African Mining July - August 2019 | Page 39

Business The Independent Private Sector Audit (IPSA) of CMRs must be conducted in accordance with the requirements of the Generally Accepted Government Auditing Standards (GAGAS) as established by the US Government Accountability Office (GAO). The London Bullion Market Association (LBMA) has issued the LBMA Responsible Gold Programme based on anti-money laundering principles as well as the OECD Due Diligence Guide’s five-step framework for risk-based due diligence. The London Bullion Market’s Responsible Gold Guidance Sourcing Programme is mandatory for all of its accredited refiners. The companies are audited annually under the programme and are required to report publicly. It requires the companies to securely record data on brand, origin, custody, and location on a global platform, with blockchain seen as a possible solution. The new LBMA guidelines now also call for regulation of the safety and environmental factors associated with the sourcing of the gold from small-scale or artisanal sources. The seriousness of enforcing these requirements was demonstrated in May 2018 when Elemetal, previously one of the biggest US refiners, was sentenced on charges linked to illegally mined gold from Peru. The Responsible Jewellery Council (RJC), an international, not-for-profit organisation established to reinforce consumer confidence in the jewellery industry, initiated its Chain-of- Custody (CoC) Standard and supporting documents for the precious metals supply chain. This called for two main requirements: conflict-free as a minimum, and responsibly produced at each step of the supply chain. Conflict-free diamonds The KP is a binding agreement that prevents conflict diamonds from entering the mainstream rough-diamond market. The current format of the KP applies to only rough diamonds, allowing stones that are fully or partially cut and polished to fall outside the scope of the initiative. The LME is reviewing its requirements to ensure that no metal traded on the bourse has links to child labour, conflict, or corruption. Copper producers that buy from the DRC will be categorised as higher-risk suppliers, alongside manufacturers of tin and cobalt (the changes, however, have not been made public yet). The designation will mean that copper producers could be removed from the LME’s 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. 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 is 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 using 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 ranges between USD130 and USD180 per ton, depending on the mineral. Small-scale or artisanal miners incur about USD3.5 per kilogram. The main criticisms against the current system used by the ITSCI is that it does not review the traceability cost, which is 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. 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 who want to ensure that their product is certified as conflict-free. 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. Practical applications A practical standard has been developed by the Organisation for Economic Cooperation and Development, which covers Firms will use a platform to tag and trace minerals and gemstones mined in conflict areas as they go through the supply chain, as www.africanmining.co.za 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. JULY - AUGUST 2019 AFRICAN MINING 37