Artisanal Mining – An Opportunity for Pension Funds
In this guest blog, Rob Karpati of The Blended Capital Group explores how artisanal mining’s transformation can de-risk value chains, strengthen supply of critical minerals, and open new opportunities for responsible, scalable pension investment.
Artisanal mining (ASM) professionalization involves asset classes that are potentially compelling for large pension funds.
As background, 45 million largely informal artisanal miners operate across 80+ countries. These miners produce critical minerals along with precious metals and stones. Professionalization transitions miners into formal economies through the creation of coops or companies. As this process proceeds, miners are trained, equipped and shifted to good practices, improving the dignity and productivity of work. Value chains are also transformed, transitioning from today’s informal flows that may include smuggling to flows that become part of formal economies. Financial, social, environmental and economic value are all generated as professionalization matures.
Mining is often excluded from pension fund portfolio selection in general, artisanal mining is almost universally excluded in particular given concerns around human rights, social and environmental, questions around legality and risk profiles. Factors that have driven these exclusions are fundamentally changing, which is why it is time for large pension funds to consider ASM sectoral opportunities.
Why Artisanal Mining
Remembering that large pension funds like CalPERS are essentially universal owners, artisanal mining can contribute to their portfolios in a number of ways:
Direct financial opportunities – although low tech and small scale, ASM can deliver compelling financial returns as professionalization takes hold, a potential long-term contributor to portfolio value
Derisking of supply – mining is the foundation across most value chains. Critical minerals, which are needed for clean energy applications, AI/tech and for the day-to-day materials that growing global populations require, are in short supply positions in the medium and long term. Professionalizing artisanal miners helps to bridge supply gaps directly – productivity increases as equipment and good practices are brought to bear – as well as indirectly, given conflict risks that are mitigated between artisanal miners and large-scale mining projects that adversely impact supply
Responsible business practices – although there are clear gaps in responsibility in today’s artisanal mining sector, good practices that are implemented through professionalization fundamentally eliminate historical concerns around the human rights, social and environmental impacts of small-scale mining
Anti-corruption benefits – informal miners are often prey to smugglers and corrupt actors across much of Latin America and Africa. Professionalizing operations in ways that eliminates bad actors helps to de-risk value chains from the effects of smuggling
Put simply, positions in ASM that support professionalization not only delivers returns with a long-term focus, but de-risks value chains from supply and corruption perspectives, a nice fit with the mandates of many pension funds.
How Artisanal Mining
Pension funds need formal transparent mechanisms that they can use for considering potential investment opportunities in any given sector. This has been historically lacking in ASM, but is now coming into focus.
There is a strong realization that investors and miners need a common ‘language’ in order to increase dialogue and take-up on potential opportunities. Put simply asset classes and KPI’s associated with ASM need to be clear and they need to be supported by strong auditable validation mechanisms that ensure consistency between data and ground-level realities.
The Blended Capital Group, Capitals Hub Canada and Veridicor are collaborating on the implementation of a digital marketplace that provides exactly this, where transparency will support the delivery of at-scale capital given clearly defined asset classes that support dialogue and engagement. Taking advantage of today’s technology – blockchain, stablecoins and the ability to tokenize investments, this digital marketplace will be rolling out a series of +/-$100M sustainability bonds with 7 to 10 year time horizons as an initial set of bespoke financial instruments targeting the sector.
In Summary
Investments need to be commercially realistic in order to justify consideration by pensions. A focus on ASM professionalization is not charity, it is a targeted mechanism for delivering financial value along with social, environmental and economic gains that stable predictable equitable business practices generate. Recognizing how mining is at the very front of most of our value chains, professionalization of this sector derisks downstream supply and corruption risks as well in meaningful ways, a benefit for pensions that have broad-based investment holdings.
Transparency and flexibility of investment options are of course essential as well, which is the specific need that the digital marketplace described above will be delivering, new capabilities that open the door for a new focus on artisanal mining related asset classes.
About the Author
Rob Karpati is a long-term Finance leader who focuses on strategic transformation and on global process optimization. During his 35+ year career, Rob has developed a unique capability for integrating complex end-to-end ecosystems in ways that optimize cross-stakeholder value. He is currently a Partner at The Blended Capital Group, where he works on transforming the global artisanal mining sector in order to reimagine financial, social, environmental and economic value given the inherent potential of the 45 million person sector.
