Mining Companies and Startup Partners Should Begin Developing Local Content Before Breaking Ground
Sep 27, 2016
A typical mining operation lasts 30 years or more. As a result, mining companies are accustomed to becoming long-term fixtures in the communities where they work, and local stakeholders have increasingly high expectations for company contributions to community welfare. Local content development is one tool mining companies have used to foster local economic growth and social license.
While mining companies have made great strides in recent years in sourcing local goods, services, and labor, they can increase their local content capture by laying the groundwork during the construction phase, in partnership with the engineering, procurement, and construction (EPC) firms they contract to establish the mining operations. Initiating local content strategies during construction offers mining companies the opportunity to maximize returns from local sourcing, including a more secure social license to operate.
The Benefits of Early Engagement
Local content development that begins before startup promotes tangible, sustainable gains for communities beyond short-lived quick wins and can head off discontent and costly operational disruptions. Risks can emerge in the communities near mine sites well before mining companies even set foot in country. EPC partners build the foundation for identifying and engaging with local vendors during mine site construction, which can potentially add great value to the long-term mining operation. Securing commitments from an EPC partner is the critical first step to effective local content development, one that requires formalizing a coherent approach to local vendor and workforce engagement. In doing so, mining companies ensure that EPCs establish a precedent for local content development during construction that the mine operators are willing and able to see through in the decades of operations that follow.
Such was the successful collaboration between Kinross and their EPC partner, Hatch, on the Tasiast mine expansion in Mauritania. The two companies worked jointly on establishing a local content policy toward developing local supplies. This included establishing mechanisms that opened up transparent engagement with suppliers who previously never had access to Kinross’ bidding process. Additionally, the team worked toward a long-term supplier development program that focused on integrating the values of the owner into the operations of the local vendors.
Aligning Local Content Strategies
Developing a coherent local content strategy between a mining company and its EPC partner, however, is easier said than done. EPCs have a shorter-term focus and thus different needs during construction than mining companies have during operations. As EPCs are not necessarily inclined to invest in securing a long-term social license to operate, mining companies must instill in EPCs that local content is a crucial component of long-term operational strategy. Mining companies, then, should collaborate closely with EPCs to develop joint policies, procedures, and social engagement plans toward local content that align an EPC’s short-term outlook with their own long-term commitments.
A Roadmap for Collaboration
A local content committee (LCC) within the commissioning team—comprised of representatives of the mining company and EPC—should serve as the vehicle for the local content alignment. The LCC should feature a broad cross-section of representatives from the construction and operations teams, including:
- External Relations
- Health, Safety, and Environment
- General Counsel
- Human Resources
The LCC should oversee development and implementation of a joint social engagement plan as well as subsequent reporting to stakeholders on progress toward local content targets. The LCC should prioritize the vendor categories with the greatest potential for local content development and establish the criteria for social investment programs to build local vendor capacity. Investments to build local capacity should focus on business sectors that are relevant for both construction and operations—for example, food service and transportation—and that service other economically significant industries beyond extractives.
As construction projects draw to a close, EPCs need to transition responsibilities for local content development to mining companies during a well-defined handover period to: a) project a single voice to host-country communities and governments; and b) ensure continuity on investment and capacity building decisions.
Starting Early Matters
Mining companies that work with EPCs to initiate local content development during the construction phase will enjoy financial and operational benefits that last for the life of the mine. Having this foresight means that mining companies will inherit an established framework for engagement with the local private sector that they can build on and sustain. It allows for a seamless transition from EPC to mining company under the auspices of a joint local content committee. It provides continuity from construction to operations that maximizes productive engagement with local vendors and workers. Mining companies would be wise to start local content development early, and use it as a tool that will de-risk and add value to their operations.