Development of the GOLDSCORE Index for Sustainable Gold Mining Practices: The MESTarm Index Model

Introduction

The mining sector in the Philippines, particularly the small scale gold mining industry, faces significant challenges in achieving sustainability and regulatory compliance. The interaction among the Department of Environment and Natural Resources/Mines and Geosciences Bureau (DENR/MGB), the Bangko Sentral ng Pilipinas (BSP), and small-scale miners presents a complex problem. The use of game theory has revealed that the current Nash Equilibrium is suboptimal, leading to undesirable outcomes such as black market gold sales, inadequate gold reserves for the BSP, and ineffective regulations for small-scale miners. This report presents the development of the GOLDSCORE Index or MESTarm Index as a solution to incentivize compliance, enhance collaboration, and promote sustainable mining practices through innovative technologies.

Game Theory Analysis and Nash Equilibrium

The analysis began with constructing a payoff matrix for the three key agents: DENR/MGB, BSP, and small-scale miners. Using iterative computations and modeling the strategic space with the Lemke-Howson algorithm, the Nash Equilibrium was identified in a heatmap within a 0, 0, 25 matrix representation. At this equilibrium:

Miners opt to sell gold to the black market.
BSP fails to increase its gold reserves.
DENR/MGB regulations are ineffective for small-scale miners but favor large-scale operations.

This equilibrium is clearly suboptimal and counterproductive to the objectives of sustainable mining and economic stability. Therefore, a shift from this equilibrium towards a more favorable outcome is necessary.

Proposed Intervention: GOLDSCORE Index

The GOLDSCORE Index introduces financial and non-financial incentives to encourage compliance and collaboration among stakeholders. Key components include:

Incentivized Compliance: Offering tax breaks, “fast buy” scheme, and recognition programs to miners who comply and apply MESTarm Index sustainable gold processing practices which are designed to address miners struggles to learn best practices in mine waste management and upon validation of index adoption, the results are scored using the MESTarm model to score miners performnaces and ranked for incentive and award through blockchain. This will be aggregated as their complience with regulations in addition to the sales of the gold only to the BSP.
Blockchain Technology: Utilizing blockchain to ensure transparency, accountability, and efficiency. This technology stores economic, environmental, and social performance data, which are crucial for incentivizing sustainable practices.
Tokenized Rewards: Implementing a system where incentives and rewards are tokenized to facilitate easy tracking and distribution, thus encouraging miners to adhere to regulations and support the BSP’s objectives.

By integrating these elements, the GOLDSCORE Index aims to enhance gold deposits to the BSP, stabilize the Philippine peso against the dollar, and promote sustainable mining practices.

Implementation and Benefits

The GOLDSCORE Index, by fostering collaboration among DENR/MGB, BSP, and small-scale miners, offers multiple benefits:

Reduction in Gold Leaks: Ensuring that gold is sold to the BSP rather than the black market.
Increased Gold Reserves: Enabling the BSP to build and maintain substantial gold reserves.
Currency Stabilization: Stabilizing the peso’s volatility against the dollar, which is critical during import activities.
Environmental Sustainability: Promoting practices that minimize environmental impact.
Economic Stability: Enhancing the overall economic landscape by ensuring steady gold supply and stable currency exchange rates.

Despite these benefits, challenges such as regulatory hurdles and the need for stakeholder cooperation must be addressed to ensure successful implementation.

Summary

The development of the MESTarm or GOLDSCORE Index stems from the necessity to address the inefficiencies identified through game theory analysis. The suboptimal Nash Equilibrium highlighted the need for a strategic intervention to align the interests of DENR/MGB, BSP, and small-scale miners. By leveraging blockchain technology and introducing targeted incentives, the GOLDSCORE Index aims to promote sustainable mining practices, increase gold reserves, and stabilize the Philippine economy. This collaborative approach, underpinned by innovative technology, addresses the complexities of the mining sector and offers a path towards long-term sustainability and economic stability.

Project by author under start-up SISIDS: Awaiting to be funded by the DOST, Philippines.

Preprint

Preprint

Development of the GOLDSCORE Index for Sustainable Gold Mining Practices: The MESTarm Index Model