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Why Switzerland struggles with dirty gold: tales from Peru

Logo https://stories.swissinfo.ch/gold-peru-switzerland-mining-metalor

Intro

Wildcat gold miners have devastated the Peruvian Amazon, leaving large swaths of it poisoned and stripped bare. In a drastic move, Swiss refiner Metalor stopped all gold imports from South American artisanal miners after its main gold supplier in Peru was shown to be sourcing gold from those illegal mines. 
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But with gold prices the highest they’ve been in nearly a decade, the quest for the precious metal is heating up in a place where mining and criminal activities overlap and law enforcement is haphazard.
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Seen from the sky, the landscape on either side of Peru’s Interoceanic Highway looks identical, pockmarked with sandy plots of land and muddy pools of water. Yet the monotonous land is of strategic importance. It is the main transport artery into Peru’s southeastern region of Madre de Dios, where gold mining is booming.
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For the thousands of miners trying to make a living in this jungle region, the highway is also the divide between those who try to follow the law and those who don’t. Peruvian authorities have declared the Tambopata Natural Reserve and its buffer zone, on one side of the road, off limits to miners. On the other side is the so-called “mining corridor” where gold extraction is allowed, under certain conditions.
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Weak law enforcement in large parts of this region means the situation is not as clear-cut as the Interoceanic Highway’s route suggests, and the government says. The weak implementation of mining regulations has led to widespread illegal mining here, which in turn has been responsible for large-scale deforestation and mercury pollution, experts say.
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And some of that gold ends up in Switzerland, according to watchdog groups. They accuse Swiss refiners, jewellers and watchmakers for sourcing such “dirty gold”. That could soon have consequences. Lawmakers in Switzerland, the world’s leading gold refiner, are now debating harsher penalties for companies linked to human rights and environmental abuses.
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But identifying “dirty” gold is hard. Criminal networks and illegal miners often try to conceal the illegal origins of their gold by mixing it with legitimately obtained gold before introducing it into the international gold market, according to the miners, traders and law enforcement officials swissinfo.ch met in Peru. This makes it difficult for Swiss refiners and gold-buying companies to know if they’re importing illegal gold.
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Some gave up. In early 2019, Swiss refiner Metalor stopped sourcing from artisanal gold miners in Latin America altogether. The decision came after Peruvian customs officials seized 91 kilos of gold bars from local exporter Minerales del Sur destined for the Swiss refinery. The cargo is suspected by Peruvian authorities to have contained illegally sourced gold including possibly from Madre de Dios.


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In this region, authorities have long waged a losing battle against the thousands of illegal miners. In the past three decades, 960 square kilometres of forest – an area roughly the size of Hong Kong – were lost to gold mining, according to estimates by the Center for Amazonian Scientific Innovation, a think tank based in Tambopata, Madre de Dios. Military operations regularly dynamited illegal mining sites but more often than not mining soon resumed elsewhere.
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But the authorities are not giving up. The Peruvian army recently launched “Operation Mercury” in an area known as La Pampa, on the side of the Interoceanic Highway where mining is illegal. Forces occupied an area the size of a small country in order to drive out wildcat miners. At the same time, the authorities accelerated a programme to certify miners who meet environmental and social standards.
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Getting it right

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Juan Ttamiña has been mining along the banks of the Pukiri river for nearly three decades. A native of the Andean region of Cusco, he moved with his parents to the Peruvian Amazon in search of a better life.

“We have been working here for years, out of need, to move forward,” he says. “We are trying to create better lives for ourselves… for our children.”

For a long time, that meant operating in a legal vacuum, mining and trading gold deep in the jungle, with little government oversight. But that is slowly changing with refiners and consumers increasingly pushing for sustainable mining practices and transparency in the gold supply chain.
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The bit of land he is allowed to mine sits in the mining corridor – an area of roughly 500,000 hectares (the equivalent of nearly one million football fields) – where gold extraction is permitted provided that environmental and social standards are upheld.


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Ttamiña has applied to the government’s formalisation programme, which aims to bring a legal footing to his work. As of mid-August, 4,500 miners had applied to be formalised; only 117 had been accepted. He hopes to soon join their ranks.

