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