Mineral Economics in Artisanal Small Scale Miners with Ignatius Kamwanje

201709 Malawi Mining & Trade Review Ignatius Kamwanje

MINING & SOCIAL ISSUES with Ignatius Kamwanje

Mineral Economics in Artisanal Small Scale Miners

Mineral deposits in general are characterized by three factors namely; quality (all characteristics that influence revenues, costs), quantity (reserves/resources according to relation revenue-cost) and ‘mineability’ (all characteristics that influence costs).

Generally, quality factors do not have a significant influence on the appropriateness of a deposit for small-scale mining. On the market side, the price depends on the quality of the commodity. This is usually the same for large or small producers. Poor quality, however, can be a limiting factor for artisanal miners, as their processing technology is usually not capable of processing low-grade ores. Artisanal Small scale miners concentrate on grade and purity rather.

‘Mineability’ factors, however, are crucial for determining the appropriateness of small-scale mining. In general all factors that encourage optimization, mechanization and economy of scale (uniformity of deposit, tonnage, width of ore bodies, depth, and overburden) tend to mitigate against small-scale mining. However, adverse conditions for medium- or large-scale mining (irregular ore bodies, steep dipping slopes or seams) create a niche for economically viable small-scale mining. In a particular reserve-to-operating cost scenario for a commodity, the position of a deposit ‘appropriate’ for small-scale mining can appear in two different locations: at the high end of operation costs (industrialized mining), and at the low end (small-scale mining). Although artisanal small-scale miners do not generally use sophisticated concepts of reserve and resource classification systems, their basic thinking does not usually differ conceptually from industrialized mining.

Economic strategies of Artisanal Small Scale Miners

Artisanal small-scale mining is characterized by abundant time and chronic lack of money. Artisanal small-scale mines usually do not have reserves. The lack of investment capital, does not allow for necessary geological studies or exploration, financial evaluation prior to operating the mine and digging is random. Whenever possible, small-scale miners start right away with production, based on their geological experience. However, the criteria for selecting mineable ‘reserves’ for artisanal small-scale miners are similar to those applied in industrialized mining: any ore above the cut-off-grade that provides a living is mineable. High grading, (often considered to be ‘degradation’ or ‘sterilization’ of deposits by small-scale miners), is not so different from strict net present value optimization in many industrialized mining operations.

Mine transport is usually a limiting factor in small-scale mines. High grading by hand selection of the mineral is frequently done to minimize transport costs, leaving the lower grade ore as mine waste. This waste may be exploited further sooner or later until any mineral that provides a living is exhausted.

The next limiting factor is the processing plant. Further selection usually takes place before the mineral is fed into the plant. Lower grade mineral and tailings will be dumped. None of this mineral is usually wasted. These dumps are frequently re-worked again and again until nothing is left. Whatever the opinion regarding the work might be, this activity provides a living to those involved – and apparently is the only possible activity for them. At the same time total resource recovery increases. This is called repetitive scavenging.

Small-scale processing plants are usually technically basic. Recovery in a single processing step may be low. This leads to the widespread misunderstanding that artisanal small-scale miners are wasting mineral resources, recovering only perhaps 40 per cent of the value matter. This misunderstanding arises when people look only at    single processing steps. Similarly, total recovery of small-scale mining is often not significantly below industrial levels.

Macroeconomic effects, taxation and foreign income of ASM

Production of high-value metals (gold, diamonds, platinum), gemstones and minerals from small-scale mines can make a major contribution to foreign exchange earnings of a country. This is at macroeconomic level. For example, gold produced by ASM is more or less equivalent to extra foreign income. Here no consideration of ‘repatriation of utilities’ by foreign investors is taken into account, as the ‘investors’ are the local miners themselves. In this regard, the value of artisanally produced gold can be considered as a net contribution to foreign income, as freely convertible currency is produced with only local input. It becomes baseless if payment is received in the form of converted currency (e.g, dollars) or in form of imported goods like electronic equipment. In any case, the livelihood and wealth of the communities involved are enhanced.

