Tags: Precious Metals

Illegal Gold Mining Is Costing Countries Millions

By , Associate Editor, Money Morning • @TaraKateClarke •

illegal gold miningIllegal gold mining is stealing so much money from countries and companies that the United Nations is finally stepping in.

The worldwide surge in gold prices - 360% over the last decade, and 34% from 2008 to 2009 following the Great Recession - sprung a very profitable niche for illegal gold miners. The practice bites into national revenue and the profits of legal gold miners. It also causes severe environmental effects and social conflict.

"Countries are losing significant funds," United Nations Interregional Crime and Justice Research Institute (UNICRI) director Jonathan Lucas said to The Wall Street Journal this week.

The UN will start a study in September to examine the role of illegal gold mining and black market trading in the production and distribution of gold. It will gather information from affected countries through December 2014 or January 2015, and then release a report that provides recommendations for the countries - and the gold mining companies therein - to combat the issue.

Here's what we already know about the devastating impact illegal gold mining has had around the globe...

Illegal Gold Mining Hits South Africa the Hardest

Compared to other countries, South Africa is particularly vulnerable to the illegal mining practice.

South Africa, formerly the world's biggest gold producer until 2008, has a large number of abandoned, deeply running mines, making police enforcement near impossible. According to the South African Council for Geoscience, about 4,400 of some 6,000 abandoned mines in the country are being illegally mined. And the number of illegal miners is rising.

"We are very close to the point where there will be more illegal miners than legal miners," South African mining consultant Anthony Turton said to Mining-Technology.com.

The country is estimated to lose approximately 5% of its annual mineral output due to illegal gold mining annually, according to the country's Chamber of Mines. That amounted to a whopping $500 million in taxes and export revenue in 2010 (the most recent data available). The country makes $2 billion in corporate taxes a year from legal miners.

Perú's Recent Initiative to Combat Illegal Gold Mining

In Perú - currently the world's fifth-largest gold producer with extractions of about $10 billion annually - a region called Madre de Dios is inhabited by an estimated 40,000 illegal gold miners that account for about 20% of Peru's gold exports per year.

According to a joint study by the Carnegie Institution of Science and Peru's Ministry of the Environment, the number of illegal gold mines in Peru increased by 400% between 1999 and 2012. Deforestation rates have tripled following the Great Recession in 2008, when gold prices began to skyrocket.

Illegal miners have destroyed more than 120,000 acres of some of the most pristine sections of the Amazon over the last few years alone. The poisonous liquid mercury they use to separate the gold has polluted the water - to the tune of 30 to 40 tons of contamination per year, according to government projections. Nine out of the 15 most-consumed fish species for sale in the region's markets contain mercury levels exceeding the U.S. EPA's safety limits. In Madre de Dios, 78% of residents have "dangerously high levels of mercury in their bodies, with women of childbearing age the most affected," according to the Amazon Conservation Association.

But illegal miners can earn a living, even quadrupling what they make compared to their normal jobs in the country.

"Extreme profits are never a justification for breaking the law," Perú's environmental minister Manuel Pulgar-Vidal said to The Washington Post.

After years of inaction, the Peruvian government officially banned illegal gold mining April 19. Police and military troops were deployed to drive out the illegal miners in a "no mercy campaign." Since then, the country's gold output has declined 14%, and crackdown has sparked deadly anti-government protests in Madre De Dios.

Ghana's Ongoing Battle Against Illegal Gold Mining

Ghana is the second-largest gold producer in Africa, behind South Africa.

Over the past few years, a record influx of Chinese migrants have come to the country in search of the yellow metal - nearly 50,000 illegal prospectors have left China for Ghana since 2005, according to the South China Morning Post.

Starting in 2013, Ghanaian President John Dramani Mahama initiated efforts to curb illegal gold mining (known there as "galamsey") that he said has been "degrading the environment while costing the mineral-rich country millions of dollars in lost revenue." So far, the country has ultimately deported some 4,700 Chinese national illegal gold miners.

"We have all witnessed the devastation galamsey has caused to some of our water bodies and its effect on the production and supply of water to various communities," Mahama said last year. "There have also been casualties and loss of lives arising from conflicts in some areas where illegal small-scale mining is taking place."

In January, Mahama told the World Economic Forum (WEF) that the Ghanaian government "is determined to free the mining sector from illegal mining activities." He said that "unlike the big mining companies whose operations could be monitored and regulated by state agencies, the opposite was the situation with illegal mining operators."

And in March, Mahama announced that his government will use Chinese technology to clean rivers that are being polluted by the illegal gold miners.

Illegal gold mining in Ghana has become such a public conflict there that Discovery Channel has filmed a series about it called "Jungle Gold," set to air in late November.

Speaking of crimes... You don't have to watch a Discovery documentary series to get a firsthand look at major public conflict. Money Morning Capital Wave Strategist Shah Gilani recently told readers about latest scheme by big banks and the U.S. government to rip off of American taxpayers...

Related Articles: