Beyond the social license: Minera Yanaquihua business model to

create shared value with artisanal mining.

Pavell Glvez Orosco
Minera Yanaquihua SAC
1 INTRODUCTION

In this article, it is approached an ongoing

business model. It will show how the model can
be widely applied in Peru and the world. This
model not only creates a favorable environment
for coexistence between formal and informal
mining, but also boost the formalization process
and creates shared value throughout the entire
chain.

Informal mining is increasingly in the national

spotlight in Peru, looking like a controversial
practice that has devastating effects on the
environment and society.The artisanal and smallscale mining (ASM) will not disappear overnight.
It is a socioeconomic issue. Should it continue
without regulation, it will become a national
interest issue, if it is not already.The government,
mining sector and civil society would benefit
from new approaches of formalization to
minimize the negative impacts and maximize the
benefits for all Peruvians.

By sharing our experience, we hope to stimulate

new ideas, future business with ASM and
promote new approaches on strategies and
policies to formalize.

CONTEXT OF THE ARTISANAL MINING IN

Within the universe of informal mining, it has a
PERU
subset of miners that exploit gold deposits in
narrow veins with high-grade ore, compared to
1.1. ASM: Changing the face of the rural Peru.
those found in alluvial forest operations. Minera
Yanaquihua business model applies easier in this
Artisanal mining in Peru is an ancestral and
context of Artisanal Mining, characterized by low
legitimate activity. ASM creates over 100,000
rates of productivity and technology of its
jobs, due low-productivity techniques and high
underground operations
labor demand. Gold production represents about
20 percent of the national production: approx. 36t
Minera Yanaquihua SAC (MYSAC) is a
anual.1
Peruvian mining company that has integrated into
its operations artisanal miners who work within
The artisanal activity is noticed since the late
their concessions: purchasing ore of those whom
1970's. Because of the rising price of gold over
MYSAC employed as micro-contractors. Beyond
the last decade, ASM activity has increased in
doing this as part of its strategy of coexistence
allmost all Peru, especially in Madre de Dios,
between the ASM and its operations in remote
Puno, Arequipa, Piura, La Libertad and
locations without the presence of the state,
Ayacucho.
MYSAC has done this as part of their own
growth.
Artisanal mining has changed the composition
and economic dynamic of Peruvian rural
In addition, to improve the livelihoods of
populations. ASM emerged as an alternative
neighboring communities and reducing their
economic activity and livelihood for people who
operating costs, MYSAC believes that by
lives in extreme poverty in rural communities.
aligning their interests with those of the artisanals
Their income sources are on farming activities,
miners operating within their concessions reduces
often with low productivity and selfthe risk of social conflict. It has been a key aspect
consumption. Driven by the scourge of terrorism
to maintain their social license.
in the late 1980s, these rural populations
migrated in large numbers to cities. This
1 (Ibarra, 2010)
1

systematic migration continues today as younger

generations seek higher education and formal
employment opportunities not available in rural
areas

Spanish). These steps make up the formalization

known as the extraordinary process.
As part of the decentralization process initiated
in previous governments2, the responsibility for
implementing the national plan of formalization
went to the regional governments, which do not
have the resources and capacity to effectively
lead this process. Besides, the criteria of
formalization are comparable in difficulty to
those for professional companies operating in
Peru. This barrier is too high for many ASM
operators, a good percentage of which are
illiterate.

At the same time, low-income immigrant

populations that make up the bulk of artisanal
mining labor are settling in formerly depopulated
rural communities. Due to the higher incomes
or the perception of higher incomesthat gold
mining offers, ASM is attracting new settlers and
quickly overtaking other traditional activities,
such as agriculture and livestock. It is only a
matter of time, due to lack of water-supply
projects and improvement of cultivation
techniques, before people can witness the decline
of the agricultural frontier and the development of
artisanal mining.

