Why artisanal miners need a digital investment marketplace
A group of financial and industry backers for artisanal mining (ASM) plans to set up a digital marketplace where this vast informal sector can find support and funding online.
ASM employs some 45 million workers across more than 80 largely undeveloped countries. But getting access to capital is one of their toughest obstacles.
The London-based Blended Capital Group and the non-profits Capitals Hub Canada, the Amsterdam-based Capitals Coalition and Colombia’s Alliance for Responsible Mining are planning to develop an online marketplace to help the ASM sector. The goal is to create significant financial, social, environmental and economic value.
Artisanal mining is 85% informal at the moment, largely composed of miners without robust governance and operating at the periphery or outside of formal economies. Transitioning miners towards stable, predictable, equitable business relationships through enhanced governance, access to financing, and mining practice improvements helps them succeed.
Proposed outcomes:
- Financial value: Equipping and transitioning miners to good practices that are consistently governed can multiply productivity up to five times depending on the situation and increase revenue;
- Social impacts: Formalization changes outcomes for miners and for neighboring communities, promoting human rights adherence, gender equity, improved safety and poverty alleviation;
- Environmental benefits: Reforestation, biodiversity protection, reduced soil erosion and water contamination are all promoted through the World Bank’s Forest Smart Mining standards that outline good practices;
- Economic growth: Pockets of stable, predictable and equitable business relationships set the ground for sustainable development that can improve economies in regions that neighbour mining. More broadly, formalizing artisanal miners results in increased critical minerals supply. That facilitates the energy transition, while also increasing the supply of gold, which is essentially a currency.
The bottom line is that financial value as well as a variety of impacts are associated with artisanal mining formalization. Unleashing this value and impact is supported by investors engaging across multiple categories.
Why a digital marketplace?
Technology can democratize access to capital across the sector, providing a transparent mechanism for connecting different categories of investors with artisanal mining opportunities. It also enables capital stacks combining different kinds of investors.
At core, differing investor segments target opportunities based on their specific profiles. Some investors focus on traditional risk-weighted financial returns while others target a variety of social, environmental and economic impacts as well.
As characteristics of specific projects are transparently outlined in an online context, investors focused on different aspects of value can co-mingle in ways that support projects in ways individual investors couldn’t.
For example, a project may be funded by a combination of traditional value investors along with some who have a focus on gender equity and on reforestation. The combination enhances the investment for both groups.
A digital marketplace can also extend value in ways that miners would otherwise find impractical. One way is attaching carbon and biodiversity credits to a project that could make it more appealing for certain investors.
Risks?
Mining investment is always risky business, and individual artisanal mining opportunities may come with risk profiles that include political, geopolitical, conflict, social, corruption, value chain and geological risks.
Why is investment worthwhile in this context?
A portfolio of projects that includes multiple commodities, countries and broader regions can blend risks in a way so their total is minimized relative to aggregate opportunities. Put simply, productivity gains combined with savvy diversified project selection swamps the risks of individual projects. The blended whole outweighs the risks of individual projects.
As for the digital marketplace itself, blockchain technology with deeply embedded security is a safe online backbone that prevents data security leakage or broader forms of corruption.
Transparency
A transparent marketplace requires clearly defined consistent standards that are validated on an ongoing basis for individual opportunities.
Responsible ASM is based on Fair Mined and CRAFT standards, both promoted by the Alliance for Responsible Mining, a global initiative promoting ethical small-scale mining practices. There is also the Forest Smart Mining standards to minimize deforestation and biodiversity loss.
Along with these ASM-specific standards, there is discussion on integrating ASM and large-scale mining standards. The intent is for one set of standards to replace separate efforts by the London-based International Council on Mining and Metals’ principles, the Mining Association of Canada’s Towards Sustainable Mining framework, the World Gold Council’s Responsible Gold Mining Principles and the standards adopted by industry group The Copper Mark.
The Seattle-based Initiative for Responsible Mining Assurance is another important example of what convergence looks like. Its consolidated multi-stakeholder standard has made important strides in integrating ASM-related relationships into its broader framework.
In summary
An investment marketplace geared to the specific opportunities in ASM has the potential to open the door to significant financial, social, environmental and economic value.
As this marketplace matures, its scaled-up capital flows will support strategic growth in critical minerals and gold production. That’s good for mining and impact investors seeking compelling value and returns.
Rob Karpati is the mining partner of The Blended Capital Group, a firm specializing in sustainable finance and business strategies with a focus on emerging markets. With a background in finance and impact investing, he combines financial returns with positive social and environmental outcomes.