Silver and Gold II/II: Mining Gold in Beijing and Guinea

Gold, silver and bronze dominates the business and leisure time in this second week of the Olympiad in Beijing. The digital coverage of the games [didn’t they stop being games when they went professional?] has demonstrated the power of the digital broadcasting technology to best effect: multiple channels, more facts, crisp video, split screens. In the US, NBC has nevertheless been encouraged to try Hulu next time.

Sports Illustrated duly created the iconic cover photo of Michael Phelps’ eight gold medals, Jamaica suddenly dominates sprints with some athletes butch, some elegant like Bolt [at least before the finishing tape], and the omnipresent, adoring Chinese crowds waving their flags, most enthusiastically for their young [young] female gymnasts. Sometimes, it all felt a little too perfect and we remember Spielberg's decision hundreds of viewing hours ago.

The CFA for investors and fellow performance measurement practitioners in other industries rejoiced: metrics dominate. Slide rules, cameras and software algorithms measuring rules and distances, metrics tracking winners, including in medals count for best Olympic nation: do you prefer the "podium index" ranking using the medals/GDP ratio [see Medal Exchange, go Belarus!], or who won the most [total medals, or gold only?]. The US TV channels rank by total, but organizers/majority Gold medal winners China rank by golds. At least one of Phelps’ medals - and so the record-breaking nature of the eight set - relied upon the split-second timing of Omega. 0.01 of a second is nothing but millimetres. Nothing!

Review the photoframes at the SI gallery, leaving the public images to a private photographer who was smart enough to put in a camera the night before, for some reason Omega declined to release underwater video images and left their marketing reputation for clinical chronography out there. But the infallibility of technology led us to trust that the Omega machine measured it right, and measured the winner to be Phelps who gambled his eight by chopping his stroke to get in the extra half-stroke, a big gamble as any butterfly swimmer will attest. If Mr. Phelps or his native Baltimore were a country, he/it would rank 8th on golds, above Japan at end of the penultimate day. It makes a fine poster. The Phelps brand together with the Coach will do business in the same way Armstrong/Carmichael did after his seven Tours de France. I am not sure if Mr. Phelps chewed his gold medals to test their softness and hence veracity. The old test of quality is now mostly a photo-op, especially as the IOC long ago switched to gold-plating silver medals to turn them into gold [the IOC Olympic Museum in Lausanne is a must, just a short boat ride up Lac Leman from Genève].

From "Blood Diamonds" to "Blood Medals"?

At the end of the penultimate day of the Olympiad, neither Guinea nor Senegal show up on medals rankings [note: I chose the CIA weblink for Guinea, I enjoy this as the closest I get to the world of CIA spooks and Jason Bourne!]. The IOC and BOCOG have managed controversy off the media pages, so there was never any chance of the bloody gold investigative report becoming a headliner.

"Blood Medals", would be a stretch, but the gold merchants sleep a little less easy after Associated Press writers in Geneve [Brad Klapper] and Senegal filed a compelling story on 10 August while I was in Brazil. AP IMPACT: Kids working in African gold mines covers where that gold may come from, and it’s not all pretty. The AP coverage was carried by all the US media majors like Washington Post, USA Today as one of their "top stories", ABC News, IHT/New York Times and of course Google and Yahoo, as well as some conservative media. The ABC headline must have made a few jewellers blood run cold: "Child Labor Rife in African Gold Mines: Gold Mined by African Children Finds its Way Into Luxury Goods". The AP journalists had to fight hard just to bring the story to light, overcoming Swiss court action by protagonists Decafin SA attempting to prevent the story reaching the press. Seriously, how would you argue investigative journalism of a supply chain probably including child labor is “not in the public interest”?! Decafin may or may not have stories to hide, but they will have fresh in their minds how billion-dollar international financial player and Swiss business icon, Credit Suisse, suffered an embarrassing lapse sourcing footballs as promotional items for the Euro2008 football tournament without ensuring it met best standards for social responsibility. In 2008, some ten years after the Nike saga, someone in the 5,000 person Zurich head office on Paradeplatz of the 2008 EUROMONEY "Best Bank" award did not have an intern triple-check the supplier?

The players in the gold industry may be edgy for good reason, and not because the US Justice Department chasing UBS has them worried about privacy issues. No, it is more like the public interest and marketing impact on luxury goods consumption. Global Witness has taken credit for directing their considerable attention at the minerals/diamonds supply chain from 1998. The movie “Blood Diamond” [2006] and the blood-stained image of actor Leonardo DiCaprio fading to an unbearable lightness on a rocky African plateau is a thousand Hollywood hours ago [the scene was actually shot in my home province, KwaZulu-Natal]. Blood Diamond was another social drama/action film [bracketed with Syriana, The Constant Gardener, Michael Clayton] building on the popular cultural interest in a globalized world and whether the impacts of consumption decisions in New York affect lives in say, Namibia [insert developed and emerging monikers as you prefer]. The Kimberley Process was an effort to tidy up the impressions and the actions of sourcing diamonds, aiming to block out “conflict diamonds” from countries or regions in Africa where civil wars were being funded by proceeds from diamond sales, in a similar way to poppy/heroine [Afghanistan] and coca/cocaine [Colombian] trades elsewhere.

