Mining Mirror April 2019 | Page 11

Global list of deliverable brands unless a third-party auditor signs off on their sourcing standards. While there are no LME-listed copper brands originating from the DRC, smelters in neighbouring Zambia that import semi- processed ores, known as concentrates, from the DRC, may need to carry out audits. The United Nations Guiding Principles on Business and Human Rights make it clear that companies have a responsibility to ensure that they do not finance conflict or human rights abuses. Supply chain due diligence is the internationally accepted way through which companies can meet this responsibility. A practical standard has been developed by the Organisation for Economic Cooperation and Development, which covers diamonds, gold, tin, tungsten, and tantalum. The five-step process can basically be summarised as: • Establish strong company management systems; • Identify and assess risks in the supply chain; • Design and implement a strategy to respond to identified risks; • Carry out independent third-party audits of refinery/smelters due diligence practices; and • Report annually on supply chain due diligence. Independent auditing As regulatory deadlines approach, organisations need to ensure that their conflict minerals due diligence systems are effective and meet requirements. A review of due diligence systems to identify any gaps between organisations’ existing systems and the recommendations outlined in the OECD Due Diligence Guidance, or a specific industry framework, such as the EICC CFSI Checklist. Impartial audits and certification ensure consistency, accuracy, and reliability and demonstrate the highest level of commitment Associated costs ITSCI was introduced after the 2010 Dodd- Frank legislation was drawn up in response to the global financial crisis and required US companies to vet their supply chains. The scheme has provided a way for companies to continue to use minerals from the designated countries. These initiatives, however, come with a price tag. The current cost associated with a mine being a member of the scheme is that the costs range between USD130 and USD180 per ton, depending on the mineral. Small-scale or artisanal miners incur about USD3.5 per kilogram. It is also the main criticisms against the current system used by the ITSCI: that it does not review the traceability cost, becoming an increasing burden to the participants. The only concern that stops some of the Rwandan miners from joining other traceability programmes, for example, is whether or not the end buyers will recognise those schemes. The industry has expressed concerns that the responsible-sourcing efforts could result in a disconnect in pricing between audited and unaudited brands. The industry is also keen to avoid a mass delisting if producers are not able to complete the reviews before a planned deadline. www.miningmirror.co.za The introduction of the concept of the value stack will have a significant impact on the industry in the affected countries. The value stack will distribute the cost for implementing and operating the system, the lowest cost being incurred by the primary producers of the ore and increasing the contribution to higher-end users that want to ensure that their product is certified as conflict-free. Practical applications The process combines ground visits and spot checks to ‘assess and verify’ the responsible practices of counterparties. This can be done by the independent consultant and substituted by the use of drone-based monitoring. Firms will use a platform to tag and trace minerals and gemstones mined in conflict areas as it goes through the supply chain as opposed to manual tracing systems that rely on paperwork. Unique tags are electronically generated from various mining sites, which will act as an online record tracing the minerals from the source to refinery. The system of bagging and tagging metals is designed as a guarantee that the minerals in question are unconnected with conflict, child labour, or other human rights abuses. The system can be supplemented with technology such as facial recognition and a database that captures geographical longitudes and latitudes, and geochemical characteristics, among other aspects. This type of system, based on blockchain platforms, generates an open, distributed ledger that can record transactions along the value chain. User- friendliness is another consideration, such as smartphone applications to record the tag and trace the minerals or gemstones as it progresses through the system. Companies can trace metal even as it is processed into intermediate products and mixed with other raw materials. Blockchain A number of proof-of-concept blockchain platforms are being developed by the minerals and mining industry. A global standard platform still needs to be developed, accepted by industry, and the use thereof implemented. The diamond and gold industries are taking the lead in this regard. De Beers has developed a blockchain platform that is intended as a digital certificate, created by Tracr, for each diamond registered on the platform and storing its key attributes and transactions. It will enable retailers to provide consumers with confidence that the diamond is natural and conflict-free and has been tracked across the value chain. The main advantage touted for the use of blockchain platforms is that it will change the current model of incurring traceability costs, shifting it from miners to the end users. Provisional surveys and studies conducted have shown that there is more demand for traceability higher in the value chain among users of the minerals and that end consumers would be willing and able to pay to ensure that the product is conflict-free. This will have a major impact on small-scale and artisanal buyer companies downstream that, to date, have had to shoulder a larger portion of the cost with little value added for them. Purchasing from artisanal miners There are several models for the purchase of minerals and gems for artisanal miners. The two most popular options are: establishing cooperatives for the artisanal miners that can sell to the larger companies, or establishing purchase centres at mines. The cheapest option is done by organising artisanal miners into legal business entities, such as cooperatives, and providing them with the required training. It is beneficial to cluster these operations geographically into units of five to 10 operations and assign an engineer and a health and safety officer to each cluster. This is followed by creating a central buying agency that will legally buy from these miners and offer them market-related prices. Incentives related to enlisting artisanal miners into cooperatives will also facilitate compliance with regulations. As a case study: In La Llanada, Colombia, members of the Coodmilla mining cooperative are paid the equivalent of USD8 for a gram of guideline- compliant gold and USD6 for a non- compliant gram in 2018. With the premium, they have been able to fund health, nutrition, and work training programmes. The second option is to establish a purchase centre and buy directly from the artisanal miners. It is a more reliable system, but entails additional start-up costs. These costs include the security (both active and passive), the registration system of the accredited artisanal miners, testing and weighing equipment, shipping package material and tags, along with computers and Internet connection. Running costs are related mainly to staff and transport. Bowline Professional Services offer auditing and consulting services to meet industry requirements. Auditing of sourcing ore can be done to demonstrate compliance with the OECD’s responsible-sourcing guidelines. Bowline Professional Services also offer consulting services to meet industry best practices and standards to establish provenance of purchases of ore concentrates or gems from artisanal or informal small-scale miners. Consultation services include: • In-loco inspections and audits of mining and purchase sites; • Guidance on passive and active monitoring of mining activities; • Trade-offs for identification systems, including biometric, for registration of artisanal sellers; • Scrutiny on selection of security measures and companies for buyer centres and stockpiling warehouses; • Evaluation of active and passive infrastructure security; • Selection and training in use of geochemical testing instruments to determine grade of ore material or concentrates and sorting, as well as determining potential provenance of ore; • Assistance on selection of applicable blockchain platform and databases; • Guidance on monitoring methods, from stockpile and packing area and along the transport route to final destination; • Selection of tamper-proof seals and RF tags; and • Periodic audit and monitoring reports. APRIL 2019 MINING MIRROR [9]