Implementation of fintech will help build a sustainable operations, which will lead to holistic growth for the gold industry
by James Nguyen
11 February, 2020
Industry projections have reported that gold prices were to rise by 15 per cent by the end of 2019. This would go down as the biggest annual price rise in nine years. The demand for gold continues to rise, with data from Statista revealing that worldwide demand is at 4,345 metric tons annually.
Considering the fact that approximately 3,260 metric tons of gold were mined globally in 2019, with China being the world’s top miner of the precious metal, there is still a gap that needs to be met by the area of production and mining.
Challenges in the midst of progress
The accelerating rise in gold prices is indicative of the fact that prices would be at a more accessible level if supply met demand at optimal levels.
Increased accessibility would lead to an increase in investor confidence and a further boost in the overall profitability of the industry. To get supply to optimal levels, however, the challenges faced in gold production and mining must be addressed first.
Despite its high demand, increasing value, and steady reliability for investors, gold is not always as profitable for all miners. In fact, gold mining can be a high-risk venture for some miners, especially those involved in smaller-scale or artisanal operations.
“Today, millions of people worldwide involved in the artisanal and small gold miners industry live in poverty-stricken and dismal conditions due to the use of toxic chemicals, such as mercury and cyanide, through the unfortunate implementation of rudimentary gold extraction methods,” explains Philippe Bednarek, Chief Executive Officer of GoldFinX, a fintech company dedicated to developing innovative solutions for the small-scale gold mining industry.
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“Up to 40 per cent of human-made mercury emissions come from small-scale gold mining,” Bednarek adds. “Not only does this kill marine life, but it greatly contributes to the extinction of river life as well.
These small gold miners – also known as artisanal gold miners – have limited resources compared to the industrial gold mining industry. The artisanal and small gold miners (ASGM) sector far outnumber the mainstream or industrial sector — 40 million small-scale workers versus seven million industrial ones. However, they earn significantly less due to limited capabilities.
As a result of the obstacles and limitations they face daily, ASGMs only produces 20 per cent of the world’s gold mining production. For example, there is no formalised banking system within this industry, meaning that the inflow and outflow of money is a strenuous process for everyone involved.
Another major challenge is the presence of problematic practices within the sector as well, including child labour.
“Child labour and inhumane conditions are devastatingly common in these artisanal operations, and with little legal support due to informal operations, illegal operators control the flow of gold in these regions and force the miners to accept much less than market value for the gold they produce,” explains Bednarek.
These inhumane conditions are a result of desperation. Miners in the ASGM sector don’t have access to infrastructure that would allow for efficient income and healthy working conditions.
They are simply doing what they can to survive. To prevent this heartbreaking cycle from continuing, it is important that sustainable solutions are provided to transform the ASGM sector.
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ASGM miners are relegated to using lower-tech, outdated methods, and this hampers their productivity immensely. Without reasonably fair and easy access to credit, they cannot increase their production. And they have no hope of increasing production without the efficiency and effectiveness achieved by having state-of-the-art equipment at your disposal said Bednarek.
Fintech could solve this problem by providing technology-driven financial tools, such as a mechanism for taking out loans or financing, as well as a means of exchanging their valuable products for fair compensation.
With access to a platform such as this, the ASGM sector can set up a financial structure that can assist with boosting profitability and raising capital to improve working conditions.
Improved working conditions will allow for greater productivity, higher workplace morale, and even increased employment.
GoldFinX has projected that growth in production among ASGMs would increase by 2,000-5,000 per cent with improved capabilities. Apart from profits, the benefits are expected to extend beyond simple production growth, too.
It also allows for the elimination of the middleman, meaning companies within the AGSM sector would have direct access to global markets.
It would also mean their inflow of income would not be subjected to strenuous fees often found in the banking systems. This further creates favourable scenarios within the industry.
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Lastly, fintech allows for transparency where the supply-chain is concerned. This means relevant parties will be able to confirm that the mined gold comes from compliant mining operations.
This is important as it averts the risk of forming a “conflict diamond” situation, referring to the illegal mining setups that have occurred in other industries that often involve violence and human rights violations.
Investors will have peace of mind, knowing that their capital is placed in businesses that adhere to the best industry practices in gold mining and hence not invested in industries that encourage bad labour practices.
Overall, the introduction of fintech to the AGSM sector could benefit not just from the artisanal miners, but also the entire industry, particularly with enhancements to sustainability.
There is “immense potential inherent in this neglected gold production,” says Bednarek, who aims to unlock this immense potential to create wealth not only for small-scale miners but also for investors as well. If a sector that comprises up to 40 million workers can boost production by even just 10 per cent, the global supply for gold will experience exponential growth.
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