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To be certified, Ttamiña must prove he is reforesting barren areas and adopting mercury-free mining techniques. In a purpose-built structure, he has installed a gold shaker table that separates the gold from dirt without using mercury.


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He must also respect labour laws and pay taxes. Ttamiña says he can sell to one trader, part of a consortium that used to sell gold directly to Metalor and the only one to provide sales invoices.

But he says these rules don’t curb the illegal trade, adding that it was well-known among miners that even licensed traders purchase gold from questionable sources. And such traders are not limited to the area largely known as La Pampa, on the fringes of the Tambopata National Reserve.

“We fulfilled everything," says Ttamiña, referring to the state's requirements, "so as not to have any problems.” He removes from his pocket a government-issued card that proves he applied for formalisation. This piece of plastic is his only shield against potential police raids.
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In 1989, Ttamiña arrived to mine along the Pukiri river, near a town now known as Delta Uno in Madre de Dios. That was well before Madre de Dios became overrun by wildcat miners lured by high gold prices after the 2009-2010 financial crisis.

His hard work has paid off. Back then, the family only had a couple of wheelbarrows and basic water pumping engines to flush the ore. Now, the middle-aged miner employs 22 people who use modern excavators and trucks to move mineral matter on his “cuadricula”, or one-square-kilometre concession.

“Production is not always the same: today it could be more, but it could also be less,” explains Ttamiña as a pair of workers conclude a sweltering eight-hour shift rinsing gold ore, stationed at two chutes. They sleep on site in a single-story brick dorm.


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On average, he extracts 32 grammes of gold per chute per shift. Assuming the operation of both chutes and a price of PEN120 (CHF 35.5) per gramme, he stands to earn PEN15,000 (CHF4,343) per day.

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While that may sound like a lot, his net profit can be as low as PEN500 (CHF145) per day. Expenses, he says, are substantial. Petrol is needed to power water pumps and the machinery. He also pays for his wife, two sons and daughter to live in the nearest large city of Cusco so his children can study. He only sees them for ten days every two months.

Ttamiña plans to mine his parcel of land for another 10 to 15 years. Afterwards, he plans “to move to another plot”.

He hopes that plans update to Peru’s mining law will give small and medium-scale miners like him a boost amid competition from larger foreign mining operations, and that the state will support them as they strive to work sustainably, and relieve them of worries over potential checks and harassment by police and the military that have grown more frequent under Operation Mercury.

Ttamiña credits the government for facilitating the formalisation process, but he is no fan of Operation Mercury. He believes it has contributed to the perception that all miners in Madre de Dios work illegally although some try to follow the rules, like him.
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The black market

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Walter Baca is a former miner who now rents mining equipment. His extended family has been accused of illegal mining and is reported to have had financial relations with Metalor.

When we met him in Huepetuhe, Baca declined to comment on these allegations but he was willing to share his insights and personal experience in the gold trade.

“The greatest evader is the gold buyer,” he says. “People continue to work illegally because they have obligations [to the buyers].”
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Baca is the nephew of a notorious couple – Gregoria Casas and Cecilio Baca – who were among the first settlers in the open pit gold mine of Huaypetue, where mining first began here. The couple, who owned 18 mining plots, was under criminal investigation for illegal mining and money laundering over many years, according the local investigative news outlet Ojo Publico.




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Ojo Publico also reported on allegations by unnamed customs officials in Peru that Metalor made payments to bank accounts owned by members of the Baca family, including Walter Baca’s aunt and cousins. Members of the Casas-Baca family have repeatedly denied wrongdoing. Some members of the family have also said that their accusers have unfairly framed them to score political points or even for financial gain.

The former miner did not directly comment on the allegations against his relatives but said that many local traders engage in corrupt practices and in tax evasion. He accused them of manipulating the market by controlling prices and not invoicing purchase, while miners are held captive by what they owe the traders.
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“When the gold reaches Lima, the buyers… combine their gold to sell to the same buyer,” Baca explains, claiming that buyer in some cases was Metalor.

Asked whether it was aware of any complicity among major gold buyers in Madre de Dios and the accusation that they combine purchases, Metalor responded, “No. [We do] not take any material from the region.”

A company spokesperson told swissinfo.ch that Metalor had been “very engaged” in the formalisation process in Peru and had raised its concerns over traceability with Peruvian authorities.

