Government decisions to design local content policies need to be informed by reliable data. To support governments in making informed decisions on local procurement, Germany’s Federal Institute for Geosciences and Natural Resources (BGR) has developed the LION model, which estimates the market potential for local procurement, based on mining companies’ operational expenditures, for several African countries and for three commodities, namely gold, copper, and cobalt.
The model estimates mining operational expenditure procurement spending for each country from at least 2013 onwards, for all relevant mining companies effectively operating during the periods concerned. Data is based on publicly reported cash costs. The model allocates procurement spending to 32 product and services categories.
The BGR model is a tool that allow users to estimate procurement volumes by spending category, compare trends in commodity prices, as well as trends in overall production and cash operating costs, across companies and countries. It is an efficient tool to assess national and regional market sizes and to determine what local procurement opportunities exist, therefore providing useful information to governments, investors and suppliers alike. It can also be used to support more targeted approaches to local content policies, improved information sharing and lowering investment risks of mining suppliers.
The current model looks at two regions, covering a total of six countries. These are:
- Four gold producing countries in West Africa, namely Burkina Faso, Cote d’Ivoire, Ghana and Mali; and
- Zambia and the Democratic Republic of Congo, in the Copperbelt.
Examples of How the LION Model Can Be Used
The model offers an efficient analytical tool for policy makers, local suppliers and potential JV partners to understand the scale and nature of the market for mines products and services. It supports decisions that increase local procurement, such as indicating attractiveness of markets for various products. It is low resource, easily updatable, and publicly accessible.
The model can be used by various stakeholders:
- Governments can use the data to cross-check submissions against targets in local procurement plans;
- Potential JV partners can use the data to assess the investment viability of their investments, such as by assessing the market requirements v/s market share they would need to get to achieve that, either in one country or in the region;
- Governments and investors can evaluate whether investments in suppliers development in a product grouping makes economic sense, given the size of the opportunity;
- The data can assist investors during their consultations with policy makers and provide information specific to their product portfolio.
LION Model for West Africa
Gold is an important part of the economic ambitions of many West African countries, and many African countries use the African Mining Vision to harness the resource sector for their socio-economic development. The substantial mining procurement market can have a significant impact in this regard. The different institutional, economic, and regulatory conditions of West African countries result in differences in the extractive industry’s needs for supply products. For example, Ghana’s gold sector is one of the largest in West Africa, so the procurement expenditures of Ghanaian mines dominate in many categories. The low level of electrification and lack of connection to the central power grid in the countries of Mali and Burkina Faso have resulted in high expenditures on fuels and lubricants for power generation. In contrast, direct expenditures on electricity are correspondingly low.
The following list shows the four top-spending West African countries in seven spending categories in the gold mining procurement market (2021 figures in USD):
- Fuel and lubricants for energy supply: 359 million (Burkina Faso), 226 million (Mali), 62 million (Senegal), 40 million (Guinea)
- Fuels and lubricants for mining: 176 million (Burkina Faso), 144 million (Ghana), 74 million (Mali), 53 million (Guinea)
- Reagents: 156 million (Ghana), 156 million (Burkina Faso), 82 million (Mali), 50 million (Guinea)
- Spare parts and operational expenditures: 139 million (Ghana), 123 million (Burkina Faso), 70 million (Mali), 42 million (Guinea)
- Grinding media: 88 million (Ghana), 85 million (Burkina Faso), 46 million (Mali), 27 million (Guinea)
- Explosives and accessories: 84 million (Ghana), 79 million (Burkina Faso), 46 million (Mali), 25 million (Guinea)
- Electricity: 193 million (Ghana), 49 million (Côte d’Ivoire), 40 million (Guinea).
LION Model for Copperbelt
The Copperbelt is the largest copper and cobalt mining area in Africa. These metals contribute significantly to the economies of both the Democratic Republic of the Congo and Zambia. The size of the mining sector offers great potential for the local economy to participate in the mining process. In addition, current trends in the course of the energy transition, especially the increased use of batteries for electric vehicles and the global use of smartphones and other types of computers, will further increase the demand for copper and cobalt. To be less vulnerable to price fluctuations and to further diversify their own economies, officials in both countries look at local value addition through the extraction of copper and cobalt as drivers for development. The area of procurement in mining operations is especially promising when looking at local value addition.
The top spending categories in the Copperbelt procurement market (2021 figures in USD):
- Electricity: 597 million (DRC), 411 million (Zambia)
- Spare parts and operational expenditures (OPEX) equipment: 265 million (DRC), 207 million (Zambia)
- Fuel and lubricants: 231 million (DRC), 208 million (Zambia)
- Sulphur and sulphuric acid: 194 million (DRC), 144 million (Zambia)
- Equipment and plant maintenance: 162 million (DRC), 120 million (Zambia).