The ramp may be too steep. Is year three a bust? The stakes are high.

The South African Department of Mineral Resources and Energy (DMRE), in its 2018 Mining Charter, gives mining rights holders five years to transition to 70 percent local content spend on mining goods procurement. Accenture’s experience supporting mining clients on this journey indicates that targets for year three (2021) won’t be met without some interventions.

So how are mines performing in terms the year-three targets and what are the key challenges?

This blog is part of a series of posts on how local mines can meet the Mining Charter III’s local content targets. In this post, I take a closer look at local content targets and the progress mining rights holders are making.

Year three likely a bust?

Local content procurement targets, South African manufactured goods, South African Department of Mineral Resources and Energy (DMRE) Mining Charter, 2018.  Source: Department of Mineral Resources, Implementation Guidelines for the Broad-based Socio-economic Empowerment Charter for the Minerals Industry, 2018.

The DMRE has prescribed a five-year compliance horizon with local content procurement targets for each year building up to the ultimate target of a minimum of 70 percent of total mining goods procurement spend on South African-manufactured goods with a minimum 60 percent local content. While the Charter went into effect in 2019, some relief was provided on the local content verification element with exemption extended for the first two years to give industry stakeholders time to develop a product identification system, as well as a verification process for local content. This standardisation system is still in development.

As mining rights holders move into the third year of reporting this element, a number of challenges are emerging.

The first and second year (2020 reporting of 2019 spend, and 2021 reporting of 2020 spend) have a composite target of achieving 10 and 20 percent local content procurement, respectively. In the third year of reporting (the 2022 reporting of 2021 spend), the Charter requires that mining rights owners achieve 35 percent local content, with prescribed minimums allocated spend with BEE-compliant, historically disadvantaged persons-, youth- and women-owned businesses. South African Bureau of Standards (SABS) certification is required as proof of local content.

What has become evident based on our experience at the mining clients we are supporting on this journey is that the composite targets of year one and, to a lesser extent, year two are more readily achievable. However, a precursory forecast of mining rights holders’ local content levels from year three onwards shows that unless an intervention is put in place, realising the composite target as well as those for youth-, women- and HDP-owned companies is unlikely in the third year. This indicates work to be done by mining houses to improve participation by suppliers with these profiles.

Understanding local content baseline levels across these ownership profiles as early as possible in the compliance horizon will assist mining rights owners to define strategies and interventions to bolster local content levels for the longer term.

What has become evident based on our experience at the mining clients we are supporting on this journey is that the composite targets of year one and, to a lesser extent, year two are more readily achievable. However, a precursory forecast of mining rights holders’ local content levels from year three onwards shows that unless an intervention is put in place, realising the composite target as well as those for youth-, women- and HDP-owned companies is unlikely in the third year. This indicates work to be done by mining houses to improve participation by suppliers with these profiles.

Understanding local content baseline levels across these ownership profiles as early as possible in the compliance horizon will assist mining rights owners to define strategies and interventions to bolster local content levels for the longer term.

Wait and see approaches based on the prevailing ambiguity around some of the mining charter implementation principles and mechanisms are not recommended—they will leave mining houses on the back foot from a horizon perspective.

The stakes are high

Failure to meet these targets has a negative impact from a compliance, operational and sustainability perspective, while meeting them presents a number of benefits, including improved long-term competitiveness.

  • Protecting your operating license. Mining rights holders who fail to comply with the local content requirements will not be allowed to continue operations as indicated in section 47 of the Mineral and Petroleum Resources Development Act.
  • Developing a future-proof supply chain function. Strong ecosystem partnerships and shorter, more reliable supply networks can provide a source of competitive advantage in the medium to long term.
  • Ecosystem sustainability. Adhering to local content requirements can improve local industries and create opportunities for local communities. It is important for mines to develop trust with all stakeholders who engage with their brand. Local content efforts that support socio-economic transformation and help build sustainable communities can help them gain that trust.

In short, local industry development will help mining rights holders protect their future business, strengthen their value chain, improve local participation in the supply value chain, and empower communities around them.

Tools to help you meet targets

To address the key challenges and support our mining clients on their local content journey, Accenture has developed a Local Content Framework. It is built on five core elements—creating a supplier baseline, doing a local content assessment, reporting, building an intelligent data hub to optimise outcomes, and creating a localisation strategy.

Join me in my next post in this series where I take a closer look at local content definitions, the formula for determining local content and the industry hurdles that are slowing achievements.

In the meantime, for more on Accenture’s mining capabilities and offerings, click through to Leading with digital in South Africa Mining, our Applied Intelligence Studio in South Africa for Mining and our Metals & Mining newsroom for the latest releases.

Until next time,

Christopher Mulindi
Manager, Strategy & Consulting, Accenture South Africa, Resources and Energy
christopher.mulindi@accenture.com