"All responses we got over time from the different authorities in Peru… were very reassuring,” said the spokesperson in an email.

“However,” he added, “we were disappointed because it turned out that the regulatory and enforcement framework is not robust enough.”

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Is Baca worried about business now that Metalor is no longer buying gold from Peru? “The producers are not too concerned because there are always buyers here,” he says. 

Baca says the absence of government authority before Operation Mercury left miners with the freedom to operate as they pleased. When the metal’s price rose, many invested in heavy machinery to be able to cut deeper into the jungle, polluting the waterways and subsoils with mercury as they advanced. Although Peru ratified an international treaty on reducing mercury pollution in 2018, the toxic heavy metal is still widely available for sale online in the country.
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Baca blames previous government officials for complicity in deals that benefitted criminal networks purchasing gold. He believes the government should prioritise tackling corrupt gold buyers rather than focus so much on smaller mining operations.

“The formalisation process has no goal,” says Baca. “It is as if it is moving towards an abyss.”

Baca was a miner himself but branched out into other business after his mining equipment was blown up by the Peruvian military six years ago as part of an earlier crackdown on illegal mining. His new business involves leasing equipment “to miners in the formalisation process” – those seeking to operate legally.


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Many of the miners who have been caught up in Operation Mercury, like Baca, found new ways to profit from the sector, locals say. Some have moved deeper into the jungle even closer to the Tambopata reserve or across the Interoceanic Highway into the mining corridor to continue to chase profits at the margins of the law.

Most miners fled the banned mining region of La Pampa when they learned of the operation, but over 200 people were arrested and millions of dollars worth of equipment has been seized and demolished.

Baca recalled his own experience in Huaypetue: “People work on the run. When the government bombs the camps and captures equipment, miners work like crazy. The government’s strategy is inadequate.”
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Baca’s upscale villa overlooks a ragtag mining town full of elusive gold buyers, shady bars and nightclubs served by young women. These women, mostly from poor mountainous regions, are drawn by prospects of jobs as domestic workers or waitresses that often turn out to be false, according to law enforcement agents.

General Luis Vera, director of the Peruvian National Police's Environment Directorate, says in an interview in Lima that his troops found many such places when they went into the illegal mining region.

“There was a lot of abuse and disappearances because there was no public authority,” Vera says. “The overseers or the capitalists who had their illegal mining plot, had the authority.”
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On the fringes of the illegal mining area, residents say miners still work overnight in an effort to escape detention. At dawn, after they finish work, the miners drop planks they use to drive their motorcycles over the swampy forest floor, into the undergrowth, effectively hiding their access routes.

“Sometimes you can hear the engines operating in the distance,” says Doris, a woman who runs a hostel located along the road. She declined to give her full name.

“There’s lots of gold out there. On a good day, they can make 1000 soles.” (The equivalent of CHF290)
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Despite continued illegal mining activity, Operation Mercury is credited with slowing wildcat mining significantly in most of La Pampa’s environmentally devastated area.

Gold mining deforestation decreased 92% between 2018 (900 hectares) and the first half of 2019 (67 hectares), representing the situation before and after the start of Operation Mercury, according to the Monitoring of the Andean Amazon Project.
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Colonel Luis Guillen Polo, the commander of Operation Mercury, explains that his forces are aggressively going after illegal gold buyers and traders, "not just illegal miners".
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Cover-ups and pollution

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But a violent crackdown on illegal miners won’t be enough for the Peruvian government to eradicate “dirty” gold. It also needs an army of accounting experts.

Multiple criminal investigations by state prosecutors and investigative reports by local media suggest that traceability of the gold through traders remains opaque. Fraudulent invoicing has been rife among the many Peruvian purchasing companies and their local agents or representatives.

Complex webs of family and business relationships obscure links between many of the companies operating in the region. That explains why small and medium-sized buyers rarely appear on customs records as exporters to foreign refiners and buyers, and many of those that do appear have been linked to illegal mining concessions in Madre de Dios.

Of the dozen miners working illegally that we spoke to, most said that they primarily sold their gold to the Peruvian trading companies A&M Metal Trading and Veta de Oro, among other mineral buyers.

