Sara's Journey
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KPMG Advisory Director
Sara Ellison provides a first-hand account of the progress being made toward responsible mineral sourcing in Africa and the existing challenges relating to Conflict Minerals. After attending the Organization for Economic Cooperation and Development (OECD) meeting in Rwanda, Africa, she visited several conflict-free certified mines and processing facilities in the Democratic Republic of Congo (DRC). As the only Big Four firm invited to tour the mines, we invite you to share Sara's unique perspectives.
 
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Tuesday, November 19, 2013
A life-changing experience

As I left DRC and returned to Rwanda to take my flight home, others had gone on to Goma to visit more mines in North Kivu. Security issues prevented me from joining them. I thought about their unwavering commitment to the cause of conflict-free minerals and developing a traceable supply chain. Their personal sacrifice and the dedication of their organizations make it possible to know what is truly being done to develop a conflict-free minerals trade. It is not easy. It is frustrating, grueling work compounded by long flights and extremely demanding travel conditions on the ground. Organizational labor and governance issues can also be frustrating, but the diplomats continue to make progress.

In all, it is rewarding to see the fruits of this great work. Conflict minerals are a testament of how civil society, industry, and government can work well together, which was a theme carried throughout the OECD meeting. I appreciated the opportunity to get a first-hand look at the issues and the improvements taking place on the ground in central Africa. I am pleased to be part of an initiative that is truly making a difference and to be on a trip with great leaders who are truly making things happen for a sustainable supply chain while improving lives in Congo.

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Monday, November 18, 2013
Hope for the future

Due to the tax hike, we only saw about 25 artisanal miners working at the Nyabibwe_Kamimbi mine site, which can accommodate up to 1200 miners. Watching the miners, and comparing the operations in DRC to the Rutongo mine, an industrialized mine in Rwanda, I understood the need to formalize the artisanal and small-scale mining sector as discussed during the OECD meetings in Kigali. Certainly, artisanal mining is a way of life for some and a preferred method for mining, but it is a very manual process that takes a toll on a miner: the manual crushing and breaking, the heavy lifting or product upon one shoulders, the lack of safe conditions (no hard hats, not air pumps, no ladders, lack of proper attire – shoes, shirts, equipment), not to mention the seepage and wastage that happens from washing material in a stream instead of a processing plant.

I realize it is very simplistic and American of me to say, we need to industrialize this. Having been on the ground to see the complexities of the environment and the governance issues that exist, I realize the challenges in making this happen. But to look around at the many hills and mountains full of natural resources, and a hard working people who could benefit from it, it is hard to imagine not moving in this direction.

Before our trip, we learned that the UN Brigade had been successful in disarming the M23 rebel group – one of the primary groups that had dominated the region for the last several years. There are still a number of security issues prevalent in the region, but progress is happening. I am hopeful that as security improves, investment in the region will also improve and that the DRC government will act in a fashion that will allow the country to grow with such investment.

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Monday, November 18, 2013
High prices delay progress

Day three of our field visit in DRC included a three-hour drive to the Nyabibwe_Kamimbi mine site in Kalehe Territory, the only site in South Kivu Province producing cassiterite under the conflict free mineral traceability pilot. Traveling dusty dirt roads with windows open made us look as if we worked in the mines all day. Our faces were so thickly dusted with red dirt a colleague was able to write "wash me" across my forehead.

We met with the leaders of the mine and negotiants, many of them women. They took us to one of the store rooms in town, where over $35K of bagged and tagged conflict free cassiterite (tin ore) sat unsold because of an unfairly levied tax. Our frustration grew knowing that the investment in the program works. Yet, this traceable, validated conflict-free material (that American companies would be willing to buy) sits because of the tax and stubbornness toward it – negotiants refusing to sell product and pay the tax. Without the flow and trade of this material, people are not being paid. Further irony is that the price of tin was $3/kilogram last week, and it is $4/kilogram this week. So the tax, which was $.01 before the tax increase and is now $.05, would be absorbed in the price increase and throughout the year.

