Local Procurement in Canadian Mining Sector

EWB Local Procurement by Canadian Mining Industry CoverIn February 2014, Engineers Without Borders Canada released a study on public reporting covering local procurement by the Canadian mining industry. Which companies were singled out as leaders and how does this compare to procurement reporting in some  GRI reports to which I contributed?

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Laying awake (jet-lagged) in Kyrgyzstan, I managed to catch up with some optional reading. Some truism adopted in the Engineers Without Borders Canada’s study include that local spending on goods and services leads to more local jobs and income, transfers skills and technology, and helps to create vital domestic business networks. These activities, in turn, can contribute to a company’s social license to operate.

The EWB study examines CSR reporting of Canada’s 50 largest mining companies. The study finds that public reporting on local procurement receives less attention relative to other CSR issues. However, the study also finds that reporting on local procurement has increased by 25% from 2011 to 2012. The local procurement reporting examples highlighted in the study include Sherritt, IAMGOLD, and Yamana Gold.

Why does it seem such an apparent chore for mining companies to maximize and report on their local procurement? This topic deserves further examination by the Engineers Without Borders Canada’s future studies.

After reviewing the best practice examples noted above, I revisited a couple of recent CSR reports to which I contributed and their coverage of the local procurement topic. Centerra, for example, is a Canadian-based and publicly listed gold mining company and the largest Western-based gold producer in Central Asia with two operating gold mines located in the Kyrgyz Republic (Kumtor) and Mongolia (Boroo). Covering a two-year period, Centerra’s report highlights over $99 million in local procurement, over $112 million in wages and benefits, and over $42.3 million in community investments at its operations. Centerra’s report highlights that its procurement exceeds 60 percent of goods and services required in Mongolia locally. The report also discusses challenges faced by Centerra in achieving similar milestones for Kumtor in the Kyrgyz Republic.

Kumtor’s 2012 Annual Environmental and Sustainability report, the first using the GRI sustainability reporting framework, dives deeper into the procurement topic. Highlighting also its material macro-economic impact on the Kyrgyz economy (see graphic below), Kumtor’s report notes how it seeks to address some of the barriers faced by local suppliers.

Kumtor macro-economic contrinution in Kyrgyz Republic

Examples mentioned include considering advance payments for materials and equipment to reduce the suppliers’ working capital requirement, and tracking and evaluating its international purchases to identify changes in local availability of suitable substitutes. In 2012, such a review identified 15 consumables that had become available from Kyrgyz sources. Kumtor also hosted an Open Day for Suppliers Forum, welcoming 55 participants who were interested to learn more about our procurement practices and opportunities.

Kumtor reported a total spend of $265 on goods and services in 2012. This included approximately $74 million procurement within the Kyrgyz Republic. When adjusting its procurement figures by excluding original equipment manufacturer (OEM) capital equipment and parts, major consumables, and reagents that are not available for purchase in the Kyrgyz Republic, and fuel import from Russia, over 70 percent of its total procurement expenditures in 2012 qualified as purchases within the Kyrgyz Republic.

Kumtor’s report does not stop there. It also highlights other local business development-related activities outside of its own supply chain. These included microfinance schemes (focused on agriculture sector), and capacity-building partnerships, such as one developed with the European Bank for Reconstruction and Development (EBRD).

As part of its joint initiative with the EBRD, Kumtor commissioned a study to map the businesses of the Issyk-Kul administrative region, which hosts the Kumtor gold mine, and held number of related workshops to inform local businesses about the results of this study. Over 1,000 small businessmen and women took advantage of the complimentary seminars presenting results of the study. During these workshops, those who attended were also provided with information about the EBRD’s business consulting services and training, ranging from business planning to marketing.

However, similar to the mining sector more broadly, Centerra continues to have its work cut out to demonstrate how it is adding value to the local economies where its operations are located. In Centerra’s case there may be a bigger sense of urgency. The need to demonstrate positive local economic impacts comes against a backdrop of on-going negotiations with the Kyrgyz Government, already a 33 percent shareholder in Centerra through the Kyrgyz state-owned mining enterprise Kyrgyzaltyn, to restructure and expand its participation.

Why do you think is reporting of local procurement practices by the Canadian mining sector still somewhat underdeveloped compared to other CSR issues? What are other good local procurement reporting practices in the Canadian mining sector? - You may also be interested in this blog (Inspiring Women associated with Kumtor Gold) in which I reflect on an inspiring meeting with a female entrepreneur who forms part of Kumtor's local procurement and supply chain.