent this year at $1,235.59 an ounce.
While Elemetal was charged under U.S. law, the rules governing responsible gold mining are largely international. The London Bullion Market’s “Responsible Gold Guidance Sourcing Program” is mandatory for all its accredited refiners. The companies are audited annually under the program and required to report publicly.
“If credible evidence emerges that any LBMA refiner is sourcing gold irresponsibly, we will instigate our incident management process and take appropriate action, including if necessary removing a refiner from our Good Delivery list,” Aelred Connelly, a spokesman for the association, said in an Oct. 23 email.
In the meantime, the body is in the process of surveying its members on how best to securely record data on brand, origin, custody and location on a global platform with blockchain seen as a possible go-to solution.
Some individual companies are already forging ahead on their own. Sprott, for instance, is working with Emergent Technology Holdings LP on its provenance system.
Emergent has completed pilot programs that involve clients using the technology to track gold from mines to vaults and expects to have “broad adoption” of the program next year, said Matthew Keen, the company’s managing director, in an interview. The company names Valcambi SA, a Swiss refiner, Yamana Gold Inc., and Iamgold Corp. as partners signed up to use its blockchain technology.
Valcambi, one of the world’s largest precious metals refineries, combines ground visits and spot checks to “assess and verify” the responsible practices of counterparties, Michael Mesaric, chief executive officer, said in an Oct.
Blood gold isn’t the only issue to be explored at the meeting, which opens on Sunday. The association is set to extend its guidance to include environmental, social and governance standards. For miners that means compliance with rules that can range from worker safety to carbon emissions.
“It’s not just equity investors that want to see more movement on ESG topics, but the debt providers and even the banks providing the credit facilities for the mines,” Emergent’s Keen said. “We’ve been told by miners that they need to improve their ESG ratings. It’s the direction of travel we’re going in.”
(By Susanne Barton and Eddie van der Walt)