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But our efforts to personally inquire about these allegations, and visit the field offices of these companies and others were repeatedly rebuffed. We were told, sometimes by burly security guards, that we had no right to ask questions. 
 
In the most bizarre episode in our effort to get comments from the company, at Veta de Oro’s two-storey office in Puerto Maldonado, a clerk stopped us from investigating further. He denied the establishment was buying gold, claiming that the commercial space was a hotel. A large sign outside suggested its proprietors are gold traders rather than in the tourism business.

At A&M Metal Trading’s office in Puerto Maldonado, the regional capital, a clerk called the company’s lawyer and then declined to answer questions and asked us to leave.
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Shop managers at E&M Company in Huaypetuhe pointed at signs behind their counters indicating phone numbers of head offices, but none of them worked when we phoned those numbers. At Veta de Oro and A&M Metal Trading, we were told to direct questions to Activos Mineros, the private company authorised by the government to licence gold buyers in regions known for illegal mining. But six emails and multiple calls to the Lima-based firm went unanswered.

While the company could not be reached, its activities are not unknown to observers and activists. “Activos Mineros receives money from the state for their monitoring functions, but they do not invest in true monitoring,” explains Christoph Wiedmer, co-director of the Society for Threatened People, who has studied Peruvian gold imports.
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Gold traders are also contributing to environmental pollution. Makeshift ovens used to burn mercury off gold nuggets, which release toxic fumes, were visible at street level in many of the trading offices we visited. Shop clerks at one office threatened us when we tried to photograph the furnaces.

Mercury levels in the air around such shops are 1,000 times higher than the Peruvian limit and 10,000 higher than US government minimum risk levels, according to Adam Kiefer, a chemistry professor with Mercer University. He works with the Peruvian ministry to research air pollution in the region.
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(Purple and red mark the highest areas of contamination, and coincide with where gold furnaces are burning)
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The Swiss connection

The “dirty gold” thus travels from illegal miners through an opaque network of gold buyers. It is then sold to foreign traders and refiners.




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This is where Switzerland becomes part of the equation. The landlocked European country is home to several of the world’s largest refineries, including Metalor. Most of the world’s gold passes through it. Peru ranks sixth among countries exporting gold to the Alpine nation.
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After the gold is refined in Switzerland, it is exported around the globe. China and India are the top destinations. Switzerland exports over three times as much gold, jewelry and precious stones as it does watches.




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Madre de Dios grabbed headlines in 2018 after the Switzerland-based advocacy group Society for Threatened People (STP) published a report claiming illegal gold exports from the region went to Metalor.

The group alleged that the trader Minerales del Sur supplied Metalor with gold from Madre de Dios, where most of the mining activity still remains classified as illegal despite government initiatives and crackdowns.

While the trader was licenced to sell gold only from the southeastern region of Puno, its owner holds land concessions in Huaypetue, close to a protected area, the Amarakaeri Communal Reserve, in Madre de Dios.

Metalor denied the accusation, saying the gold came from Puno. But the quantities it purchased from Minerales del Sur exceeded the total production of gold from the region, according to STP, which cited figures provided by Peru’s energy and mining ministry.

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Although investigations continue over its alleged illegal gold sourcing, Metalor says it has not been indicted in Peru. Citing a lack of “resources to ensure compliance”, the company recently decided to stop importing gold from Peru and then stopped doing business with all South American artisanal miners and traders.

But that might not be a good thing. The governor of Madre de Dios, Luis Hidalgo, said to swissinfo.ch that Metalor’s decision to pull out of Peru would actually make it more difficult to stop illegal mining.

“We want them to buy from those who are working legally,” says Hidalgo. “What the Swiss company needs to do is to facilitate access by miners of [clean] technology that is so costly for them and help them sell their gold more easily.”
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So-called “clean” gold mining technology, such as the vibrating table to separate gold pieces used by miner Juan Ttamiña, offer alternatives to the use of mercury.

Mark Pieth, a criminal law professor at the University of Basel who wrote a book on gold laundering, says that he believes that Swiss refiners should engage with artisanal miners to produce gold responsibly. Pieth says that the downsides are minimal. The cost of proper, transparent audits tracking back through the entire path of the gold represents “pocket money” for a company like Metalor and Swiss refineries as a whole, he said in a recent interview with swissinfo.ch.

