Blockchain technology can help miners secure investment and future access
to markets through times of unprecedented change
By Carly Leonida, European Editor
In April, Berlin-based Minespider announced it had secured €2.8 million in funding to further develop its blockchain protocol for mineral sourcing.
The news is indicative, not just of the market’s increased appetite for transparency at every stage of mineral supply, but also of change in sentiment amongst mining investors.
“We applied for the funding last October, the bulk of it was from the European Union Commission’s Horizon 2020 grants, although there was also a portion from private investors,” Founder and CEO Nathan Williams explained.
“I think that we’ve hit a sore spot that the EU had, which is: how can we make it easier for companies that, by January 2021, are going to have reporting requirements for importing all of their material but don’t have a way of proving where it comes from?
“Especially now that COVID-19 has hit, people are really looking at priorities, as a government and as an economy. We would really like to have the new ‘Green Deal’ be successful, to have the history of all of these materials included in a traceable way, and a responsible new future for industry. There is a real need for that, and what we did was scratch that itch.”
The Minespider protocol allows companies to create digital “passports” for raw materials that keep track of where the materials come from and the conditions under which they were produced.
Williams explained that the new funding isn’t tied to a specific project; it will be used to further develop the Minespider platform and enable end-to-end testing so it can be fully commercialized.
“It’s not always easy to attract investment with emerging technology, because traditional investors want projects that have proven themselves and are ready to scale,” he said. “And that’s like the antithesis of emerging technology. The Horizon 2020 fund is specifically dedicated to this type of technology where you’ve developed to a certain level, you’re piloting it, but now you need to work out the business model and commercialize it. That’s the phase we’re in.”
Sign of the Times
Williams added that Minespider has seen a lot of enquiries following the COVID-19 outbreak.
“We’ve been approached left and right, by companies asking: ‘how can I reduce my geographical supply chain risk?’ They don’t know where all of their critical materials are coming from; whether they’re from one province in China and, if they are, how that could affect their supply chain. We’ve been approached by two or three large entities and some governments as well, because we’re seeing that being limited to a geography can pose a risk to your supply chain,” he said.
A lot of this interest also relates to trust. With travel restrictions in place, companies can’t physically visit sites or meet with potential suppliers. While video conferencing has helped, nothing beats a face-to-face meeting in order to build a sound relationship.
Williams agreed: “We’re learning to trust people that we talk to over Skype or Zoom, but there’s something different about being there in person, the traditional handshake, sitting down to dinner with someone and building that rapport. We’re not going to have that for a while, so we’ve got to compensate.
“The motto within the blockchain community is ‘don’t trust, verify.’ We’re seeing more and more businesses that want to move away from a ‘let’s just trust everyone model’ to a ‘let’s verify model’ and that could end up being very healthy for the industry.”
Last year, Minespider began work on two major projects. The first is to track Volkswagen’s lead supply chain for use in batteries.
“This is obviously a very complex project,” Williams said. “They wanted to know what was going on in their lead battery supply chain and we’ve on-boarded about two thirds of their supply chain now. A lot of it involves calls, visiting, identifying what data can be gathered from where. A very common issue is that companies want to know where their materials are coming from and under what conditions they’re produced, but they’re not 100% sure what they’re going to find.”
The second project focuses on tin traceability and, rather than starting with the end user, this one begins at the San Rafael mine, owned by the Peruvian company Minsur, and tracks tin along the supply chain to end users including Google, Volkswagen and SGS.
“Again, we’re attempting to create end-to-end supply chain transparency and seeing not only how to implement that on the ground, but what data can be collected at every point and where data gets entered,” explained Williams. “There’s a lot that has to be sifted through, especially when you’re talking about authentication of material.
“Once the material reaches the smelter, how do you know that it’s the same material that left the port? Well, you’ve got documents, loading documents, identification documents and often there are impurities in the material itself, which indicate which mine it came from. It’s a fascinating and very detailed challenge to solve.”
The Minespider system is designed so the passports can be scaled up to include as much data as necessary. Williams said there will always be technical limitations. However, that’s a long way off yet. The more important questions are what data is useful, and how to filter it out so you’re not just getting data, but information.
