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Mines can create more value through local procurement

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Suppliers in the mining industry are demanding more procurement in the country of operation image credit: SRK Consulting.

More and more companies are demanding that mining operations procure goods and services locally, and indeed, mines should create more value through local procurement.

Supply chain disruptions caused by Covid-19 has emphasised this trend. A recent strategic partnership between global consultant SRK Consulting and a Canadian based initiative called Mining Shared Value addresses this growing demand for mines to procure goods and services in-country.

According to Lisl Fair, principal consultant (sustainability) at SRK Consulting, the collaboration with Mining Shared Value will further enhance SRK’s expertise and tools to support companies to increase local procurement levels. “Working with mines to maximise their positive socio-economic impacts in host countries and host communities has been a growing part of our work,” says Fair. “While the Mining Charter emphasises local procurement practices in South Africa, there are more and more African countries who also want to see greater local economic benefit from mine procurement.”

An initiative of Engineers Without Borders Canada, Mining Shared Value has been working internationally on local procurement issues since 2012. Aiming to improve the social and economic benefits of mining by increasing local procurement, it launched the Mining Local Procurement Reporting Mechanism (LPRM) in 2017 with the support of the German development agency GIZ.

“There is huge scope for mining companies to reduce both their procurement costs and their social licence risk by sourcing more goods and services locally,” says Jeff Geipel, managing director of Mining Shared Value. “It’s a complex issue, though, so the LPRM provides a helpful structure and benchmarking for mining companies to map and chart their progress. With its hands-on knowledge of the mining sector in Africa, SRK is well-placed to support mines in applying this framework.”

Fair highlighted the vital importance of environmental, social and governance (ESG) issues in mine feasibility and sustainability. Building capacity in the local economy and resilience in host communities is now imperative for mines wanting to secure and maintain their social licence to operate. A valuable focus for this work was the power of the mine’s procurement value chain.

“Our involvement with mining clients throughout their project cycle – from exploration to closure – puts us in a good position to add value to their supply chain strategies,” she says and adds that a systematic approach is most effective, with timeous planning and good integration into the broader business strategy. Using a reporting mechanism like the LPRM would help mines build this priority into their strategic planning and monitoring. For new projects, local procurement strategies should be developed right from the pre-feasibility stage.

The supply chain disruption that we have witnessed during the Covid-19 pandemic has also been a wake-up call for procurement in the mining sector. The lockdowns have created real mine-level risks that need to be addressed, and local sourcing of goods and services will be part of the answer.

“Among the challenges facing mines that wish to source more within their host countries has often been the lack of local production capacity and expertise,” says Geipel. Even where mines see the opportunity for the creation of local supply, the short-term cost of developing suppliers is high. However, the recent interruption in global supply chains – especially border closures – might cause a mine to start looking afresh at options to avoid importing, which might create an opportunity for governments in mining countries to gather stakeholders to look at supporting certain key sectors. “The local production of a range of personal protective equipment, for instance, would suit mining as well as other industries,” says Geipel.

According to Fair, calls for more local beneficiation in the minerals sector around Africa has blurred the potential for the in-country production of upstream products – often a more realistic option with plenty of immediate multiplier effects. “An essential socio-economic focus for mines today is to facilitate social transitioning in the host communities for the day when they must inevitably close,” she says. “The more diversified a local economy can become, the less reliant it will be on the mine – and the better it will transition to a post-mining phase of economic life,” Geipel adds. “A far-sighted local procurement strategy will serve the mines operational needs while helping to diversify the local economy and to create resilience in the event of closure,” she concludes.

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AgricultureEnvironmental Management & Climate ChangeEnergyESGInfrastructureMiningPolitical EconomyTourism and ConservationWater Management