Comic Relief and Fairtrade have joined forces with the Dutch government to back a $15m (£11m) scheme to support ethical gold mining in east Africa after a successful pilot project in Uganda.

About a fifth of the world’s gold produced every year comes from small-scale mines where millions of people work in hazardous conditions without access to modern technology. They resort to extracting and crushing ore by hand before using water and then highly toxic mercury or cyanide to separate the gold. The ad hoc process is not only harmful for the individuals involved, some of whom are children, but pollutes their local environment. It is also highly inefficient, on average extracting only 40% of the available gold.

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Fairtrade is working with specialist mining consultancy the Dragonfly Initiative in trying to raise up to $4m in investment by 2020 from specialist environmental and social investors, government bodies and big business to help small-scale artisanal mines. Half of the funds will be loans to support investment in better technology and the other half grants to support building the organisational change necessary.

“We are trying to generate a proof of concept which has the possibility to bring economic benefits to thousands of families. We also hope over time to increase supply of Fairtrade gold,” said David Finlay of Fairtrade. At present only about 400kg of the ethical precious metal is produced ever year.

“Miners want to improve standards but it is a real struggle. They want access to finance to acquire equipment and reduce reliance on mercury and enhance the recovery of gold. There will be both an economic and environmental benefit,” Finlay said.

Using a centrifuge device, which costs about $5,000, increased the extraction rate for gold to 70% in the Uganda trial. But introducing the machinery is only part of the answer alongside supporting miners to work in a more organised and safe way.

Comic Relief has already committed $90,000 to help provide seed finance for a trial project at about four mines over the last few years and devise the funding scheme.

It is hoped that as many as 60 small mines could be helped by 2020 using the new money raised. That could increase the supply of Fairtrade gold, most of which currently comes from Peru. The first shipment from Uganda resulting from the trial investment project will be made next month.

Meanwhile the Dragonfly Initiative is aiming to raise $10m or more to support communities surrounding large commercial mines. That part of the scheme does not involve Fairtrade. Its aim is to help local people move away from unsafe informal digging for minerals towards more sustainable, environmentally friendly and safer businesses such as agriculture.

Assheton Stewart Carter from Dragonfly said similar schemes had already been tried in South America where mining areas had been reforested with trees producing fruit local people could harvest and sell.

He said international mining companies and an increasing number of electronics and automotive manufacturers who used precious metals were becoming interested in ensuring that their resources were not contributing to environmental or social problems.

“A few years ago companies wanted to know that no bad stuff was happening at their mine. Now they want to show they are part of the solution, that the mine is not just looking after itself while causing problems for its neighbours.