ARTISANAL GOLD MINING COMMUNITIES ARE ON THE VERGE OF A CRISIS – THE VIEW FROM CHOCO, COLOMBIA
By Kenneth Porter - April 6, 2020
Part of the COVID-19 and Artisanal Gold Mining Communities series by the Artisanal Gold Council
The liquidity crisis affecting artisanal gold mining communities around the globe has the potential to turn into a humanitarian crisis. As miners’ ability to sell their gold for cash deteriorates, the growing concern is that miners will be left with gold in their pockets but no food on the table. The most at risk are those rural and isolated communities whose economies are almost entirely dependent on gold, such as Choco, Colombia.
CHOCO IS GOLD
Constrained by a difficult geography, lack of infrastructure and scarcity of economic opportunities, the Choco Department is one of the least developed, least industrialized regions of Colombia. The department suffers from significant inequality, land degradation, and armed conflict.
The primary economic activity in the region is alluvial gold mining. Officially, there are over 40,000 artisanal miners plying their trade in the Choco region, but given that many miners work informally the true number is almost certainly higher. An OECD estimate  puts Choco’s artisanal mining population at over 55,000. The region is the second-largest gold producer in Colombia, responsible in 2015 for 15 tons of gold, 26% of the national total .
The locals often say ‘Choco is gold’ and the numbers back this up. The economy is completely dependent on this precious metal. In Istmina, the region’s second largest gold-producing town, there are 12,000 registered artisanal miners out of a total population of 25,000. A staggering 68% of the working age population of Istmina formally works in artisanal mining . Taking informal miners into consideration residents estimate that 80% of the population practices artisanal mining as their primary economic activity.
Local miners have told the AGC that as of the week of March 30th, all 15 of the formal gold buying shops in Istmina have shut their doors. Only one informal trader was still purchasing gold and at a deep discount, offering $24.46 USD per gram which is 47% below international market spot price and about 40% below the normal local price.
This confirms what AGC’s team of experts have been forecasting. As Covid-19 causes the formal supply chains to shut down, and the power shifts from a seller’s market to a buyer’s, miners will find themselves at the mercy of informal buyers looking to take advantage.
The information AGC has gathered from the week of March 30th from mining communities in six countries on three continents indicates that on average local gold prices have dropped anywhere from 10% to 50% below pre-Covid-19 prices. The average price drop is a staggering 40%.
The price drop could get worse. Indeed, the market could freeze up altogether. If the formal shops remain closed, the informal buyers will quickly run out of capital to purchase from all the miners. Reports out of Istmina suggest that there are already miners stuck with gold in their hands and nowhere to sell.
One female miner – the primary bread winner for a family of five – put the situation in perspective.
“With the closure of all the local gold shops,” she told the AGC, “the real threat is not the Covid-19 virus but dying of hunger.”
The ability of these miners to feed their dependents is clearly under threat. Not only are gold prices crashing but at the same time the cost of food and other basic goods are beginning to soar. A basic basket of food in Istmina has gone up an estimated 70%, with staples such as rice jumping from $37,000 COP to $57,000 COP, and local transport on moto-taxis jumping from $5000 COP to $8000 COP, and this is only the first week that the gold shops have been closed. The economic pressures on subsistence mining families will only worsen unless something is done about it quickly.
SO WHY IS THIS HAPPENING WHEN THE INTERNATIONAL GOLD PRICE IS STABLE OR RISING AS INVESTORS BUY GOLD AS A SAFE-HAVEN DURING THE COVID-19 CRISIS?
Since the Covid-19 crisis hit, the world gold price has risen or remained largely stable, beginning and ending March 2020 at about US$1600 per troy ounce. In times of crisis, wary investors often seek refuge in gold.
So why are gold prices for ASM producers crashing? As governments around the world take measures to contain or prevent the spread of the Covid-19, critical parts of the supply chain -particularly those involving transport, logistics and finance -have slowed down or seized up entirely.
The worldwide effort to contain Covid-19 must clearly take priority. But it’s the AGC’s belief that by analyzing the Covid-19 induced disruptions on the artisanal gold supply chain, it should be possible to re-start gold flows in ways that fit within the world’s ongoing virus-battling framework. We begin by looking at the three main sources of supply-chain disruption as they apply to both Colombia and the world.
