Guest Post: Creating Value From Mining: Local Procurement, Shared Value and Sustainable Development

By Jocelyn Fraser & Zorigkhuu Bat-Erdene

As Mongolia develops its rich mineral resources, tensions can arise between mining companies and local communities.  Efforts to expand the economy through the development of mineral resources have therefore raised questions about whether mineral resources can be developed in a manner that complements sustainable development.

To learn more about the challenges and potential opportunities associated with mine development, researchers at the University of British Columbia have been following the work of a Canadian company, Erdene Resource Development Corp with a gold discovery – Bayan Khundii – in Bayan Khongor aimag.

As planning begins for mine construction, Erdene Resource wanted to explore opportunities to create and share economic value. Most recently the UBC team took a look at the barriers and opportunities for local procurement – the purchase of locally sourced goods and services – to build mining shared value.

Local procurement has a larger potential for positive economic impacts than the contribution from mining companies’ taxes, wages, royalties, and community investment.  Yet, in sparsely populated areas with few established businesses, limited infrastructure and little past experience with commercial mining, local procurement can be challenging.

The UBC team interviewed local government officials, community leaders, business owners and operators located in Bayankhongor,  and selected service providers and industry experts in Ulaan Baator.  The interviews provided valuable insight on the ways in which mining can contribute to economic resilience in Bayankhongor aimag.

What we learned about interviewee’s perception of mining benefits

Most of the people we spoke with felt that the sole benefit of having a mine in the region would be jobs for those wishing to work at the mine.  There was very little awareness of local procurement practices or of the types of opportunities this might create for local business owners.

When the concept of local procurement – the purchase of goods and services used for mining from suppliers within the region – was explained, there was interest on the part of local merchants and officials to explore business opportunities that might arise from the proposed mine. However, people also identified a number of barriers or challenges that need to be confronted.

The challenges to establishing local procurement initiatives in Bayankhongor

Although there has been small-scale mining in the region, when Bayan Khundii comes into production it will be the most significant open-pit gold mining operation in Bayankhongor.  Local merchants and service providers have little, if any, experience with supplying a company that will be required by regulators and investors to be compliant with international standards for health, safety and environmental protection. Furthermore, a database of registered businesses in the region suggests there are currently no local businesses operating in the region that are qualified to provide core technical services to the mine.

The two soums closest to the proposed mine are Shinejinst and Bayan-Undur, located about 70 kilometres (km) and 90 km respectively from Bayan Khundii.  The provincial capital is located approximately 270 km north of the soums. The region is remote with few establihsed businesses, limited physical infrastructure such as roads, and little access to markets.

Somewhat surprisingly, some questioned whether there is genuine interest on the part of mining companies to collaborate with local businesses.  They suggested that a requirement for compliance with international standards expected from the mining company is a convenient way to disqualify local suppliers.

Opportunities exist to create benefits to Bayankhongor Community and the mine.

Forty-three existing local businesses were identified that appear able to provide a variety of goods and services to the mine.  These include companies specializing in building and construction services and supplies, light vehicle and plant maintenance, printing and publishing, garbage disposal, hotel accommodation; stationery/office supplies, cleaning and camp consumables; local transportation, and food.  There are also a number of existing businesses that could be expanded to provide a service to the mine.  For example, a local water and juice bottling plant that might be able to expand and displace the need to truck bottled beverages from the provincial capital: something with environmental and well economic benefits.

With the Bayan Khundii mine not scheduled to begin operations until 2023, there is time to build local supplier capacity, generate greater awareness of procurement opportunities, and provide training to enable local businesses to qualify as mine suppliers. Local residents with knowledge about Erdene Resource believe the company has demonstrated a willingness to work with them on issues of mutual interest.  This past collaboration creates a sense that the company has a genuine interest in working collaboratively to contribute to sustainable regional economic development.

For Erdene Resource to be successful, company interests must align with the interests of stakeholders to create value for all.  This may require a delicate balancing act.  For example, while improved road infrastructure could support increased access to market for herder goods such as raw cashmere, building permanent roads in an area where none now exist could adversely impact pastureland and herd movement.  Meeting multiple, divergent, stakeholder demands is a challenge requiring ongoing attention and commitment.

 About the authors

Dr. Jocelyn Fraser is a researcher and lecturer at the University of British Columbia.  She is interested in mining-community engagement and how mining could be a catalyst for sustainable livelihoods.  Her research projects have been located in Mongolia, Ethiopia, Ecuador, Peru and Canada.  Before joining the team at UBC, Jocelyn worked in the extractive industry, designing and implementing social responsibility programs in Canada, the United States, Sudan, and Russia.   She is a member of the World Bank’s Extractive-Led Local Economic Diversification Community of Practice, sits on the Mining Association of Canada’s Towards Sustainable Mining (TSM) Communities of Interest Panel, and leads a working group on engagement at the Canadian Institute of Mining and Metallurgy.

Zorigtkhuu Bat-Erdene currently lives in Vancouver, Canada. He graduated from MUST and is aiming to complete a Master’s degree at Norman B. Keevil Institute of Mining Engineering of the University of British Columbia. Zorig’s research focuses on Mining Local Procurement (Local Content) in Mongolia.

Professional background: Zorigtkhuu worked for the biggest coal mining company (Energy-Resources) in Mongolia and an “International Medical Center (Intermed Hospital)” project that was jointly commissioned by the MCS group in Mongolia.

For more information:

Final report: Creating Value From Mining in Rural Communities

Fraser, J., Bat‐Erdene, Z., Lyons, J., & Kunz, N. (2021). Local procurement, shared value, and Sustainable Development: A case study from the mining sector in Mongolia. Business Strategy and Development. https://doi.org/10.1002/bsd2.193

 

This entry was posted in Countryside, CSR, Jocelyn Fraser, Mining, Public Opinion, Research on Mongolia, Zorigtkhuu Bat-Erdene. Bookmark the permalink.

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