On 7th January officials in China announced that a new virus – COVID-19 - had been identified. Since then the world has changed more than we could have dared to imagine – and the changes continue to outpace our comprehension of and response to this new shared reality. Whilst more developed countries have so far witnessed the fastest spread and highest mortality, an intensification of the crisis in less developed countries appears to be unavoidable. Most countries are therefore putting in place measures to “flatten the curve” – ranging from moderate restrictions on movement to full lockdowns.
In this initial blog on the novel coronavirus, Levin Sources seeks to grapple with how the rapidly evolving context could impact responsible mineral supply chains and the artisanal and small-scale mining (ASM) sector. Yet we recognise that forecasting likely impacts is not an exact science. So our aim is to explore the likely breadth and depth of potential impacts so that industry, governments and civil society can anticipate, monitor and respond to these changes proactively.
Beyond this initial contribution, Levin Sources intends over the coming months to mobilise our extensive networks to better understand the actual, real-time impact of the emerging crisis on actors along the value chain, from producers to refiners and end-users. We will share what we learn and welcome a dialogue with interested stakeholders on how to address this global challenge.
The role of finance. Much like other sectors, artisanal and small-scale producers depend on financial liquidity to facilitate the trade of physical assets. The availability of finance is contingent upon the sale of minerals, which in turn finances future sales. If access to markets is restricted (e.g. transport restrictions) or demand falls then finance is likely to become a key constraint to normal market transactions. This could result in a deflationary cycle in which supply slows down, affecting incomes and therefore the crisis resilience of rural populations. Alternatively, or perhaps in parallel, it may result in opportunities for new market entrants and/or consolidation of market shares by existing traders. This potential reconfiguration of national and international supply chains should be monitored and where possible consciously shaped, as ruptures with the status quo give rise to both risks and opportunity. For example, since the majority of the ASM sector is informally financed, there is a risk that the influence of well-financed illicit and criminal groups or unregulated, capital-rich foreign investments could expand. On the other hand, there may be an opportunity for national aggregators such as refiners or central banks to capture a greater proportion of production thereby catalysing supply chain formalisation efforts at a pace that was inconceivable only a few weeks ago.
Mineral prices. There has been lots of speculation in the last few weeks about the impact of the current health crisis on the market prices of minerals. Firstly, impacts will vary across minerals. Gold has seen significant price volatility in March as investors seek “safe havens” for their money, while the prospect more gold coming from countries with large reserves such as Russia to ease market tightness has exerted counter-inflationary pressures.
Cobalt, on the other hand, witnessed over a 10% price drop in March, although it remains to be seen what impact decreases in large-scale mine production will have on prices in the medium-term. Furthermore, it is difficult to speculate as to whether increased mineral prices at the international level would be reflected in spot prices for ASM production, as access to international markets becomes increasingly difficult due to national and international travel restrictions. We may speculate that some of the higher value-to-volume minerals are more likely to continue to “find their way to market” compared to lower value-to-volume minerals which are more susceptible to market access limitations. We may also speculate that the higher risks involved in marketing minerals through informal channels will lead to a price squeeze on upstream producers and traders. For example, if temporary closures of Dubai’s Souks, a major destination market for ASM gold originating from Africa, extend for weeks and months, pre-existing international market linkages may be altogether broken. Asking these questions early on means we can identify and advocate for solutions that minimize negative impacts on ASM communities and take advantage of opportunities that may arise.
See relevant articles providing initial insights into the impact of Covid-19 on ASM gold prices:
- Subsistence miners lose out as coronavirus crushes local gold prices
- Monitoring the Impacts of COVID-19 on Artisanal and Small-Scale Gold Mining
Appetite of mid-stream actors to continue to invest in responsible ASM sourcing efforts. Valcambi, PAMP and Argor Heraeus precious metals refiners temporarily shut down operations on 23rd of March 2020. This is an unprecedented measure for the group of Swiss-based refiners who together produce 1500 tonnes of gold bullion annually – one-third of the world’s production. Depending on how long closures continue, they could see significant impacts on the responsible ASM gold supply chain. As a starting point, all of these refiners’ source from ASM and are therefore an important end-market- although overall ASM market share remains low. Nevertheless, the short-term disruptive impact on the responsible supply chain is likely to be significant and may undermine previously established commercial arrangements. This is especially significant with the EU Conflict Minerals regulation (2017/821) set to enter into force in 9 months’ time. In the medium-term, on the assumption that operations restart as soon as is practically possible, the global market for gold is highly dependent on what is happening on the production side. Given the latent overcapacity in global refining, will significant impacts on large-scale production see ASM sources grow in strategic importance? Or will the time and upfront costs associated with establishing responsible ASM supply chains provide too much of a barrier to entry? If so, how can this be overcome to capitalize on what could be a significant opportunity to bring greater volumes of responsibly produced ASM gold to market? This is just one of many scenarios that might play out, but we should be engaging with relevant stakeholders early to understand what their appetite might be to sustain or increase ASM sourcing, if at all.
Data is essential to inform good policy responses and private sector engagement, yet during the crisis, it is likely to be in short supply. In normal times it is notoriously difficult to access reliable data on the ASM sector where weak governance, the geographic spread of activity, and other associated issues such as underdeveloped infrastructure and informality complicate effective and reliable data collection. Data collection is likely to be further complicated by restrictions in movement and the channelling of resources to more immediate humanitarian needs. This raises the prospect of ill-informed decision making and private sector disengagement as it becomes increasingly difficult to conduct effective due diligence. Mobilising local networks will be key to ensuring a steady stream of reliable data – so government and the private sector should be proactive in considering how best this can be achieved.