Additionally, the government has not combined

package of laws and policies that create strategies
incentives for formalizing ASM, seeing this
process as something that "have to do" and "will
have higher costs" with no apparent benefit. As a
result, only 1 percent of miners who began the
process have formalized their activities.3

1.2. The formalization process.

The formalization of ASM is one of the most
important challenges for the country, the central
government and local authorities. At the same
time, it is an opportunity to recognize ASM as a
legitimate economic activity and highlight its
participation in reducing extreme poverty,
especially in rural areas. However, its regulation
must be done in a sustainable and effective way
taking into account the limited resources
available and capabilities to drive the
formalization process.

Despite Peruvian and international support to

remove destructive informal mining and
processing, political will has hesitated. After the
approval of the law in 2012 that established
criminal penalties for informal mining, the
Peruvian government began enforcement
activities against illegal miners and processors.
Nevertheless,
implementation
has
been
inadequate and responded mainly to political
advertisement, disjointed with the advance of the
process. Even, there were interdictions to miners
who were in the process of formalization: clearly
illegal acts

Since 2002, Peruvian government has been

developing a national plan to formalize ASM
direct toward organizing and legalizing this
activity. This was driven due to the concern about
serious environmental deterioration, potential for
social conflicts (frequently occurs on third party
properties), and lost tax revenue on national
mineral resources.

However, political will in maintaining these

efforts has dropped because of the pressure and
acts of force by the federations of artisanal miners
in the capital and in mining regions. The most
worrying factor is the lack of a strategic approach
and long-term policies that transcends periods of
government, which promotes sustainable
development in the regions.

In 2012, the scope of the formalization process

was updated, focusing primarily on regulating the
use of surface areas; obtaining licenses for the use
of water; requiring operating agreements with the
holder of the concession; and establishing
appropriate environmental, occupational safety
and health requirements by a corrective
environmental instrument (IGAC, by its initials in

It is still open the discussion on social

expectations and land rights rural communities
may have acquired before the government gave
2 (Jimnez, 2012)
3 (La Repblica, 2016)
2

concessions to mining companies. This does not

allow easy answers and raises the possibility of
conflict. However, it could prevent competing
claims and future conflicts if the government
establish clearer guidelines on how to assign
surface rights. In this way, the interests of mining
companies with pre-existing rights of indigenous
and peasant communities would balance.
Although some of these questions are complex,
what seems clear is the need of reformulating the
executive
formalization
strategy
that
complements the legal framework. We are talking
about prioritizing sustainable development based
on the creation of value in mining communities:
maximizing resources and incomes, protecting
the environment and strengthening the capacities
of the agencies that conduct: in short, to lead the
process.

or by third-party equipment rental, who leases the

facility retains ownership of the tailings. The
artisanal metallurgical processing in all cases
leads to exposure of high risks to health and
safety due to the use of pollutants and creating
devastating effects on the environment. The
pollutants are toxic chemicals and inspected, such
as mercury and cyanide mainly.
Extractors Miners who extracted ore and sell it to
formal and informal levels.
Worldwide, it is estimated that these miners
represent over 90% of the population of the AMS
and generate 10% of the environmental impact of
the activity.4
They create low environmental impacts such as
accumulation of deposits of waste, which can
generate acidic water. There are also others, such
as erosion and generation of household waste.

Then, formalization may be a reality in those

remote areas not only because the state requires it
(with little chance of forcing it), but because the
benefits outweigh the costs and efforts to
complete the process. Therefore, not every effort
will go separately, but significant results. The
Peruvian mining sector and society as a whole are
at risk due to loss of productivity and inefficient
use of national resources.

There are several communities in the departments

of Apurimac and Cuzco that exploit and transport
ore to the coast, in some cases up to 400 km, due
to the lack of formal plants near their sites that
can process the ore.
Processors They are owners of mechanized mills,
quimbaletes (rudimentary mills that use large
stones to manually crush ore in a basin), and
cyanide ponds as part of artisanal processing
facilities to extracte the gold from the ore.