“One thing that you can very easily run into, especially if you are a downstream brand, is if you’ve got a few thousand suppliers and they’ve got a few thousand tier twos and so forth… it gets exponentially big,” he said. “Then the question is: how can you identify hotspots for risk that you want to look into more deeply, and in which areas is the information supplied deemed good enough?”
“The next step that we’re working on right now is the analytics side of this. We’re looking at how to take that flood of data and boil it down to something useful. Step one is collecting the data, getting it into the blockchain, making sure that the workflow is feasible for all of the different participants so that they can work with it and then, of course, automation. So, that it becomes a little bit more fluid to work with this system and offers real insights from swaths of aggregated data.”
Setting your Product Apart
It’s interesting that the impetus for blockchain is starting to shift toward the mines rather than the end users of materials.
“Even a year ago, if you had asked me, where the interest in traceability would come from, I would’ve said the downstream brands,” Williams said. “But what I have found in the past year is that a lot of the interest has come from the mines themselves. There are different reasons for that. The first is the whole transparency angle. But another key problem is that companies that are responsible and want to be transparent often can’t be identified later down the line. And they’re at a disadvantage in the market.
“If you end up in the world market trading your responsibly sourced material next to material that came from mines that used forced labor, then which is going to be cheaper? If people can’t see the difference or the data that’s attached to it and therefore, don’t understand the additional value that you’ve poured into it, it’s going to be a tough sell.
“The problems that companies are experiencing are, in large part, because of a race to the bottom. What we’re seeing is an interest in changing the playing field so that it becomes a race to the top. It’s not just small companies that have poured a lot of time and money into it, large players are examining this, too.
“The World Economic Forum’s Mining and Metals Group, for example, has been exploring this topic over the past year. These risks to the supply chain don’t happen because a mine is run by one person who is devious. They happen because of a series of complex decisions involving a number of people that are in the company, such as subcontractors… there are many different players. And until you know more about what’s gone on and can communicate that information, you’re not going to be able to identify and rectify the problems.”
Currently, industrial-scale applications of blockchain in mining are few and far between; this is still very much an emerging technology. But, one thing is for sure, everyone is going to want more information about their supply chain going forward and, with increased regulation, especially in Europe, but also in other areas of the world, mining companies are going to need to be able to set their product apart in the market.
“I think, for better or for worse, we’re going to see an increase in a sort of nationalistic approach to sourcing, as countries look to secure access to critical materials and secure their critical industries,” Williams said. “If that is the case, then mines and even traders are going to be at an advantage if they can prove where their materials come from, because that in essence secures their future.”
“And with the rise of the green economy, which is going to be huge in the coming years… it’s struck a chord with so many people. I think that we’re at a point where responsibly produced goods are no longer just theoretical, they’re being demanded. Companies that are able to prove that provenance are an advantage. We’re already seeing it from the consumer side.”
Of course, it’s not just the market that is demanding traceability but investors too. At the World Economic Forum in January, BlackRock, the world’s biggest investment firm, announced that going forward it will take into account the sustainability practices of any company that it invests in.
“Over the next couple of years, we’re going to see a huge increase in the interest from mining companies for one reason: to secure investment,” Williams said.
“The biggest investment fund out there has committed to long-term sustainability, and every other investment fund is going to follow. For mining companies, it’s already hard raising $200 million or $400 million to start a mining interest, let alone to try and raise it when the entire investment world is moving into greener investments.”
At the end of the day, BlackRock isn’t changing its investment strategy for the good of the world. It’s changing because the company is seeing demand from its own investors; people want to know that they’re going to get their money back on an investment and that shipments aren’t going to be seized by authorities due to corruption in the supply chain. The only way a miner can guarantee that is by putting transparency measures in place and by ensuring that documents/data cannot be changed after sale.
“It’s a whole ecosystem that’s changing,” Williams said. “It’s especially important for new mines that are opening and mines that are raising funds now. How are you going to put yourself at the front of the pack so that you’re more likely to get invested in? By positioning yourself as the most attractive project for the type of investment coming up. Investors want responsible mines that are producing responsible material, that are going to be at the cutting edge.
