Thursday, September 26, 2013

The Effect of Changing Gold Prices on Artisanal Mining

Over the past year as the price of gold has fallen, many have asked how artisanal miners will be affected. Some have speculated that the drop in the price of gold would lead to less artisanal mining activity - as it has for the industrial gold mining sector. But this is not generally the case. On the contrary, in many places it continues to grow. And this has also been true historically. Even through the 1990's when the gold price descended to levels 4 or 5 times lower than today's, artisanal mining persisted and continued without any significant contraction.
For the majority of artisanal miners there is simply no other job that pays anywhere near as much

A falling gold price may slow the growth in artisanal mining but rarely leads to the kind of reductions and contractions that are symptomatic of the formal large scale mining and gold exploration businesses. In large part this is because the wages earned by artisanal miners are much greater than their rural agricultural alternatives (farming) - often five times as high. For the majority of artisanal miners there is simply no other job that pays anywhere near as much. And because capital costs are very low and labour costs are not fixed the gold price threshold below which a mining operation is no longer economical is far lower and less rigid for artisanal miners than it is for the formal industrial sector. Overall, people enter the sector when the price increases but the population rarely decreases. Individuals may come and go but the number of miners is typically steady or increasing. One implication of this dynamic is that, as the gold price falls, the proportion of gold production from artisanal miners will actually grow, as their numbers remain steady and the formal gold sector contracts. Artisanal miners are also quicker at capturing the benefits of price increases because the time needed to increase production is very short. They can be very responsive to opportunities. These qualities - that they don't fall away with price drops but can also quickly act on price increases - mean that artisanal gold miners are likely to be a durable and increasing presence in gold mining in the coming years. Particularly if there were to be a series of gold price shocks. This would likely diminish the relatively sluggish and capital intensive industrial sector while resilient artisanal gold miners continued through both ups and downs.
As the gold price falls, the proportion of gold production from artisanal miners will actually grow
The importance of artisanal gold mining as a livelihood for millions of the world's poor as well as the likelihood that it will be a durable feature of the gold mining sector for the foreseeable future are strong reasons for governments and industry to adopt policies and innovative approaches to help the artisanal sector improve its environmental and social practices to accelerate its transition into a more responsible and beneficial industry. Under any likely foreseeable gold price scenario, artisanal gold mining is here to stay. We can continue to chase them around in circles as we have for the last few decades or we can buckle down and help them improve.