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Soaring gold price leads to a refining boom

In a refinery just outside Uganda’s main airport, workers slip bars of freshly refined gold into clear plastic bags sealed with a sticker of the national flag — black, yellow and red — and the label “Ugandan’s Treasure.”

Uganda produces little gold of its own. Alain Goetz, who set up the refinery, says that by branding gold from abroad as Ugandan, the operation is merely imitating others — for example, the Swiss don’t mine the gold they refine in Switzerland.

The refinery, African Gold Refinery, is part of a trend across Africa. Small-scale mining is booming, and new gold refineries are opening by the dozen, to process metal produced by informal diggers in Africa and beyond.

The refineries, which often win high-level political backing, can be positive because they offer miners and states a way to extract value from their own mineral wealth rather than just exporting raw commodities.

But if not properly controlled, they risk adding to problems of smuggling and funding conflict.

Some of Africa’s new gold refineries are in South Africa, a major gold producer with an already large refining industry. There, authorities granted 19 refining licences in the year to March 2019 — as many as in the previous three years combined.

Elsewhere in sub-Saharan Africa — where until 2012 there were only a handful of refineries — as many as 26 are now either operating or under construction across 14 countries from Mali to Tanzania, including in states which mine little gold at home, a Reuters survey found.

Governments of gold-producing countries in Africa have long complained that the precious metal in their rocks is being illegally produced and smuggled out on a vast scale, sometimes by criminal operations, often at a high human and environmental cost.

By refining gold, states hope to capture value that is being lost. “The only way to stop (smuggling) is having multiple refineries in Africa,” said Frank Mugyenyi, head of the minerals unit at the African Union.

But because informal miners already often operate through smuggling networks to avoid tax and scrutiny, officials and industry sources say some refineries risk inevitably joining these shadowy channels. With so many refineries competing for gold to process, each has scant incentive to check where its gold comes from.

Just 13 of them state they can handle more than 1,400 tonnes of gold a year, worth around $70bn (€63bn). That means they could treat around twice Africa’s estimated total gold production, and nearly a third of the world’s supply.

Of 22 refineries surveyed by Reuters, 14 did not respond to requests for more information about the size and nature of their business.

Two responses to the survey showed a lax approach: One small operator, Bupe Chipando who heads Alinani Precious Metals Ltd in Kenya, said he does not yet purify gold, but just melts blocks of impure metal together and ships them overseas. Officials said they knew of at least two other African refiners who did the same thing.

Another, Robert Baker, the CEO of Bekora Miners in Cameroon, said most of the gold his refinery processed was not declared to customs, in order to avoid paying tax on metal it exports. Cameroon’s government did not respond to requests for comment.

The Organisation for Economic Co-operation and Development (OECD) developed global sourcing standards against which it recommends refineries are audited. Outside South Africa, no African refineries have yet followed that recommendation, said Louis Marechal, an OECD expert on responsible business conduct at who has travelled widely in Africa consulting with governments and companies on how to regulate and source gold responsibly.

The new refineries offer an important outlet for millions of individuals who dig for gold using basic technology.

Industrial mining companies usually fly metal they produce in Africa to large refineries accredited by the London Bullion Market Association (LBMA), the industry’s standard setter.

All but one of these is outside the continent. Concerned about the risks of rights abuses, crime or conflict in the supply chain, LBMA-accredited refineries typically steer clear of metal from informal miners.

Six of Africa’s new refineries — in Cameroon, Kenya, Mali, Rwanda and Uganda — shared output data with Reuters.

With combined annual capacity for around 270 tonnes, they currently process around 41 tonnes of gold a year worth some $2bn. For comparison, refineries in Switzerland handle around 2,500 tonnes of gold a year, worth $120bn at current prices.

Some people in the industry concede that it is hard for Africa’s new refiners to be accepted as mainstream suppliers. Large banks, jewellers and electronics makers generally only accept gold from refineries accredited by groups such as the LBMA.

– Reuters

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