Threat to ASM formalisation efforts. In recent years there has been a growth of investment in ASM formalisation programmes worldwide. These programmes have been predicated on fostering mutual benefits for governments and their citizens. There is a risk that increased public debt and a redirection of resources to manage the acute public health crisis, as well as targeting the sector as a way of generating revenue for this could result in a reversal of this trend. This would likely undermine the long-term development of the sector, encourage greater informality and break down community trust in public institutions that cannot be easily restored.
A change in focus and extent of international technical and financial development cooperation? A major contributor to sustained ASM formalisation – alongside domestic resource mobilisation – has come in the form of bilateral and multilateral aid and loans. Financial support for the ASM sector has undergone a big surge over the last 3-5 years, as it is increasingly recognised as a significant contributor to sustainable rural economic development. Yet with declining GDP growth and forecasts pointing towards a global recession or even depression the resources channelled to international development may diminish, and those resources that are channelled are likely to see re-orientation toward health and humanitarian support. Since formalisation is an ongoing process that requires a consistent policy direction and the mobilisation of technical, financial, material and human resources there is a risk that the good progress made to date may be undermined. As practitioners we need to find effective ways to support these programmes at a time of resource scarcity, whilst continuing to make the case for ongoing support. To build this case we may want to consider, amongst others, the following questions: What is the relative vulnerability of ASM communities to COVID-19 infection, mortality and secondary impacts? How do we ensure that humanitarian interventions are inclusive of ASM communities and cognisant of their particularities in terms of political structures, demographic characteristics, and human rights profiles?
Vulnerable groups are the most likely to be hardest hit. Opportunity has been said to lie in crisis – but this adage is rarely true for already vulnerable populations that are the least well equipped to protect themselves against shocks, be they direct health impacts or indirect impacts such as loss of livelihoods and incomes or globally-reported rises in gender-based violence. Whilst the potential social impacts are too numerous to list here, it is safe to assume that ASM populations will be disproportionately affected by the crisis. Artisanal mining communities are often in remote rural areas with limited access to medical facilities and have inadequate or non-existent access to sanitary facilities. Further, they generally rely on income from mining to satisfy their dietary needs and are therefore susceptible to income interruptions in a way that wholly subsistence communities may not be. In short, ASM populations, despite regularly earning above GDP per capita annual incomes may be especially vulnerable to this crisis. There is some hope that the relative youth of ASM communities might limit high mortality rates, although underlying health conditions commonly observed within ASM communities such as respiratory illness, sexually transmitted diseases, addictions and mercury-related health issues mean that this is by no means assured. Food insecurity and malnutrition, which may result from the crisis could further diminish community defence against the disease.Furthermore, and in spite of government guidance to the contrary, ASM producers for the very reasons outlined above are unlikely to be able to halt operations altogether for long periods of time. This puts them at greater risk of contamination as well as serving as a vector for the spread of the disease – especially if mineral price fluctuations result in migration in search of better opportunities (such as gold rushes) or an increase in smuggling. But as with pit collapse and other high risks associated with the activity, the limited choice framework means that this will likely be viewed as a risk worth taking. We must therefore seek to understand how these factors play out as the crisis evolves and provide timely advice and guidance to governments and communities as to how livelihood requirements and disease control measures can be reconciled.
LSM-ASM relations. Although not universally accepted within the large-scale mining industry, there has been a discernible shift towards recognition of the need to put in place holistic management solutions in relation to ASM to mitigate operational and ESG risks. This trend has for example been notable in the copper and cobalt sector in south-eastern DRC, where ASM-LSM cooperation (or at least management) is increasingly commonplace. And yet, with the potential for mines being put into care and maintenance and containment strategies coming into force, as well as workers being laid off, there is a risk that those who depend on the continuation of the activity (both ASM and LSM) for their livelihood feel aggrieved by decisions that are beyond their control. If managed badly this could increase the risk of ASM incursions on LSM concessions, contribute to greater social unrest, and exacerbate COVID-19 related impacts by further marginalizing already marginalised populations. Whilst none of these outcomes are inevitable, they seem increasingly likely without close attention being paid to them and effective actions being taken. The risk is that in times of economic downturns investment in ESG risks are often – and quite counterproductively – amongst the first casualty. We must all therefore work to identify these risks early, articulate the impact they could have on future operations, both commercially and in terms of social license and security, and seek collaborative solutions with industry to avoid them becoming a reality.
This initial analysis of how COVID-19 might impact on ASM producers and responsible sourcing efforts serves to demonstrate the breadth and depth of likely impact. It does not claim to be exhaustive, nor does it attempt to provide concrete predictions on how the crisis will play out. What it does do is demonstrate that those working in or with the sector need to stay ahead of the curve. In the same way that data is king in tracking and tracing the spread of the coronavirus, so too is gathering empirical evidence to firstly understand and then effectively respond to the crisis as it impacts on artisanal and small-scale producers and value chain actors, as well as responsible sourcing efforts more generally.
For further information, read the Artisanal Gold Council’s reporting on the impact of COVID-19 on artisanal and small-scale mining gold production here.