Mining: How to make 2011 a good year for everyone, SMEs included

The buzz of the recent ANC National General Conference in Durban threw the spotlight on the SA mining sector, as the ANCYL and some allied pundits pushed to have nationalization of mines put on the agenda.

While the spotlight is unlikely to generate any real momentum behind nationalization, it has highlighted the changing landscape of the mining sector over the last decade. I will resist offering a bland overview of the sector, but suffice it say, global dynamics (such as the tidal wave of demand from China) and national policies (BEE/transformation) have supercharged demand for industrial metals, leveled off production of gold and platinum, and raised input costs for extractive companies. In fact, the industry has been shrinking both as a proportion of GDP and in total size.

Reading almost any online commentary about this issue will demonstrate how many different reasons people advance for the decline of SA mining, and how divisive the debate becomes. The good news is that 2010-2011 looks to be a strong year for the sector. Commodity prices are high and in many cases rising thanks to resurgent demand from emerging economies.

If better times do indeed lie ahead, how can the various stakeholders in the mining industry work together to ensure the profitability and sustainability of the industry while simultaneously promoting the inclusion of historically disadvantaged groups.

The SAIBL answer; supplier diversity. This is increasingly the corporate answer as well. De Beers is a founding member of the South African Supplier Diversity Council (SASDC), and committed to opening up procurement opportunities for diverse suppliers from historically disadvantaged groups. Procurement opportunities are available at all levels of the value chain; at the most basic mining companies should procure catering, janitorial, grounds maintenance, and transportation services from local suppliers. Including diverse suppliers at that level of the value chain is necessary but not sufficient.

Extractive companies must also open up higher value-added opportunities in component part manufacturing and business services. (See our profile of Lekoa Mining and Industrial for a high-value added, 100% black owned De Beers supplier) Many qualified suppliers exist already. However, major corporations will inevitably have to spend some time and money building supplier capacity and helping qualified business navigate the tender process. This is an investment worth making. (see the business case for supplier diversity).

Pursuing procurement opportunities with historically disadvantaged suppliers has brought previously excluded communities into the economic mainstream in many countries. Consider the following case study in North West Canada put forward by Harvard University’s Kennedy School of Government

In brief; Rio Tinto’s Diavik Diamond mine in the Canadian North West Territories was located in a province where 40% of residents were of aboriginal/indigenous ancestry. Rio Tinto’s renewed commitment to sustainable development combined with changes to the regulatory framework at the provincial level encouraging the economic inclusion of indigenous communities drove the mine’s leadership to adopt a new strategy focused on increasing indigenous resident’s participation in the socio-economic activities and opportunities created by the Diavik Mine.

The mine operators created advisory boards to interface with community stakeholders, identify procurement opportunities in the construction and operation of the mine where indigenous companies could succeed, and re-aligned procurement procedures to ensure quality while making the tender process easier to navigate for indigenous companies.

As a result of these and other activities, the Diavik mine spent over 1 billion dollars with indigenous businesses and over 68% of its workforce was of indigenous decent.(circa 2006)

*Read the original case study in full here.

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The business practice of supplier diversity is ideally suited to the mining industry, and De Beers presence on the board of the South African Supplier Diversity Council is a sign the company is committed to using its procurement process to increase economic opportunities for historically disadvantaged groups in SA.
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