THREE MAIN SOURCES OF SUPPLY CHAIN DISRUPTION:
- Political reasons, policy decisions have been made mandating gold shops and or refiners to shut down operations in order to minimize Covid-19 transmissions.
- Disruptions in logistics, such as border closings, mobility restrictions on citizens, and insufficient transportation options (no air passengers and reduced air freight capacity).
- Financial disruptions at the international and local level. If the gold cannot be delivered to international trading partners because they are closed, cash will not flow to allow buyers to continue purchasing from miners. Local operators don’t have more than a few weeks of buying cash.
In Choco, we are seeing all these factors come into play. To their credit, Colombian authorities have so far allowed ASM gold supply chains to continue functioning. The Colombian government has included gold mining in the list of essential activities that are not subject to shut down, recognizing that many Colombians depend on gold.
What then explains the closure of the Choco gold buying shops? Possibly, the shops opted to close operations for their employee’s health and safety. Many of these shops are owned and operated by wealthier business people who don’t live in rural mining communities. They and their staff might choose to leave the mining towns to return to their families. There also might be a perceived increase in safety concerns due to the anxiety that can boil over in times of crisis.
Equally as likely, the shops were forced to close due to a lack of buying capital. In a chain, if one link is broken the whole chain stops working. Gold is bought by countries like Switzerland, and so if the Swiss stop, then essential cash flow to Colombian subsistence miners stops.
As reported by Peter Hobson for Reuters , three of the world’s largest refineries, Valcambi, Argor-Heraeus and PAMP, were mandated to stop operations by the local authorities from the Swiss canton of Ticino. Combined, these refiners process a third of total global annual supply and all three procure gold from thousands of artisanal miners around the globe.
The authorities in Ticino need to understand that their decisions have impacts far beyond their political jurisdiction, and need to be aware that cutting off gold buying could contribute to creating a crisis. Thankfully, after a two-week closure, Bloomberg reports that Ticino has allowed these refiners to resume operations. PAMP and Valcambi communicated they will operate at less than half capacity. Artisanal gold is not their biggest source by far, so it is still unclear what this will mean for artisanal gold buying.
And then there are the logistics disruptions. Passenger flights in and out of Choco, the route used by most of the small traders to transport their gold, are no longer operating. Ground transportation is seen as too risky. For gold buying to resume in Choco an alternative – perhaps air freight – will need to be put in place to physically move gold from Choco to the outside world.
SO WHAT CAN BE DONE?
With over 10 million artisanal gold miners around the world located in over 80 countries, immediate action is required. The brewing humanitarian crisis in Choco, Colombia is just one example of what could potentially be happening in thousands of artisanal mining communities around the globe.
Artisanal gold is an excellent mechanism to transfer wealth from rich developed centres into poor remote communities. Providing capital to improve liquidity in mining dependent communities is one solution the AGC is working on – coming soon to this blog. Buying artisanal gold at pre-Covid-19 margins, perhaps minus new expenses if they have risen, can be part of the solution. This may require assistance and innovation.
The Artisanal Gold Council has begun an artisanal gold Supply Chain Reactivation Project with the aim of restoring liquidity to gold buying in rural artisanal mining communities. We believe that there is no better mechanism to get needed money into these remote rural communities. We will aim to motivate supply chain actors, authorities, and other stakeholders to collaborate rapidly to restore and keep supply chains and cash flow to rural gold mining communities operating. This will both avoid a potential crisis in those communities themselves but also contribute to maintaining a functional rural infrastructure and network that could even potentially be used to deliver COVID-19 assistance.
We will expand this effort to encourage international gold refiners to play their part in helping to mitigate impacts on artisanal gold miners by finding ways to buy their gold. It is very much aligned with what Swiss refiners have been doing over the last decade as they have made important contributions to the sector by connecting artisanal miners with formal gold markets, fostering responsible mining practices and improving the transfer of wealth to rural communities. During this unprecedented economic and health crisis caused by the Covid-19 pandemic, the continued support of the refiners and the formal gold market for the artisanal mining sector is needed more than ever.
THESE SOLUTIONS ARE PART OF AGC’s CALL TO ACTION WHICH YOU CAN READ AND JOIN HERE:
With contributions from Kevin Telmer and Shawn Blore
 Colombia has on average a working age population percentage of 69%. https://data.oecd.org/pop/working-age-population.htm
25000 * 69% = 17 250. 11 778/17250 = 68%
 Data from Kitco.com