The diamond industry worked hard and continues to work hard to get the news out through Diamondfacts.org - they prefer the euphemistic "conflict diamonds" for obvious reasons. But it is hard when companies doing business must deal with country-level initiatives. When I bought the engagement ring diamond in December 2001, I did want a South African diamond for my American wife, but could not be guaranteed where it was from. Yip, no "fair trade diamonds". One of my single biggest credit card transactions, and nobody knew where it came from? Really?! The diamond industry does have some kind of sustainability play forthcoming. An Australian friend was one of the few who checked. When she went into the diamond store in 2007 with the nervous future husband, she asked the Melbourne jeweller point-blank: how do I know this is not a blood diamond? Fiancé was spotted leaving the premises... No doubt, Tiffany’s, De Beers [especially now they have retail stores - but none in Africa?!] and other purveyors of rock/mineral luxury items were pleased to see the issue of mining and sourcing disappear behind in the rear-view mirror.

Firms that were ahead of the curve will be pleased to know we are developing a case study with Kenan-Flagler B-school for use in MBA 865: Sustainability in Investment Strategies and similar MBA curricula covering sustainability [see SRI Extra April 19, 2008 CSI on Campus]. TIF explains their approach in their latest 10K as:

Purchases of Rough Diamonds . Until Fiscal 2003, the Company did not purchase rough (uncut and unpolished) diamonds. Since that time, the Company has established diamond processing operations that purchase, sort, cut and/or polish rough diamonds for use by Tiffany. The Company now has such operations in Canada’s Northwest Territories, Belgium, South Africa, Botswana, Namibia, China and Vietnam. Operations in South Africa, Botswana and Namibia are conducted through joint ventures with third parties. The Company will continue to invest in additional opportunities that will potentially lead to additional “conflict-free” (see below) sources of rough diamonds. In Fiscal 2007, approximately 40% of the polished diamonds acquired by Tiffany for use in jewelry were produced from rough diamonds purchased by the Company. Conflict Diamonds. [p.18]

Increasing attention has been focused in recent years on the issue of “conflict” diamonds. Conflict diamonds are extracted from war-torn geographic regions and sold by rebel forces to fund insurrection. Allegations have been made that diamond trading is used as a source of funds to further terrorist activities. Concerned participants in the diamond trade, including Tiffany and non-government organizations, seek to exclude such diamonds, which represent a small fraction of the world’s supply, from legitimate trade through an international system of certification and legislation. It is expected that such efforts will not substantially affect the supply of diamonds. [p.19]

The AP story is old-school journalism, including hauling gear through the African bush over the course of the year to six mines and more than a hundred interviews [see the transparency offered via the EDITOR'S NOTE], as well as some bullying by the corporations. The multimedia delivery of the story helps draw the connection one wants investors in the 21^st century to draw: it matters HOW you make your money, and investment analysis without ESG is incomplete, and unsustainable.

If you wear a gold ring on your finger, write with a gold-tipped fountain pen or have gold in your investment portfolio, chances are good your life is connected to these children.

Oxfam/Earthworks and a string of partners have been moving forward their No Dirty Gold campaign since 2003. I hope I bring the sustainability+investment component of institutional and retail investors to the campaign. The human scale is one important facet, but for me the other compelling stakeholder that may not be interviewed is the environment. The process for extracting gold is not renowned for being enviro-friendly. Like the exploration of gold reefs, and the extraction and supply piecemeal through bush mines themselves, I expect this story will live longer as the questions surrounding the gold supply chain return to agitate and irritate the conscience. Especially at private banker watering holes next to the Rhone.

I appreciate the frustration that Tiffany & Co. [NYSE: TIF] feels. I have a positive view of Tiffany informed by their pro-activity [see Responsible Mining] and interaction with the investment and ESG ratings communities in their regular business. Their website promise of "sustainability: our most important design" is a stretch for me, though. On March 29, 2005 KLD Research & Analytics, Inc. announced that TIF was added to KLD’s Domini 400 Social^SMDS 400 Index) Index (citing their "chain of custody" and "zero tolerance" approaches, as well as positive diversity profile).

"I can't overemphasize how complex this problem is," said Michael Kowalski, Tiffany's chairman. "There is a desire to deal with this. But the question is how?"

The No Dirty Gold campaign has more good work to do, starting with the brands framing the shores in Genève like Cartier on Rue de Rhone. If firms felt the Kimberley Process was tough on the diamond industry, gold may prove to be beyond them, in a whole new paradigm. Sort of like Mr. Bolt’s sprinting in Beijing.