1.3. Characterization of the actors within the

artisanal mining chain
Different actors contribute to the production of
the ASM. Understanding the role of these actors,
their participation and impacts on the supply
chain, help you better understand the MYSACs
approach and recommended strategies to
formalize ASM in Peru. Normally, miners work
underground to extract rock (ore) that contains
small gold particles. After the ore is taken from
the mine, it requires additional processing to
obtain gold. Tailing is a byproduct of artisanal
metallurgical process, which has residual gold
content, as mercury.

Metallurgical processing activities are carried out

for its own mineral or provide services to third
parties, in this case they typically charge for
inputs such as fuel, steel balls and mercury,
keeping the tailings as payment service.
Artisanal processors are the most likely to cause
serious damage to the environment due to the use
of rudimentary technology, mercury and cyanide
without adequate controls, resulting in the
pollution of land, air and water. In addition, they
often used to accumulate the tailings areas that do
not accomplish physical and geochemical
controls. These actors are largely the heart of the
problem, while practices are deregulated. They
have greater representation within the political
structure of the ASM and they control resources.

While there are only artisanal miners who

extracted the ore and then sell it to third parties
for
processing,
others
only
process
metallurgically buying mineral from extractors.
A mixed category of actors do both: extract the
ore and processes it, either in their own facilities

4 (Veiga, 2012)
3

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Very often, their position in the chain allows them

to exploit extractors with unfair payments for
gold or charging exorbitant fees for supplies.
Because extractors and processors divide their
time in completely different activities, overall
production is less than what they could achieve
focusing full time on the extraction and then
selling ore at an industrial processing facility.

Figure 1: Stakeholders of the ores purchasing

2.1.1Benefits for mineral extractors

Due to the use of obsolete technology in
artisanal processing, it is obtained
between 50 and 60 percent of gold
recovery. Additionally, the artisanal
processing costs can double the costs of
other purchasing plants. In this way, there
is an immediate benefit to the extractor.
This economic benefit can mean up to a
35% increase in revenue.

It is proven that using mercury to extract gold is

inefficient in the artisanal metallurgical process:
people can recover between 50 and 60 percent of
the gold content of the ore. This loss of gold
decreases economic value to artisanal extractor
and gives life to the business of the processors.
Besides being less efficient, extractors also incur
high costs. Based on field observations, it is
estimated that using "quimbaletes" the cost of
treatment is doubled per ton compared to an
industrial plant (in terms of labor and material).

Also, it goes unnoticed the (high)

opportunity cost of artisanal mining, due
to intensive use of labor in ore processing
instead of using it in ore extraction.
Specialization in mining activities would
result in improved overall productivity.

Many of the processors operate illegally on thirdparties land. After abandoning their activities,
pollution could eventually be responsibility of the
landowner or society in general,

Process
Indicator
Recovery
Processing
Cost

If these observations were analyzed carefully,

people can notice opportunities for artisanal
extractors, the great mass of the ASM. They could
increase significantly their income; reduce
environmental pollution and exposure to their
health, transferring the risk of processing its ore
to a formal company (private or artisanal base).
This observation let MYSAC consider working in
closer cooperation with artisanal miners in their
concessions in order to increase production of ore
being the company responsible for the processing.
2 MYSACS
SHARED
MINING

Artisanal
(quimbaletes)
50% 60%
160$/t

200$/t

Purchasin
g plants
70% - 90%
60$/t
110$/t

Table 1: Average indicators in the region of

Arequipa according process.

Another important advantage is to avoid

pollution, especially by the use of
mercury, which has irreversible harmful
effects of miners health. Additionally,
exposure to the contamination of people
around would be reduced, given the
velocity with which it evaporates and
condenses metal. It is a pity that the
population of the ASM less appreciates
this benefit.

