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Annex

Background Information onFairtrade Minimum Price setting for Gold1

Some basics on mineral occurrences

Any part of the earth rust and in partiular any mineral ourrene is made up of different

minerals! "n ase of gold #and other preious metal$ ourrenes, gold is ontained or

inrusted %ithin or &et%een these minerals, or in ase of alluvial deposits dispersed in the

gravel! Simplified, at mirosopi sale, a ertain partile an &e either gold or not gold' if&eing gold, the partile onsists of ())* gold, if it is some other mineral, it ontains ) *

gold!

At +ooming out to the si+e of one shovel of gold &earing ro or gravel, this sample %ill

ontain some partiles of gold! This an &e e-pressed as the grade of the mineral! As the gold

grade is very lo%, it is usually e-pressed in ppm #parts per million$ %hih is e.uivalent to

grams per ton! "n alluvial ourrenes, the grade is usually e-pressed in grams per u&i

meter!

"t is easy to imagine, that eah shovel %e tae, %ill have a different grade, aording to the

amount of gold partiles in it, and that the larger the shovel is, the less the grade &et%een t%oshovels %ill vary! Thus, a larger sample %ill have a grade loser to the statistial average!

ooming out at the entire gold ourrene, %e %ill additionally find out, that different parts of

it have different average grades! 0esides of mapping the grade distri&ution of an area, any

gold ourrene an &e harateri+ed &y its grade1tonnage relation, %hih follo%s usually a

log1normal distri&ution!2

(3ithin the entire te-t 4gold5 refers to gold and assoiated preious metals #silver and platinum$!2

The shape of the urve depends further on the si+e of the 4shovel5, or 6 sientifially speaing on the &losi+e! Artisanal mining is a&le to %or very seletively and thus on a very small &lo si+e! As this is only

marginally relevant for the present analysis, it is not disussed in depth!

A7M Standards Coordinator, 8uly 2))9

(

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For some ourrenes, %here the gold is dispersed in the host ro, %e annot even easily say

%here the ourrene ends, as the surrounding host ro also ontains gold! "n an e-aggerated

%ay the entire earth is a gold ourrene, as any ro ontains some traes of gold!

So, wat makes a mineral de!osit "or a gold de!osit in !articular#$

First of all, 5ore: #or 5gold ore: in our ase$ is the result of an eonomi definition! For

miners, any mineral that an &e eonomially mined is alled 5ore:, %hile any mineral that is

not eonomi is ;ust 5ro:!

Conse.uently, the definition of a mineral deposit is also an eonomi one! Only an

aumulation of eonomially minea&le ore is alled a mineral 5deposit:!

"n ase of a gold ourrene, the delimitation of the gold deposit depends on the gold grade inthe ros!

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Artisanal and small1sale miners do usually not have any geologi data from e-ploration

%ors, nor do they have geologists or mineral1eonomists to operate suh high1teh soft%are!

0ut as the underlying eonomis are e-atly the same, artisanal and small1sale miners do

e-atly the same &y empirial ut1off grade optimi+ation= they ;ust mine all ore that iseonomially minea&le for them!

Production costs

Mining onsists of t%o main proesses= #a$Mineral Extractionfrom the deposit #mining in a

narro%er sense$ and #&$ Mineral Processingof the ore! 0oth proesses have related osts=

mining osts and proessing osts, respetively!

Mining osts depend on the shape and geologi harateristis of the deposit, as %ell as on the

applied tehnology!

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This sounds ompliated, &ut in pratie this is done either &y omputer soft%are for

onventional mining or &y a .uite reasona&le empiri approah &y artisanal miners!

Prie variations have thus mainly an effet on the si+e of the deposit #the minea&le reserves$,&y elevating or lo%ering the ut1off grade and thus dereasing or inreasing the minea&le

reserves!

Lo% prie= elevate ut1off grade Bigh prie= lo%er ut1off grade

"n onventional large1sale mining operations, praties lie 5high grading: are in some ases

reported, in order to inrease the net present value #?PE$ and there&y the shareholder value!

This has never &een o&served in artisanal and small1sale mining, as for artisanal miners the

over1proportional ostly effort to o&tain a mining onession and &eome formali+ed needs to

&e ompensated &y e-trating the deposit as omplete as possi&le!

"n any ase, artisanal and small1sale miners al%ays ad;ust the ut1off grade in a %ay, that the

revenues over mining and proessing osts #in MO?

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This %ide variation is in fat the result of ad;usting the ut1off grade in eah ase aording to

the loal onditions! As the &aseline studies, arried out &y A7M simultaneously to the

appliation of the ost1of1prodution tool and other independent investigations

H

demonstrate,individual inome and livelihood situations for miners do not vary %idely among the different

pilot sites!

A further aspet to onsider is that all A7M pilot sites are not 5ne%: artisanal and small1sale

mining operations! All of them e-isted already in the early 2)))Ks, %hen the international

gold prie hit its histori lo% of &elo% >)) S/o+! At that time their prodution osts must

have &een in the range of (J) S/o+, other%ise they %ould not have &een a&le to e-ist!

Bo%ever, as the gold prie %ent up, many of them started to lo%er their ut1off grade,

inurring in higher prodution osts and allo%ing them to e-trat no% parts of their deposits

that %ere not minea&le %hen the gold prie %as lo%!

'+'-.SI+

(! "n ase of gold, determining a Cost of Sustaina&le Prodution #COSP$ is not possi&le!

Mining and proessing osts are related to the volume or tonnage of mineral and not to the

gold ontent of the mineral! Mineral is ho%ever not a trada&le produt! There e-ist high grade

deposits that allo% for high prodution osts and lo% grade deposits that demand lo%

prodution osts in MO?

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Background Information on

Fairtrade Premium setting for Gold0

IGold refers to gold and associated silver and platinum.

A7M Standards Coordinator, 8uly 2))9

H

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Fairtrade Premium is proposed to &e initially set at H* #of the L0MA Fi- for the pure

ontent$ for Fairtrade Gold9plus an additional