Modern Mining June 2021

LOCAL PROCUREMENT

decades of mining activity have not created corresponding advances in socio-economic development. One of the causes of this para- dox is the lack of supply chain linkages between domestic suppliers and mining investment in sub- Saharan African countries. International mining operations in this region have tended to import goods and services to meet the needs of their operations, rather than prioritise purchasing from local suppliers. Whether companies buy from local suppliers in a significant way is becoming a high-profile issue for the sector, and governments in the past few years have implemented regulations requiring local sourc- ing in countries such as South Africa, Ghana and Tanzania. Stakeholders are wanting to see concrete results that mining sector activity is contributing to host country economic benefits. Scrutiny is also increasing on companies on whether they may be buying from companies with unethical practices, or if they have practices in place to prevent corruption during procurement. In a research conducted by MSV on the relation- ship between local procurement strategies of mining companies and their regulatory environments in Namibia and South Africa, Geipel says the key find- ing was that government requirements on mining companies to increase local procurement need to be matched with meaningful supplier capacity-building initiatives. Suppliers need capacity-building support, access to reliable and affordable finance as well as quality infrastructure. However, putting requirements on mining companies to buy more locally won’t accom- plish these things on its own, he says. “The ultimate goal of local procurement regulations has to be com- petitive businesses that can survive without any kind of preferential procurement, and so regulations and supplier support should have this goal within a set period of time,” explains Geipel. On a positive note, however, Geipel says there has been a noticeable improvement across mining companies operating in Africa when it comes to their local procurement policies and practices over the past decade or so, and this can be seen as industry responding to increased pressure from host country suppliers and governments. “While progress has been uneven, many com- panies have now put in place local procurement policies and supplier development programmes. What is needed now is to transition the mining sector from ad-hoc initiatives to a more systemic approach to local procurement, in partnership with host coun- try governments and other actors,” he says. “Government pressure on mining companies to buy from domestic suppliers of goods and services is not going away and so companies should accept this new reality and focus on creating business value out of the opportunity this presents,” concludes Geipel. 

our host community. It is our goal to identify, nurture and harness talented suppliers within our procure- ment supply chain, with a view to establish long-term transformative opportunities for local communities. When comparing our year-on-year jurisdictional procurement spend, our procurement in the DRC increased by 133%, while procurement in South Africa increased by 72%,” adds Abrahams. Elsewhere, Golden Star Resources, which released its first sustainability report using the LPRM in September last year, operates in Ghana where the government is currently in the process of increas- ing regulations on the mining sector regarding local procurement. For Golden Star, says Philipa Varris, EVP, head of Sustainability, local procurement participation has long been recognised as a vital element of retaining and enhancing the value of the company’s opera- tions for host communities. “Our objective is to move beyond social licence to operate, to creation of lasting value. In 2019, almost 84% of our procurement spend was with Ghanaian companies, up from 73% in the previous year. Local procurement provides the framework for genuinely interdependent relationships – where miners and host communities succeed together. The Mining LPRM provides a standardised method for ensuring transparency and in practical terms has guided our efforts and performance improvement.” The state of affairs in Africa Sub-Saharan Africa has one of the largest endow- ments of mineral resources in the world. However,

In 2019, almost 84% of Golden Star Resources’ procurement spend was with Ghanaian companies, up from 73% in the previous year.

Key takeaways  The LPRM is an ESG and transparency framework that guides mining com- panies to provide information on their local procurement efforts and results at site level  Using the reporting mechanism will help structure mining company local procurement practices in alignment with best practices  Ivanhoe Mines became the first company to use the LPRM in 2019, report- ing on its sites in South Africa and the DRC  As of June 2021, six companies are using the LPRM – Ivanhoe Mines, Lundin Gold, Golden Star Resources, Endeavour Mining (which purchased Teranga Gold in 2020), New Gold and Solaris Resources – with at least two more expected to adopt it by the end of the year

28  MODERN MINING  June 2021