Miners hope blockchain can safeguard a clean image, but tech has limits

The limitations of blockchain technology may keep it from being the silver bullet mining companies need to increase confidence in the labor and environmental practice of supply chains.

The digital ledger technology offers the promise of transparency by using the same algorithms that create cryptocurrencies to provide seemingly unimpeachable traceability from mine mouth to retail products, such as diamond rings and electric cars. But some observers argue that while blockchain use has been promising, it is far from perfect because the supply chain is complex, and there are too many opportunities to create bad information along the way.

The stakes are high. Electric carmakers seeking to ramp up production amid the energy transition know there can be ethical challenges in securing the cobalt used in their rechargeable batteries. Congo has the largest economically accessible cobalt reserves in the world, but it also has a long history of labor abuses in its extraction of the silvery-blue metal.

Congo's mining industry has been struggling to overcome damage stemming from a 2016 Amnesty International report that documented various issues, and cobalt seller Trafigura Pte. Ltd. is hoping its use of blockchain will provide reassurance to customers that it has put the abuses of Congo's mining industry behind it.

Similarly, diamond miners are laboring to overcome their own history of poor labor practices. For example, De Beers SA, a diamond producer 85%-owned by Anglo American PLC and 15%-owned by the Government of Botswana, has contracts to provide traceability for nearly all of its product.

An investment in blockchain may solve at least some problems for miners under pressure from investors and customers seeking products free of associations with slavery and environmental degradation.

"There is a tremendous opportunity with tools like blockchain to have real specifics on where the material came from and how it moves through the supply chain, and there is a great risk that we will think because that's being shown to us on paper, it's necessarily true," Aimee Boulanger, executive director of the Initiative for Responsible Mining Assurance, or IRMA, told S&P Global Commodity Insights.

"These are still systems that are only as good as the information that goes in is accurate, and that whoever is checking it has the ability, expertise and ethics to ensure that it's accurate," Boulanger added.

The blockchain solution

The strength of the blockchain algorithm is the creation of an ongoing list of transactions that cannot be changed by any of the participants. For cryptocurrencies such as bitcoin, that ledger represents a series of financial transactions. For miners, that ledger tracks a unit of commodity from extraction all the way to the finished retail product.

Blockchain itself is "arguably the best piece of technology" available to establish trust, as it is a "decentralized, independently verifiable and immutable ledger," said Lara Smith, founder and managing director of Core Consultants, an international mining and metals consultancy. "Creating an independently verifiable and credible system is a major stumbling block. This is where blockchain technology can be useful."

Miners who have successfully changed their labor or environmental practices to win certifications from international watchdogs or otherwise worked to prove that they have resolved lingering issues need to ensure that their "clean" product can sell for more than product from sources without those proofs of goodwill. The blockchain ledger can provide that tracking. Automakers or jewelry producers similarly wish to prove to retail customers that they are only using raw materials sourced from these kinds of mines.

Electric vehicle manufacturers and battery makers have few options for cobalt outside of Congo. In 2021, Congo produced an estimated 100,985 tonnes of mined cobalt, accounting for a vast majority of the world's mine supply, according to S&P Global Market Intelligence data. Global cobalt mine supply is expected to accelerate in response to rising demand from the battery sector, and Market Intelligence analysts have forecast mine cobalt output totaling 253,777 tonnes by 2026, jumping 94.1% from the 130,719 tonnes produced in 2020.

"When we're talking mined materials, whether gold or jewelry or iron ore ... that's really where a lot of the harm is happening," Boulanger said. "If I buy a new car or jewelry, the harm point, the impact point there is really mostly at the mine level, so knowing where the materials came from can be a helpful way for any of us consumers to try to reduce that harm and leverage our purchasing power to expect better."

Taking the plunge

Trafigura contracted with U.K.-based Circulor Ltd. to develop blockchain technology for its cobalt operations. Diversified mining giant BHP Group Ltd. has also started using blockchain technology to track some of its products using Minehub Technologies Inc., a Canadian blockchain platform.

"If you look at what happens between a car manufacturer and an actual mine for all the minerals that are going into a car, there are a lot of steps and information that can get obscured," said Arnoud Star Busmann, president and CEO of Minehub. "To be able to verify all the way upstream to the mine what the [environmental, social and governance] performance is on the supply chain is practically impossible, unless you've got a shared spreadsheet, in a way, across the supply chain where you can verify data."

BHP Group worked with China Minmetals Rare Earth Co. Ltd. in 2021 to use blockchain technology to digitally track shipments of copper concentrates. The company has also traced shipments of nickel from its Nickel West facilities in Australia to U.S.-based Tesla Inc.'s EV factory in Shanghai.

"We think blockchain technology could help answer some of the big questions asked of us as products pass through our supply chain: What's its environmental footprint? Was it ethically sourced? Am I getting what it's worth?" BHP Group Chief Commercial Officer Vandita Pant wrote in a Dec. 21, 2021, report.

Another new traceability platform called Re|Source also intends to fill in these gaps by applying unique codes to track commodities across the supply chain. Re|Source aims to give users the ability to trace the provenance of cobalt from production facilities to downstream EV production sites. Mining companies Glencore PLC, China Molybdenum Co. Ltd. and Eurasian Resources Group SARL are founders of the group, and Tesla joined the pilot program. Re|Source intends to pilot its platform in Congo, where the majority of cobalt is mined, and in Europe, Asia and the U.S., Glencore said. Re|Source did not respond to a request for comment.

Cleaning up diamonds

DeBeers outlined plans in May to implement its Tracr blockchain platform at scale to provide transparency for the origin of its diamonds across the value chain.

Tracr can register 1 million diamonds per week and is the only diamond blockchain that provides tamper-proof records of diamond sourcing at scale, De Beers said in a May 5 news release. The company said it registered a quarter of its production by value on the Tracr platform.

"In the diamond industry, similar diamonds — those with the same kinds of sizes, shapes, colors and clarities — from different sources are generally blended together into parcels ahead of sale," said David Johnson, a spokesperson for Tracr. "While this approach is important for supporting value in the diamond sector, it can create challenges around knowing the source of a diamond."

"We've long had a focus on issues of sustainability and provenance at De Beers Group as we know that diamonds are a high value and highly emotional purchase, so it's important that people can be confident when they buy them," Johnson said. "That confidence had previously been delivered through other mechanisms, but new technology enables us to provide it in a way that wasn't previously possible."

Garbage in, garbage out

Mining companies must ensure that the information being tracked is of high quality to preserve the integrity of their tracing technologies and commodities.

"It's how one populates the blockchain and the criteria required that determines whether this is truly valuable in enabling the industry to transform supply chains," said Smith of Core Consultants. "Beyond that, each end-user needs to agree on their own procurement standards. ... Issues of sustainable and responsible supply chains is not just about anti-slavery or human rights infringements, it's also about the corporate structure of the miner."

While this will not be able to solve all the transparency challenges surrounding the mining industry, experts said it is a step in the right direction.

"The transparency challenges are way too complex and differ from supply chain to supply chain and also differ based on where we are in the commodity cycle," Smith said.

"Supply chains are not static; they are also in flux the whole time, and a supply chain might change from being something relatively linear and transparent to having far more complexity based on the opportunity that suppliers and buyers are presented with at a given moment," Smith added.

The Initiative for Responsible Mining Assurance's Boulanger said tracking commodities' origins is an important factor especially when it comes to mined materials. But while traceability technology may indicate where materials came from, it does not guarantee they were mined responsibly.

"It's one way of tracking, but it's not the only way to track where materials come from," Boulanger said.

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