“It’s not just about having cutting edge mining equipment. It’s also about taking into account how your mine fits in with the community and your approach to sustainability, and how that gets communicated to everyone who’s buying from you.”
More Than Just Traceability
Of course, there are plenty of uses for blockchain that aren’t directly related to responsible or sustainable sourcing, too.
“We’ve had mining companies ask us how they can help their customers import more easily, or how they can help them identify that it’s really their material and not a counterfeit that was substituted by a trader,” Williams told E&MJ. “All this is doable as well because what we’re supplying is just data. It’s unchangeable data that is linked via unique identifiers to a shipment of material.
“In any use case you have to think of what problem you’re solving, and usually there are four or five things a blockchain’s good at. It’s good at securing information and making sure it doesn’t change, so that’s good for compliance cases. It’s good for creating unique digital items and allowing two parties who don’t know or trust each other to exchange something of value without a third party. It’s good at disintermediating, so getting a middleman that doesn’t add much value out of the equation and ensuring that any middleman that stays adds value.”
Blockchains can also hold value, as seen with traditional tokens, such as bitcoin. So, one of the simpler use cases for blockchain in the mining industry is fundraising.
“You want to fundraise a new mine? You need $100 million, so you presell the amount of material that’s coming out. People pre-buy it at a fixed rate and you’re taking a risk based on market rates,” explained Williams. “It’s like crowdfunding except you wouldn’t have Kickstarter in front of it.
“The problem with that is that it’s not $20,000 you’re trying to raise, it’s maybe $100 million, so that means the groups or people you need to reach would be much larger. The investors would have to be comfortable with the technology, and the problem is how to bridge that gap.”
Blockchain can also enable new business models. Several years ago, Michelle Ash put forward the idea of vaulting gold in the ground; do you take it out of the ground, make it shiny, put it back underground and sell certificates of ownership, or just leave it in the ground in the first place?
“There’s obvious issues with that investment model,” Williams said. “For example, you can crash the whole gold market if you have enough resources. But it’s an interesting idea and there are numerous things you could do with this type of project.”
End of life is another interesting application. Say you have the most responsible mine in the world. Then, at the end of its life, you simply abandon it with little or no restoration. This mine, in the end, was not responsible. Blockchain can, technically, be used to prevent that from happening.
“What you can do is involve the financial markets; this isn’t something a mine can do on its own — for every ton of metal sold you put a certain amount into a bond. And at the end of the mine life, if they’ve cleaned up properly and get the sign off from the mining minister, then that bond gets released to the shareholders. If it doesn’t get approval then it’s used to clean up the site,” Williams said.
“This sort of thing allows us to rethink the rules and, I think, in the long term, it’s important to do that because we all have to live with the consequences of mining. Hopefully, these possibilities will allow productive collaboration between governments, regulators, investors and financial institutions and the mines themselves.”
Getting Over the Hype
Williams believes that short term — in the next six to 12 months — we’re going to see an increase in blockchain projects.
“We’re still testing the waters, because blockchain came out of 2017 with a lot of hype attached,” he said. “Everyone who was doing a blockchain project made it really big, ‘we’re going to solve supply chain issues, we’re going to solve mining, we’re going to solve… everything.’
“And now what we’re seeing is people going ‘we really don’t understand what everything means. What are some specific things we can solve?’ So, companies that are dipping their toes in the water are looking to solve provenance, logistics, prove end-of-life responsibility for their mine, or operating responsibility.
“Medium to long term, we are going to see industrial rollout, for sure, there’s no question. Everything is moving in the direction of more transparency. There are a lot of mines that have put effort into responsibility, and they do not want to be at a disadvantage on the world stage.
“But in the meantime, it’s all going to be about specific use cases. Identifying a specific pain point, rolling out a solution to address it, and moving to the next one. It will be the accumulation of these little solutions that will ultimately shift the industry and we’re excited to be part of it.”