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Sunday, November 17, 2013
A tale of two comptoirs

Following the mine tour, I witnessed the effect of the new tax. We visited two comptoirs – ore traders who will clean and process the ores, and then prepare them for smelting, refining and shipping. We first visited a Chinese-owned comptoir, who showed us the processing "plant" and the "stores" where they keep all of their new material. None of it had been bagged or tagged – this is the famous ITSCI term for tracking minerals from the mine to the smelter. However, this comptoir is not part of the ITSCI program and is buying a kilo of material from the mines for $7 per kilo, then cleaning it and selling the ore to a smelter. This is not part of the "traceability" program and so he may buy ores from anyone without issue. He is currently trading five crates per month, bringing in revenue between $5 -$10M.

Next, we visited a comptoir certified as a conflict free good delivery partner. Here, no processing took place. Because of the tax, he has no supply because the price has been driven up so high that the negotiators cannot catch a decent price, and cannot afford to process metals. Thus, the tax is causing big issues and could essentially shut down the project that the PPA and the prince were sponsoring over the last year. While there, the owner of the processing facility had a 4-year old son, who gave me a tour of the bare "store" rooms with empty bags lying on the floor, and the processing machinery covered with cobwebs, unused since the issuance of the tax that makes traceable cassiterite unaffordable. This was a special experience from my trip that will stay with me.

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Sunday, November 17, 2013
Going for the gold

On our second day in DRC, we visited the Nyamurhale gold mine site, located in Walungu Territory, Ngwese Chefferie, Lubona groupement, which is 1 hour and 45 minutes from Bukavu centre. The site is active with about 300 artisanal miners producing about 2-3 Kgs of gold daily. It is managed by CAMIL (Cooperative Minre de Nyamurhale), a beneficiary of the USAID –RMT Training for Cooperatives' Capacity Building.

At the mine site, I was able to go into two mine tunnels that were beyond 30 meters deep. Safety reasons prevented me from going too far so I did not see any raw gold in the ground. Yet, I did witness the dangers and lack of formality and infrastructure for these mines.

After experiencing the mine tunnels and meeting with the local cooperatives and the mine leaders, we walked down the hill to the "washing center" to see how the local miners process the product they pull from the ground. Miners "crush" the gold by rubbing the ore between two rocks and washing through water falls to clean and sift out the gold from the dirt and sand.

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Saturday, November 16, 2013
Miners for the greater good

Following our meeting with the governor, we were all escorted to another meeting at International Organization for Migration (IOM), our hosting organization responsible for activating a number of USAID projects on the ground in South Kivu. Twenty men from across the mining industry in South Kivu, the mining minister and his chief of staff, joined us to discuss current mining challenges and to hear about our meeting with the governor.

These men have a sincere passion and commitment to their industry and to making their country a safe, fair, viable, and traceable place to work and mine. An hour into the meeting, we lost power in the room, and without missing a beat, the meeting continued aided by a few cell phone flashlights. Listening to them speak for over two hours was a moving experience for me. These men could get paid, and perhaps even be safe, working in certain mines, but they are dedicated to operating conflict-free mines.

They shared the need to make artisanal and small scale mining more industrialized so that miners use modern, safer equipment while maximizing output and eliminating waste. They also discussed child labor in the mines and the need to provide other places to go for children unable to afford schooling. They also implored leaders to help validate more mine sites in order to have enough volume to support those who are developing a traceable, conflict-free supply chain.

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Saturday, November 16, 2013
The prince and the governor

There is a clear border distinction when crossing into Congo from Rwanda. The road entering Bukavu, DRC is red dirt, laden with pot-holes and the hillside on the DRC side of the river is laced with garbage. Our trip into Congo marked the one-year anniversary of the traceability program at Nyabibwe-Kamimbi mine. Joining our group was H.R.H. Jaime-de Bourbon, a Prince in the Netherlands who is a key sponsor for the Conflict Free Tin Initiative and minister of natural resources. He is deeply committed to making things better in Congo.

Upon arrival, we went to the Governor of South Kivu's mansion to discuss the recent 500% tax hike issued on traceable minerals. This places a direct tax burden on the recently approved, traceable mines, and with such a steep increase, no one can afford to buy cassiterite (tin ore) from the recently established mine. The prince and Richard Robinson from USAID discussed this competitive disadvantage with the governor and noted how it may cause investment to leave the region.

Given the infancy of the project, and the investment that the U.S. and Dutch government, and other organizations have made in this program, if it is not viable, it will end, especially as the quality and price of cassiterite from Indonesia is more attractive. The governor agreed to explore the issue. Two industry representatives at the forefront of the conflict minerals initiative implored the governor to enable competitive costs. Currently, the impurities of tin, traceability and the tax create very high costs. Before leaving, the prince reminded the governor that timing is essential and the tax issue is fundamental.

