195 (17.05.18)


TECHNOLOGY

Clock-Ticking in Race for Fully Traceable Metal

The mining industry has a supply chain problem. New technology could improve traceability. It could also be a large font of profit:

Before Valentine's Day, campaigners wrote to watch group Rolex asking where the company buys its gold and silver. Precious metals are less traceable than diamonds, but Rolex, which is privately-owned, has no publicly-available information on its supply chain.
   Rolex did not respond, joining a long list of companies including Apple, Tesla and Mercedes to get drawn into investigations over the metal they use, as consumers try to trace every stud on their jeans and every component in their iPhone.
   From Nike trainers made in sweatshops to Boeing sending staff to buy fasteners on the high street because it had run out of parts, every industry is buffeted by supply chain scandals. Yet mining, sitting at the top of the chain, has enjoyed a unique position: metal is melted, blended and worked so many times before it reaches the consumer, and the product so nondescript, that mining companies have until now lived in privileged obscurity.
   Electric cars and the booming tech industry have popped that bubble. Futuristic products sold on their green credentials have grabbed the public's imagination, whilst attracting investigations into every component, unearthing tin mined by slave-labour in Indonesia and cobalt mined by children in the Democratic Republic of Congo.
   Metal groups have been slow to up their game. The London Metal Exchange found illegal cobalt in its contracts last year, but failed to ban the company responsible. Instead, it is issuing a white paper.
   One company that has been ahead of the trend is Anglo American: it used the word “consumer” 39 times in its annual report in 2015 (six times more than rivals), thanks to its high street diamond business, De Beers, which is trialling blockchain technology to improve traceability. It has so far tracked 100 stones from its mines to the jewellery counter.
   The new platform promises to close the case of Liberian diamonds: the country has no diamond mines, but accounts for millions of dollars of diamond exports each year. Footwear brands in the US are similarly using blockchain to track trainers, making fakes easy to spot, rendering them un-buyable, in an attempt to thwart the multi-billion dollar counterfeit market.
   Ten years after blockchain's invention,

everything points to mass adoption. Supermarket giant Walmart is using the technology to itemise its vast supply chain, one of the world's most complex, spanning everything from toys to blueberries. This week HSBC rolled-out similar technology to track trade finance deals, shortening document processing times from five days to 24 hours. In mining, Vancouver-based Goldcorp and the UK's Royal Mint are both using blockchain to track precious metals.
   If ports, shipping companies, smelters and traders all take-up the technology, making metal fully traceable, blockchain could lead to other industry improvements, from lowering carbon emissions to eliminating fatalities. Mining groups could create an industry-wide stamp, etched onto electric cars and the back of every iPhone, to certify that its metal comes from safe, tax-paying operations. Consumers could scan the back of their Coke can and watch a video about the mine in Australia that it originally came from.
   Tech groups in California, which rely on their intangible branding to generate cash, are racing to out-pledge each other to boost their green credentials and are likely to pay a premium for traceable metal, equivalent to Fair Trade coffee or organic avocados.
   Any price jump could be sizeable: in the UK, Fair Trade bananas sell for 35p versus 17p for their unmarked equivalents. Shares in mining companies that have built safe operations, selling all their output under the new benchmark (the Traceable Metals Institute, or “TMI”), could also command fuller valuations, pulling-in institutional money aimed at sustainable investing.
   There are precedents to learn from. Cotton, like metal, has a complex supply chain: it is picked, spun, weaved and turned into fabric, but merchants intervene at every stage, dealing with countless mills and growers, turning the cotton thread into a tangled ball. The world's largest fashion brands joined together in 2005 to launch Better Cotton, which has guidelines on ethical production and funnels money into auditing and improvement programs, overseeing cotton-growing in dozens of countries. By 2020, the initiative is due to account for a third of all cotton traded.
   The alternative for the mining industry is the Streisand effect: companies can try to repress information, leaving campaigners to dig it up for them.

 

CONTENTS

Rio Tinto & Alcoa:
Star-Crossed

A new zero-carbon aluminium initiative launched by Apple, Rio Tinto and Alcoa could be the beginning of a deeper relationship

Silicon Valley a Derivative of the Mining Industry

The valuation of Facebook versus Rio Tinto points to a misunderstanding in society, writes Bernstein's Paul Gait

Briefing: Bullpen at BAML

The world's largest mining companies traded blows at the Bank of America conference in Miami this week