In a bustling area of Nyarugusu, in the heart of Tanzania's gold lands, a stocky man is fanning a dustbin lid of smouldering charcoal, gold ore and mercury on the pavement. Each waft sends a cloud of toxic vapour into the faces of children and adults as they gather to watch.

The burning of mercury is a common sight in the streets, homes and cottage-industry mines throughout east Africa. The liquid metal is used to extract the gold and then vaporised to leave behind flakes of the precious metal.

But in this dangerous industry, seeds of a gold revolution are being sown: Fairtrade International announced this week that up to 12 mines in Tanzania, Uganda and Kenya are on course to sell Africa's first ethical gold within a year.

There are no official figures for how many Tanzanians are poisoned by mercury fumes, but accounts of memory problems, sickness and impaired vision are common in the small mines that litter the countryside. The sight of open mercury poisoning may seem shocking, but it is just one of a host of appalling working conditions that blights the production of gold throughout east Africa.

Tanzania is Africa's fourth largest gold producer. About 15 million people work in mines – many illegal, small-scale and unlicensed – producing about 200 to 300 tonnes a year. Most miners work 24-hour shifts without basic safety helmets, boots or goggles in fragile mines with little or no timber supports.

On the surface, the ore is crushed by women using hammers or mortars, sometimes with babies on their knees. In some mines, cyanide is used to remove gold from low-grade ore. Like mercury, it is highly toxic. Mercury and cyanide pollution into rivers is common and, according to a report last week by Human Rights Watch, child labour is rife.

But the Fairtrade scheme could herald a change. Under a three-year scheme funded by Comic Relief, the mines are changing working practices – banning children, enforcing health and safety rules and preventing toxic run off – in the hope that shoppers in Europe, Asia and America will be prepared to pay more for "green gold".

In return they will get a fairer price for their gold and a Fairtrade premium that can be invested in mines, education, childcare and community groups.

At the Ilani mine near Nyarugusu, in the northwest of Tanzania, the appropriately named Golden Hainga has already barred children from his mine and processing areas, and runs a crèche. Open burning of mercury is banned and personal protection equipment is compulsory.

Lufta Weja, 30, has worked at the mine for five months. "The main difference between other mines is health and safety," he said. "It's the first time I've had a helmet – in other mines we had no helmets, or gloves or boots."

A few miles from the Ilani mine, Renatus Nsangano has also been working with Fairtrade to improve working conditions. But change is slow. His mine suffers from a chronic lack of capital and cash flow, and is vulnerable to the low prices paid by local gold brokers.

"My dream is to be able to use the technology that was used in Tanzania 50 years ago," said Nsangano.

"But we thank God for Fairtade because it has lifted us from one level to another. We have put in wooden steps to get to the bottom of the mine. We no longer burn mercury in the open and we ensure that waste water from the mine doesn't contaminate the environment."

To get Fairtrade certification, gold mines will have to ban mercury burning in the open – as well as ensure that no children work in the mines. Other details are still under discussion.

In South America, which began to sell Fairtrade gold two years ago, miners receive a minimum price of 95% of the London Bullion Market Association (LBMA) price for their gold. That price is higher than they would normally get from selling to local brokers.

As well as fair working conditions and pay, the miners also get a Fairtrade premium of $2,000 (£1,283) per kg of fine gold. The premium has to be invested into the local community.

Fairtrade and Fairmined gold hallmarked in London. Photograph: Anthony Devlin/PA

Africa's mines are still at least a year away from getting that status, according to Fairtrade's local advisers.

Key to the success of African ethical gold will be improving efficiency to create a steady stream of precious metal. Just 40% of the gold is currently recovered from the ore – a figure that could be 80% with better technology. Fairtrade also needs to build a supply chain to ensure that gold gets to suppliers in Europe, Asia and America.

Harriet Lamb, director of Fairtrade International, said: "Fairtrade is not something where you can click your fingers and magically start paying farmers and miners, but they have started to tackle the problems.

"It's a long process of change and we are under no illusions. But having seen the conditions of the miners it has only steeled my determination to make this work. It is shocking that people finding gold – a precious metal so valued – are working in such terrible conditions."