Over the last 12 months, The Impact Facility has launched a new approach for stimulating economic and ESG uplift within artisanal and small-scale mines. The innovative leasing scheme enables artisanal mineral producers’ (AMPs) to affordably access high-quality mining and processing equipment on a lease-to-purchase basis, underpinned by professional support from mining engineers.

By investing in quality equipment, mine sites can recover and process ore more efficiently, improving revenues and laying a foundation for ESG uplift through subsequent technical support. The higher their ESG and mine site management practices, the higher the value of the equipment they can access through our leasing scheme.

Over the last year, we have promoted our services to over 50 small-scale AMPs across Western Kenya, with the first round of leasing contracts between The Impact Facility and partner AMPs active from Q3 2022. To ensure that investments have the potential to be transformative, the smallest investment bracket allows investments of up to USD 20k, allowing mines to unlock production bottlenecks. This amount, with monthly repayment terms of 12-24 months at a competitive interest rate, allows for Kenyan mines with relatively small production volumes, to access the financing they need, given the current lack of access to formal financial channels. In the global scheme of things, the relatively low value allows us to establish a track record of collaboration and repayment, before graduating into more substantial investment amounts.

With data from initial investee mines beginning to flow in, we have three provisional insights from our leasing work to date, including successes and failures, and concluding with a summary of “what next” for our work into 2023 and beyond:

1. High risk – high return: In the absence of reliable geo and production data, informal financiers are charging exorbitant returns to counter the increased risk of non-assured gold production. As a first engagement step, our team seeks to establish data baselines that address these gaps to meaningfully derisk an investment as much as possible. As part of our model, we have an investment committee consisting of experts in the mining and investment industry reviewing each and every case, having internally developed tools that are tailored to comprehensively assess the investment risk.
2. Leasing wins over debt finance: we have found that cash loans are not an optimal financial product for starting a working relationship with new partners, partly because artisanal mineral producers (AMPs) do not want to go into debt and partly because of the high-risk nature of such liquid transactions for investors.
   We have seen that the conditions of a lease-to-purchase approach are attractive for mine sites because they enable AMPs to access (and, in time, own) equipment they need, but without going into permanent debt. Because equipment can be reclaimed and redeployed at short notice, the interests of investors are also protected in this arrangement.
3. Going evergreen: we have learned the importance of taking an “evergreen” approach to lending, meaning that the provision of equipment starts with lower-risk assets (e.g. mobile assets that can easily be relocated, like water pumps and compressors) and graduates to higher-risk fixed assets (such as permanent mono-rope winches) only once a lending history has been established.
4. Dynamic repayment structures: our leasing contracts seek monthly repayments from mine sites. However, the cash flow of partner AMPs oscillates according to when they are in or out of production. We have introduced a dynamic payment break mechanism enabling mine sites to reduce or pause payments while expanding operations to increase production in the future. This is a realistic approach to managing the risk of default while ensuring that AMPs continue on the pathway to servicing their total leasing fees over time.

In 2023, we’ll be making three changes to the scale and scope of our approach.

• Growing our geographic footprint: we will be scaling our leasing scheme to encompass the provision of leasing services to gold mines in Tanzania and Uganda.
• New investment classes: To date, our work has focused on mining and processing technology. In 2023, we will look to roll out new types of investment focused on access to affordable energy (solar mining) and advanced processing techniques (mercury-free).
• Focusing on safety: parallel to our leasing work, we will grow our focus on critical safety issues at the mine level to accelerate ESG improvements. These will focus on support for high-risk activities most associated with injury or fatality, including blasting, drilling and chemical management.

Over this first year of our leasing programme, we’ve seen that the formation of leasing contracts with mine sites – and their subsequent payment of leasing fees – is possible. One of our first investees was recently able to finalise their first full repayment and now owns a compressor, mine winch and a custom-made ball mill financed through the initial investment. The AMP has since been approved for a second investment round, initial proof that the artisanal mining sector is investable and in dire need of formal financing.

We’re learning that the ESG challenges of each mine are bespoke and that the type and sequencing of equipment provision needs to be carefully married with applied technical support for ESG – as well as economic – improvements to flow.

As we scale our work further into 2023, we look forward to deeper partnerships with existing and prospective artisanal mineral producers and investors.