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Thursday, November 14, 2013
Touring the mine

I've just returned from my first mine visit. Approximately 80 OECD Delegates were taken to the Rutongo Mine, which is the first ICGLR certified mine. This means the mine is certified as being conflict free! They shipped their first consignment of cassiterite (tin ore) to Malaysia last week – Malaysia Smelting Corporation (MSC), a certified smelter, is their refiner. Thus, all of the product and operations we witnessed today are conflict free!

The director of the mine provided us with a tour of the cleaning processes, their engineering facilities, and even their nursery. Yes, they have a nursery for growing seedlings. As mining uses considerable resources of water and timber, they have begun planting their own trees, native to the region, to replace those that they have cut down. Following our mine tour, we were even invited to plant our own trees. It was not planned for us to actually go into the mine tunnels, but we did! You'll see us in hard hats, dust jackets and wearing headlamps in some pictures as we enter into tunnel 32 of the mine. A truly exceptional and unexpected surprise!

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Thursday, November 14, 2013
A closer look at mine certification

How do you go about certifying a licensed mine in Rwanda? On the second day of meetings at the OECD Conference, Dr. Michael Biryabarema, Director General, Rwanda Natural Resources Authority, spoke about this process along with other experts. He noted that the first important element in regional certification involves inspection of the mine site.
The license covers a large area of land. Dr. Biryabarema said that in Rwanda, they have 198 licenses, but if you look at the actual areas that are tagged, there are 791 but most of them are artisanal. To inspect, they look at geo footprints, then go to the ground and look at the actual mine. It is necessary to harmonize the system of identification and certification and requires being on the ground to determine the mineral being mined.

He noted that data sensitivities vary among stakeholders and continue to pose challenges for transparency. There also needs to be reconciliation of the minerals being used – all production should be reconciled before it leaves the country. The consistency of application by member states to all operators is material. He recommended that between the ICGLR, member states should apply the same rigor in certifying mines.

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Wednesday, November 13, 2013
Insights from the OECD Forum

It's been a very full day at the OECD Forum, and I've summarized a few top-of-mind items explored in today's meetings. As mentioned in my earlier post, it's clear that there is mounting pressure from the International Conference for the Great Lakes Region (ICGLR) to finalize, adopt, and implement certification. In addition, discussions continue on the difference between the OECD guidance vs. SEC regulations. The issue seems to be that OECD seeks to identify and mitigate risk, and is about the process rather than the SEC regulations, which seek to determine a status for the minerals (conflict free, not DRC conflict free). Such differences are hindering the program and implementation.

Another key theme centered on the need for harmonization relating to tax rates and legislation. For example, taxes are higher to export for Congo than they are in Rwanda. A variety of experts urged countries to develop common legislation and tax programs, including suggestions to make EU legislation similar enough to Dodd-Frank in the U.S. Additionally, experts urged ICGLR member states to adopt a similar tax code and rates in order to de-incentivize smuggling and to create revenues for the development of mining and tractability in region.

Moreover, due diligence is not a zero-tolerance game. There is no big bang approach, it is a gradual process that should not lead to embargoes, but helps the situation on the ground. That's all for now…more on day two tomorrow.

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Wednesday, November 13, 2013
On the ground in Africa

I have returned to Kigali, Rwanda, from Musanze, where I had been on safari with Esther Rodriguez from KPMG in the UK and others. We had the unique chance of having a full-time guide who took us to experience local, real experiences, including the tour of a new home of a Pigmy family that is being integrated into Rwandan society. I am impressed by the programs that have been developed for the sustainability of the country, and each of the local communities.

Today marked the first day of the ICGLR-OECD-UN GoE Forum on Responsible Supply Chain Practices. I am impressed by the progress that is evident, especially the focus on the importance for the countries that make up the Central Africa region (covered countries of Dodd-Frank 1502) to finalize and implement their mining certification programs in order to capitalize on investment from American companies, and responsible international investors looking to invest in the region. Several other key themes were prevalent, and I will provide more insight on them in a follow-up post. Tomorrow, after morning meetings, we will depart for mine visits.