Predictions for 2023 - Gold

In the Amazon, the year of unforeseen consequences

Predictions for the Amazon under the new Lula regime are all the rage in early 2023. Being as much a media lemming as any other news rodent, I’m jumping in with some predictions of my own.

(I had intended to get this out in early Jan but life in the form of a rambunctious 3 year old intervened. I’m pushing them out the door one at a time now before they get old and hoary and toothless and irrelevant)

Gold

For Amazon gold, this will be the year that the efforts to control, regulate or otherwise stymie Brazil’s artisanal (garimpeiro) miners will drive the entire garimpeiro gold sector underground. Strictly in monetary terms that’s going to make for one hell of a hole.

My own estimates of Brazil’s ASM (garimpeiro) gold production - derived from the 1.5% CFEM tax levied by the federal government at export - put garimpeiro gold production at about 17.25 tonnes per year (other researchers get slightly different numbers based on slightly different assumptions, but we all use the same data and we’re all in the same ballpark). At an average world price of US$50/g (another ballpark exercise), that amounts to about $864 million dollars.

Exporters typically get anywhere from 95-99% of that world gold price, Two steps down the chain, miners get from 85-88% of world price, or about $735 million. A lot of the money circulating around the Amazon is generated by gold.

Currently, that gold is exported to refiners and jewellers in India, the UAE, Italy, Belgium and Turkey (there may also be some smuggling, but for structural reasons I’ll get to in a later post I believe it to be minor). At the export level, this trade is perfectly legal and above board. The overseas buyers move their buying funds through legitimate banking channels. The exporters pay the 1.5% CFEM tax and ship the gold via Brinks or some other bonded service, with all the requisite forms and customs declarations.

Alas, the above board export of Brazilian garimpeiro gold is based almost entirely on a single rather obvious deception. Almost all of the gold itself originates on lands to which the miners have no legal mining title - either in protected areas or indigenous reserves where mining is illegal. To wash this gold into the legal system gold traders and exporters dummy up origin documents with one or another legal garimpeiro claim listed as the source of the gold. Some of these PLG mining claims are completely untouched. Others generate implausibly vast amounts of gold year after year. The whole deception is only barely credible. The purpose of the paperwork is not so much to fool the regulators in Brazil’s ANM mineral agency, but to give them a plausible excuse to approve the exports.

The works because someone at some level, in Brazil’s mining agency or higher up, has made a decision that there’s no way to stop garimpeiro gold production, so it’s better to get the CFEM tax and keep the gold exports in legal channels.

That, I predict is about to change.

The deforestation associated with garimpeiro gold production is relatively minor, about 5% of the annual total. Given that, the new regime might have been tempted to leave garimpeiro gold alone. That might have been my prediction in early January. But then the Yanomani situation blew up. (Much more on that in later posts, I hope)

Now, I expect shutting down garimpeiros and their gold mining ways will have risen to the top of the heap. The current anti-miner operation in the Yanomani lands - involving the airforce, Federal Police, state police, Ibama, Funai and others - certainly gives the impression of a big goverment committment. I believe this committment is real. It also gives the impression that enforcement activity works against garimpeiro miners. This I believe is not real.

That enforcement is ineffective is borne out by the production figures (see the graph above for 2014-2016, the last two years of the PT regime) and by interviews with miners all over the Tapajos basin. In addition to myriad methods for avoiding enforcement teams, miners have more or less incorporated the costs of enforcement into their production costs. Burn a $200,000 excavator, they say, and another one will arrive - in a week and on credit - from a dealer in Itaituba. Give them two months unmolested and they’ll have paid off that excavator and be back making money.

Again, I hope to go into more details in later posts, but essentially I believe that there’s no way the rhythm of enforcement actions can keep up with this system.

Frustrated, I think Brazil’s enforcement agencies - the Federal Police, IBAMA, the Ministerio Public - will demand a crack-down on the bogus gold trail paperwork. And this will be the single move that will drive Brazil’s garimpeiro gold sector underground.

How do I know? Because I’ve seen this play before, and even acted out my own not so small part. In 2005 and 2006 I wrote a pair of reports documenting the bogus paperwork behind more than a million dollars worth of diamond exports. Brazil’s mining agency, then the DNPM, ignore me, but the ministerio publico paid attention. In 2006 they launched Operacao Carbono, with raids and diamond seizures in Rio and Belo Horizonte and elsewhere. Eleven people were arrested, among them the deputy head of the Minas DNPM.

Brazil then implemeted a rigorous traceability system for artisanal diamonds. And legal diamond exports collapsed, from about 200,000 cts per year to something less than 100 cts per year. Producion continued - much of it on the Cinta Larga Indian Reserve in Rondonia - but sales channels vanished underground. And so it has continued to this day.

Folks in the ANM, mindful of this example, have been wary of making similar traceability demands on gold. But I expect they will soon be overruled, with unfortunate, foreseeably unforeseen results.