In countries which have VAT taxation implemented, the informal status of miners may constitute a quiet incentive for the government to maintain this situation. The informal status of the miners makes them a VAT-end-user, since they cannot benefit from any fiscal credit or drawback from goods bought from their suppliers. If smuggling is not an issue, and the product ends up in the official domestic market, the final product is again taxed with the entire VAT. The double interruption of the VAT-chain at the producer (small-scale miner) and the consumer generates double fiscal income.

Smuggling, money-laundering and guerrilla activities

Significant increases or decreases of official export statistics from small-scale mines may occur when changes to purchasing arrangements or taxation schemes are made. This may also occur with alterations in the overall political framework in which the miners operate. These apparent movements occur even though physical production does not change at all. Illicit marketing is primarily the result of inadequate government policies. In countries where commercialization is not based on free-market mechanisms and where sales are not transparent, smuggling is usually the first choice for miners and merchants.

Below is an extract from Mining Weekly newsletter of Creamer Media by Bloomberg titled “Gem smuggling Thwarts revival of Central African Republic” dated 29th November, 2017.

In the lounge of a luxury hotel in Bangui, the capital of war torn Central African Republic, soft spoken diamond dealers cautiously sidle up to guests.

Their whispered offers of gems for sale are a visitors’ first hint of the thriving illegal market for the precious stones in a country that five years ago was ranked as the worlds’ tenth biggest diamond producer and is now mostly controlled by armed militias. […]

Yet while diamond exports offer a potential source of desperately needed revenue, authorities so far have been powerless to curb the underground trade.

The government is aware that smugglers come to Bangui to buy diamonds but doesn’t have the means to stop them, said Mines Minister Leopold Mboli Fatrane. […]

Closer to the border, smugglers use neighboring Cameroon as a transit point for large-scale flows of undeclared shipments of diamonds from the Central African Republic, according to the Ontario-based advocacy group Impact, which investigates mineral flows in conflict zones. The stones are flown to places such as Dubai and India, the organization said in a Dec. 2016 report.

From above extract it can be said that much of the benefits to government in Central African Republic are lost in this way. Nevertheless, smuggling or illegal trading usually happens in conjunction with an adjacent country where market conditions are more favourable, in this case Cameroun being used as a transit point. However, as developing countries are usually surrounded by other enveloping countries, the regional positive effect of artisanal small-scale mining may not be lost, just a different developing country with a more open policy is able to take advantage of its neighbours. Moreover, even extensive   smuggling does not significantly reduce the local development effect (at community level) that small-scale mining has. In some cases, positive overall macroeconomic effect due to additional foreign income may also accrue. Smuggling is not usually performed by the artisanal small-scale miners themselves, but by intermediate or major illegal traders. Therefore smuggling is not generally a problem related to the miners, but to the product itself. The considerable capital required to smuggle efficiently means that traders are unlikely to belong to the typical artisanal mining social strata.

An example is ASM setting in Malawi somewhere where I was privileged to go to a small mining activity of gemstones. I had a chance to meet the small scale miners asking them how they mine, what prices do they fix for sale and the markets. No sooner had I finished inquiring than middlemen also called Dobadobas” invaded the place and started chasing me out of the place. I was a threat because they thought I came there as a straight buyer without their involvement not knowing I was on a different mission. So in essence, smuggling is not only done by the miners but with  these illegal traders or middlemen and passing it on to buyers who are mostly foreigners and this link goes on until the end user gets it. Artisanal gold and gemstone mining are frequently used as a vehicle for money laundering or others financing guerrilla activities in other countries. Again, it is not but the products of their activity that are the subject of these illegal practices. In some countries, the continual links between money-laundering, guerrilla activities and civil wars (such as ‘blood diamonds’) can provoke the complete outlawing of the small-scale mining sub-sector.

***

This piece was initially published in Malawi’s Mining & Trade Review Issue Number 57 (January 2018).

The full edition is available for download here. This monthly publication is edited by Marcel Chimwala.

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