MECHANISM TO CREATE
VALUE
WITH
ARTISANAL

2.1. PURCHASING OF ORE

Despite of commercial transactions are made
directly between mineral extractors and MYSAC,
the
government,
local
authorities
and
environment are considered stakeholders because
they are affected when mineral purchasing or in
its absence.

A key factor of the model is that ASM can

see MYSAC as an ore buyer, a source of
financing, logistical support and training.
2.1.2 MYSACs benefits
4

Due the high selectivity of artisanal

mining, it is feasible to purchase highgrade mineral, thus reducing the tonnage
and plant size and infrastructure,
minimizing investments in equipment and
expansions.

property. The company has provided legal,

financial and logistical support to artisanal miners
to formalize, taking into account the following
characteristics:
MYSAC has geological resources in ultra
narrow veins. After mining exploration and
development, it was determined that it was not
economically profitable extraction, because the
regular mining contractors do not have the
technique to avoid dilution (mixing ore and
waste) when extracting.

There is also a significant reduction of

costs and risks in the exploration and
development of mineral purchased, which
the artisanal mining extractor absorbed.
The possibility of mining gold deposits
with low inventory reserves represents a
new mining model. So, costs and time in
the pre-construction phases are reduced,
which are intended to accumulate enough
reserves to reach a feasible project.

The micro-contractor are artisanal miners,

natural extractors who possess skills in selective
underground mining techniques that can extract
ore in ultra narrow veins (5-10 cm) without
dilution. In many cases, in their condition as
artisanal miners, they were less likely to complete
the exploration and development phases before
exploiting the mineral due to insufficient financial
resources and technical support.

There is flexibility in ore purchasing cost,

since the payment of the gold contained in
the ore purchased is a proportional
function the international price of metal,
then the cost is mainly variable.

Synergy between skills, resources and

capabilities carry out to the transfer of financial
risk to MYSAC, in exchange of using their
mining techniques in ultra-narrow veins. They
receive a discounted payment: an artisanal miner
explores, develops and exploits its mineral on
their own. Artisanal miner receives between 85
and 90 percent of the value of the metal from its
ore and micro-contractor receives 60 percent of
the value of the metal. This format allows the
micro-contractor and MYSAC obtain mutual
economic benefit and increase gold production in
a sustainable manner. This scheme is an
alternative way to formalize the ASM, reducing
significantly the procedures and time to obtain
licenses.

2.1.3 Benefits for government and local

authorities
It is undoubtedly that using existing
facilities to treat purchased ore, helps to
get easier tax collection and the number of
taxpayers increase within the ASM.
The corruption would be reduced because
the gold would not be sold in smuggled
out of the country. The ASM production
would be improved, if the control were
focused on the competent authorities.
2.1.4 Benefits to the environment
It prevents the increase of environmental
liabilities and water, air and farmland
pollution caused by the use of mercury
and cyanide. Additionally, the ore
purchasing is a mechanism that
encourages the use of local labor, which is
far from models of medium and large
mining, which mainly use skilled labor
which it is absent in the community.
2.2. MICRO-CONTRACTORS.
MYSAC has used the mining-contractor
scheme to formalize artisanal miners on their

This scheme absolves micro-contractors of

responsibility for environmental liabilities that
may arise, as they work as a service provider. All
licenses and environmental remediation plans are
responsibility of the holder; contractors assume
commitments employer and responsibility for
their workers.
3. STRATEGIES TO ENCORAUGE
FORMALIZATION PROCESS

THE

3.1 Reduce artisanal processing activities,

taking advantage of existing facilities and
appropriate clean technologies.

Although most complaints focus on grade of the

ore, this can be verified by external or diriment
laboratories that can be audited by regional
authorities in order to ensure the sustainability of
the model. Building trust is a key aspect for the
development of the model.

These strategies are aimed to reduce the

activities of artisanal processing transferring these
to formal companies (private or artisanal basis) to
ensure compliance with environmental and safety
standards.

