Using blockchain technology to track products through a supply line could allow mining and metals companies to not only boost efficiency but also offer assurances to investors concerned about ethical or environmental concerns associated with mined materials.
Investors are increasingly interested in a company's approach to environmental, social and governance considerations. Past and present issues within the mining sector, from conflict minerals to ecological disasters, means some companies could see a benefit from using technologies such as blockchain to differentiate its business practices from peers and assuage concerned investors.
"The metals and mining sector has fairly involved and sometimes controversial aspects to its supply chain," said Rebecca Campbell, a partner with London-based White & Case who leads the law firm's global mining and metals industry group. "That's why folks have jumped upon [blockchain] as one of the potential tools for assisting with digitizing the metals and mining supply chain."
Blockchain is a digital technology that stores information across a distributed ledger or database, making the information highly transparent while allowing participants in the network to confirm and certify the information’s accuracy without the requirement of a centralized authority.
Mined products are often physically indistinguishable between one source and another. The inability to trace materials from the end product to the source makes some materials less appealing to investors putting investments through an ESG filter. Accurate tracking mechanisms can alleviate concerns, for example, that a diamond or a supply of cobalt — broadly used in the technology sector — does not come from a source tainted by ethical or environmental concerns.
"One thing that investors are looking for is to understand the project they are investing in is actually green," said David Uzsoki, senior adviser on sustainable finance and infrastructure with the International Institute for Sustainable Development. "With blockchain, it's possible to do."
While known for its ties to cryptocurrencies, uses for blockchain are found across sectors. For example, International Business Machines Corp. partnered with retail giant Walmart Inc. for a blockchain project that reduced the time it took to trace produce from the store to the farm from seven days to 2.2 seconds, according to a news release from the retailer.
While regulatory requirements and other external pressures are driving closer attention to environmental and social attributes of products in the marketplace, companies are also beginning to realize the "profit and brand potential" of emphasizing those attributes, White & Case wrote in its report.
Earlier this year, Ford Motor Co. announced a partnership with other companies, including IBM, to create a blockchain-driven, industrywide network to trace and validate minerals and other inputs for the automotive and consumer electronics industry. The project kicked off with a pilot program in the Democratic Republic of Congo and will track cobalt, a key ingredient used to make lithium-ion batteries used in electric vehicles, laptops and other mobile devices.
Tracking supply chains with blockchain is not without challenges. For example, blockchain is energy-intensive and there are relatively few regulations and energy standards around the technology. While several companies are experimenting with blockchain, Uzsoki said in an interview he hopes companies soon move beyond pilot projects and more fully deploy blockchain in supply management.
One catalyst for further development in blockchain in the mining space may come from outside of ESG concerns, Campbell explained in an interview. The technology also offers potential productivity gains that could reduce costs for the sector and drive companies in metals and mining to implement the technology.
Some companies in the space are already embracing the technology. Lucara Diamond Corp. President and CEO Eira Thomas said on an early 2018 earnings call with investors that a change to the current diamond supply chain system is inevitable. By late 2018, Lucara had made its first sale using its blockchain-based Clara Diamond Solutions tracking platform that follows diamonds from the mine to the end-user.
"Though we are delighted with the prices achieved for the rough diamonds sold in this first sale, Clara's longer-term value will be realized through its' scalability, increasing the volume of rough diamonds transacted by adding production from other global diamond producers," Thomas said in a January release.
Earlier this year, MineHub Technologies Inc. and IBM said they are working with Kutcho Copper Corp., Ocean Partners USA Inc., Wheaton Precious Metals Corp. ING Bank and Goldcorp Inc., which since merged into Newmont Goldcorp Corp. to use blockchain to boost efficiency in the mining supply chain.
