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MINERAL VALUE CHAIN

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MINERAL VALUE CHAIN
AND LOCAL CONTENT
What is mineral value chain?
 represents the stages and processes that a minerals
project will go through to produce mineral products
 Each stage represents a value-add on the previous
 the framework describes the steps from the extraction of
natural resources, to their processing and sale, all the
way through to the ultimate use of the revenues.
Mineral value chain
Prospect
Exploration
establish
feasibility
Mine
Processi
ng
market
and sell
seeking any potential or evidence for
occurrence of minerals
 It involves geological mapping, geophysical
and geochemical techniques and satellite
imagery
It gives you with minimal data
Exploration
 the process of finding ore or mineral deposits in
commercially viable concentrations
 risk of failure is great and the cost is high; Prices of
minerals and exchange rates are changing
 Exploration takes place several years
 Area where exploration is taking place- greenfield or
brownfield
 Greenfield-where exploration has never taken place
 Brownfield-area that was already explored upon
 Exploration is valued at cost; valued at market price (full
amount charged, including operating surplus)
Exploration
 Activities involved;
-Geological mapping
-mineral/ore characterization
-Pitting and trenching
-Drilling
-Reserve estimation
-Prefeasibility study
 This is the one that trigger investments in mining as it gives you
sufficient data enough to make a decision to go on or to abandon
the mine
Exploration
 Companies holding exploration licences with high potential but limited
funding may be seeking investment partners to progress projects
 At each stage of the exploration process exploration companies will
provide progress reports to their boards and shareholders. They may also
seek to secure additional funding from the financial market to conduct
further exploration activities
 an evaluation of a proposed mining project to determine whether the mineral
resource can be mined economically
 Typically, a full feasibility study is the basis for capital appropriation and provides
the budget figures for the project
 Continuation of pre-feasibility study that is undertaken once a mineral has been
identified
 Calculations on;
-Cost estimate for operating and capital
-Market estimates; commodity price and currency exchange rate
-Cash flow study; an appropriate discount rate should be agreed by all concerned
and used to calculate the NPV
-Risk and sensitivity analysis; risk and sensitivity analysis are commonly used to assess
the upside and downside potential of the project.
 Environmental conditions
 Number of reserves
 Activities involved ;
-Surface stripping
-Drill and blast
-Crushing
-Ore transportation to the mill
 2 types; Underground mining and surface mining
 Surface mining- mining that delve into rock to extract
deposits of minerals that are close to the surface
 Underground mining------extracting deeper in the
ground
 Effects
-deforestation and loss of biodiversity
-health effects: lead –mental retardation in children
Processing
 crushing and separating ore into valuable substances or waste by any of a
variety of techniques OR
 beneficiating or liberating valuable minerals from their ores
 Ore dressing/ beneficiation
 determining demand, deciding on its price, and
selecting distribution channels for minerals
 It also includes developing and implementing a
promotional strategy
 Featured by volatility in short run and long run
 Most market reports/analysis are sold
Monitoring value chain
 Done by the government
 Monitoring framework at each stage
 Facilitate movement of minerals within and outside the country
 Access to data and country wide reports
LOCAL CONTENT POLICY
Definition
 A policy, whereby governments insist that firms doing
business in the particular country use goods and services
that are locally manufactured or supplied, is usually
aimed at boosting the economic viability and
competitiveness of indigenous businesses to the benefit
of the country itself, and all of its citizens.
Why local content policy?
 Are major coal, oil and gas discoveries a blessing or
curse?
 Norway’s case demonstrates the huge benefits of oil
and gas finds
 To some extent, Botswana’s case shows important
blessings from mineral resources wealth
 However, other African countries’ experiences show
how a curse natural resources wealth can be
 In previous eras, Foreign Direct Investment (FDI) was seen as an end
in itself, rather than a means for promoting economic development
 However, FDI does not always produce more positive outcomes
than negative ones. In fact, the examples of Angola and Nigeria, as
well as Tanzania’s own experience with its mining sector, show the
difficulty of achieving development from natural resources alone
 Since the mid-2000s African countries, including Angola and
Nigeria, have put in place local content policies (LCPs) to maximize
the benefits from resource extraction
 At the global level-following the economic crisis of 2008,
the implementation of local content policies
experienced an upward trend, as political leaders
sought to grapple with the consequences of the crisis by
channeling business to domestic firms, creating more
jobs and enhancing the benefits from resource
endowments
2 Views of local content
 Opponents
-distort trade (incompatible with WTO measures ;treating one another as
nationals)
-discourage FDI (the requirements harmful to local investment climate)
-creates inefficiency
-corruption
Argument: it strengthen competitiveness of domestic players over foreign
players
Proponents
-may
support local income generation
-
productivity improvements and
-
industrial restructuring
-
Correct market failure
-
Integrate in global economic network
Argument: most advanced countries (including the USA and
Germany), while in the early stages of economic development, massively
employed local content measures to promote industrial development
Objectives of local content policies
 Facilitate increased use of competitive national goods and services
 Expand the commercial co-operation between national and foreign
companies
 Strengthen/enhance the sophistication of national financial markets by
floating shares in upstream and midstream companies
 To avoid the natural resource curse
 Transformation and visibility of local businesses into world class
companies, which can then export their newly acquired competencies
 Significant conservation of foreign exchange reserves
 Development of linkage industries which will support natural resource
sector e.g. steel sector
Instruments of local content policy
 Ownership requirements ie. Restriction on foreign ownership (mostly to 50%)
 Tariffs measures e.g tariffs on imported inputs
 grants,
 Loans from state-owned banks
Necessary conditions for success
1.Clear, unambiguous policies;
2. The right institutions;
3. Absorptive capacity in local industry;
4. MNC willingness/ability to outsource.
Benefits of local content policy?
 Create opportunities for individual citizens to invest in upstream,
midstream and downstream development.
 Enhance the development of national technical and commercial
skills.
 Promote development and poverty reduction by:
-Providing jobs and opportunities for local businesses;
- Facilitating technology transfer; and
-Building local knowledge and skills that are critical for development.
Challenges of LCP’s
 Rise in prices of goods that the LCP targets>increase of prices of
production costs> this inturn leads to incompetitiveness with exports in
non-targeted sectors falling
 Limited local content capability-Local entrepreneurs are not
competitive in price/quality/technical competence- Most local firms
lack experience, financial track record and the quality systems required
• Access to capital equipment
• Reluctance by investors to assist local content companies
• Perception that local content participation is based on
commissions, not as a value-adding activity
Challenges of LCP’s
• Breaking
into the global supply chain is difficult
• International companies have identified business and
management practices as the main challenge
• Financing Challenges
– Limited local funding capacity
– Short tenors relative to requirements
– High cost of local borrowing
– Limited access to international financing
 there are corruption risks related to local content, in
particular in procurement, as experiences show that it
has tended to benefit political elites, if not managed
transparently.
Way forward?
 need for appropriate government support
 friendly investment climate,
 availability of financial resources and the
 implication of the relevant stakeholders such as the
private sector
enterprises and the civil society to ensure their
commitment to the implementation of the policy.
THE END
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