The Swiss government seems to agree. Martin Peter, representative of the State Secretariat for Economic Affairs in Peru says that “it is in the interest of companies to care about sustainability in order to have long-term access to commodities”.
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For its part, Metalor argues what’s needed to improve the situation in Peru is a concerted effort by all parties involved: governmental agencies, miners, local authorities and NGOs. “So far, we are not there,” a company spokesperson told swissinfo.ch.

Ultimately, pressure by consumers may be one way to curb illegal mining, activists and rights advocates in Peru and Switzerland say.

For years, Swiss civil society groups have expressed concern about the reputational risks of importing “dirty gold” to Switzerland.
That has led to a popular initiative that could finally force the government to act. The Swiss people will soon vote on the “Responsible Business Initiative”, which wants to hold companies based in Switzerland accountable for their environmental and human rights impact abroad. Its odds, though, are uncertain.
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Credits

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Author: Paula Dupraz-Dobias

Photos: Sebastian Castañeda and Paula Dupraz-Dobias (Additional photos SDA-Keystone)

Graphics: Kai Reusser and Alexandra Kohler

Video: Sebastian Castañeda and Paula Dupraz-Dobias

Production: Dominique Soguel

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Appendix: Metalor responds

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Where do Peruvian investigations into exports by Minerales del Sur or other companies to Metalor stand right now?
To our knowledge, investigation of Minerales del Sur continues by the Peruvian authorities. However, since Metalor is not indicted in any way, we do not know further details.

Has the Peruvian public prosecutor reached out to Metalor since the seizure of 91 kilos of gold in 2018?
We have been asked to furnish information about the commercial relationship with had with Minerales del Sur and in this respect we provided all necessary documentation (agreement, invoices, proof of bank transfers, etc) in due time. 

To your knowledge, was Minerales del Sur aware of the sourcing of the gold in that shipment?
The documentation associated to every shipment contained all the necessary details including the mine concession from where the material was sourced. We have no reason to believe that such information was incorrect but cannot guarantee that. The investigation will figure that out.

Is Metalor reconsidering purchases from Peru now that the government has reinforced its commitment toward formalising gold miners in Madre de Dios - which involves assuring that they comply to environmental and social standards - while clamping down on illegal miners in La Pampa?
We certainly welcome such statement but that has to be transformed into real and sustainable actions. Madre de Dios is a region from where do not take any material and we do not believe this will change, at least in the near future. However, and regarding artisanal mines, we are open to consider options but it has to be under a concerted effort by all parties involved (all governmental agencies, miners, local authorities and NGOs). So far we are not there. However, in Peru we continue to operate with industrial mines.

What is Metalor’s response to critics - including the governor of Madre de Dios - who say that the company should help miners in the formalization process and possibly support them in acquiring technology that avoids mercury pollution, rather than stopping purchases from the country?
Metalor has been very engaged in supporting the formalization process. This is the best way for the miners to get a fair price for their gold and hence improving their overall working conditions, including applying best practices that do not pollute the environment. However, Metalor cannot assume by itself this responsibility. As mentioned above, this has to be a concerted effort by all parties involved.

How much do you know about the source of gold from your direct buyers? How transparent are your sources about the origin of the gold?
See the above response about the documentation supporting every shipment.

Have you ever broken business relations with companies because they claimed to be producing more gold as mining companies than physically possible? If so, which companies?
We monitor volumes on a routine basis just to avoid situations like the one you describe. Yes, we have stopped relations due to compliance. We do not compromise values for business.

Has Metalor ever addressed concerns about the origin of gold, and perhaps lax legislation of the gold buying business, with Peruvian authorities?
Yes, at the time of engaging into the formalization process and on a regular basis since then. All responses we got over time from the different authorities in Peru (Minister of Mines, Activos Mineros, Formalization Office, Sunat), were very reassuring. However, we are disappointed because it turned out that the regulatory and enforcement framework is not robust enough.

Are you aware of any complicity amongst the major gold buyers in Madre de Dios, and whether they may trade/combine purchases amongst each other?
No. Metalor does not take any material from that region.





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Intro

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Miner 1

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Miner 3

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