Proper FinTech Financing De-Risks Artisanal Mining OperationsBy Cas Biekmann | Wed, 08/25/2021 - 18:17
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Driven by a bullish gold market, smaller-scale operations in the form of artisanal mining are gaining popularity. Nevertheless, a lack of capital is the main driver of inefficient and risky practices for Artisanal Small Gold Mines (ASGMs). By addressing adequate funding, these risks could be turned into benefits.
Of the 3000 tons produced every year, more than 80 percent of gold comes from industrial mining, while 20 percent is produced by over 20 million ASGM workers. “This happens at a great social and environmental cost,” said François Dumont, Co-Founder & COO of GoldFinX. “Today, millions of people involved in artisanal and informal small-scale gold mining are at risk, as it is generally done with rudimentary extraction methods.” The profits involved in ASGMs are hard to estimate, but consultancy company Metals Focus estimates them around US$27 billion. A growing awareness regarding ethically sourced materials mean that less and less banks, jewelers and gold refineries in the Western hemisphere want to purchase artisanal gold, as they instead prefer to source their gold to a secure operation that has strong track record for environmental, social and governance (ESG) practices. By taking advantage of buyers with less-than-stringent standards, gold eventually finds its way into the global market.
Current methods have devastating effects indeed: the social ramifications of ASGMs involve illegal operators working through inhumane working conditions in unstable mines, at times even involving child labor. Toxic processes take a heavy toll on the environment: over 1000 tons of mercury are released into the atmosphere annually. In fact, 40 percent of human mercury emissions, which are responsible for killing river and marine life according to the WHO, find its origin in ASGMs. Mercury is incredibly dangerous for people too. “Unfortunately, the effects of mercury poisoning are extremely harmful through exposure over time, so people often underestimate the danger. They usually know it is not healthy, but often handle it using the t-shirt they wear regardless,” said Dumont.
GoldFinX is a FinTech company that sets out to find ASGMS worldwide in order to banish these bad practices and remove the use of mercury from the equation entirely. By providing adequate financing, much of this damage can be kept at bay, but traditional finance perhaps is not the best candidate.
“There is a lack of information and a high-risk perception on the part of traditional funders. They have limited capital to invest and as a result, they avoid anything that is perceived risky in their investment options. Some funds, as part of their mandate, exclude any potential participation with the artisanal segment of mining,” Dumont told MBN. Remote areas that have a lack of visibility only add to these difficulties.
The company begins its approach by signing a fair-trade partnership and an advance-purchase agreement, an approach backed by the World Bank and the UN. Soon after it provides on-site management and controls the capital until it becomes cash-flow positive. GoldFinX purchases an amount of gold first, and when this investment is delivered, they retain 20 percent of the gold production for the mine’s life cycle. Of this 20 percent, 15 percent is retained by GoldFinX and 5 percent becomes its revenue. The company furthermore gives training and provides the equipment, which it owns itself but makes available through a mobile operation center. The company can keep an eye on its operations through people on the field and digital technologies.
“This, we believe, provides a fair way of transferring wealth in a mitigated-risk and sustainable way to a segment of the mining industry that up to today has never been able to organize themselves financially,” said Dumont. Using proper due diligence and permitting, the company manages to pull ASGMs out of their often-harmful informality.
Through its very own cryptocurrency, GoldFinX can provide further funding toward small-scale gold production. After refining and passing regulatory checkmarks, it then stores the gold in a vault so that it can protect the investors in the cryptocurrency as a form of backup. “The additional benefit is for the normal retail investors as they be involved with a gold extraction investment opportunity without having to mortgage their house to do it. Anyone can buy coins from us in a very democratic, uncomplicated, and unrestricted way,” highlighted Dumont.
Another way in which GoldFinX works to undo some of the damage caused by ASGMs is through its Heart of Mine foundation, which aims to accelerate the benefits of doing small-scale mining the right way. “This is an entity dedicated to improving the lives of small-scale mining communities world-wide focusing on education and healthcare,” said Dumont. The foundation removes children from hazardous operations and gives them a proper education in local schools instead. By providing access to mobile health care, the foundation helps to treat those affected by mercury exposure and other health issues as a result of bad mining practices.
The economics behind the FinTech model can help remedy more than this: “Our objectives are to improve infrastructure; help build an educational system and foster a more family-friendly micro-economy. In the end, you bring dignity to workers in the industry, which is a key human element to the business.” explained Dumont.