3.3 Sensitizing
artisanal
miners
and
stakeholders about the harm to health,
environment and economy of artisanal mineral
processors.

There are mining companies and artisanal

formalized organizations already operating under
environmental regulations and can process the ore
from the ASM that: (a) currently sell their ore to
informal plants or (b) processed ore in their own.
Differential investments that these companies
must make to get the offer of the ASM, are
significantly lower than the specific initiative to
build new facilities for this purpose, since that
already exist and have a range of licenses
allowing them to operate.

They are significantly valuable advantages to

avoid damage to your health and that of their
families prevent environmental pollution and get
a better income through productive specialization:
concentrate full time on the extraction of mineral.
Environmental authorities have the duty to
perform this task. Because of there is a lack of
resources of authorities, mining companies
working in the area and NGOs support them.

Expanding existing infrastructure is strategic

because not only avoid multiplying investments
in new facilities to get the production of the
ASM, it would reduce the resources for
monitoring and control of regional government,
as would be achieved gathering ASM production,
creating better conditions for traceability.

4. CONCLUSIONS
The key is to identify if there are opportunities to
create value in the ASM while formalized. This
value must be translated into economic, social
and ecological benefits that break the inertia of
the current situation.

There are exemplary cases of artisanal mining

associations such as SOTRAMI, AURELSA and
MACDESA that use properly technology and
infrastructure, showing that it is possible to make
a positive change under responsible leadership.

Creating these opportunities, should be seen as

the result of the reformulation of the
formalization strategy and should be maximized.
This should be accompanied by state policies that
allow agglomerating artisanal producers and the
process with greater environmental impact, are
driven by formal enterprises (private or artisanal
basis) taking advantage of their presence in the
area, infrastructure and licenses.

This strategy should also be oriented to research

and implementation of technologies that replace
the use of mercury in artisanal processing and
complemented by the creation of markets that
purchase these new products.

Formal enterprises can become themselves

vehicles of formalization.

3.2 Creating commercial protocols to ensure

that commercial transactions are transparent and
auditable

A. The government must lead the

formalization process.
B. There is an unnoticed business case
neglected by the state, which could
formulate a favorable political solution to
the purposes of formalization.
C. Spaces must be created for dialogue
between the state, formal mining and

There are bad business practices by purchaser

plants as reducing weight and grades of the ore,
which added to the fact natural distrust of
artisanal extractors, limits the growth of ore
purchasing and creates the market for artisanal
processors.
6

D.

E.

F.

G.

artisanal mining that will identify and

discuss ideas or models, to create fair and
sustainable solutions.
In locations where the state has no
presence, people can not focus on
formalizing a process that must be get, but
should be encouraged
The formalization process is not moving
forward in locations where there are
extractors and artisanal processors
operating simultaneously, due to conflict
of interest.
Artisanal extractors, who notice an big
enough incentive, are able to access the
formalization process easily. If it were
considered only the corrective action to be
submitted by artisanal miners to adapt
their practices to the applicable
environmental standards, extractors would
get less costly and complex remediation
programs. Therefore, they would get
achievable programs.
Understanding and dissemination of these
differential benefits can create a behavior

change in those miners who lease services

processors.
5. ACKNOWLEDGEMENTS
This work was conducted thanks to the
valuable contribution of Jennifer Horning,
International Programme Coordinator, Gold.
6. REFERENCES
Ibarra, R. (2010). Plan nacional para la
formalizacin de la minera artesanal. En
C. t. 045-2010-PCM. Lima.
Jimnez, J. (2012). Plan Nacional de
Descentralizacin. Lima.
La Repblica. (19 de 09 de 2016). Obtenido de
http://larepublica.pe/impresa/politica/8042
14-proponen-al-estado-capacitar-minerosen-proceso-de-formalizacion
Veiga, M. (2012). Artisanal Mining: Perspectives
from the Field. Canadian International
Resources and Development Institute,
(pg. 27).