A Strategic Value Driver for Miners, Communities and Stakeholders
Procurement in the mining industry has the power to add or destroy value for mining companies, shape communities and impact all industry stakeholders. But we live in uncertain times where international supply chains are shifting and risks abound. Hence, for mining companies getting procurement right is very challenging.
Axis Group Global Procurement & Supply has supported mining projects and operations for over 20 years and we share insights on how procurement and supply can be a strategic value driver for mining companies around the world.
Key Highlights
- Global Mining Is Massive - The global mining industry with its USD2tn market size is a significant share of global GDP; a major role player in international trade, capital flows and technology; and has significant influence across regions and industries and everyday life
- Mining Procurement Spend is a Big Force - Global mining procurement is a big lever that drives value for mining companies and for their many stakeholders – the scale of mining procurement spend is often an engine for economic activity, technology development, etc., and ripples far and wide
- Mining Procurement is Consequential – How companies approach procurement can have significant consequences. Procurement can increase or destroy value; unlock advantage (or disadvantage!); and transform economies, suppliers and communities
- Procurement Success Demands Good Strategy & Tactics – Mining procurement is complex, especially in volatile and dynamic global markets, and astute leadership, strategy and implementation is required
Global Mining is Massive
The global mining industry is massive. In 2021, the global mining market size was USD 1.84tn, having recovered from around USD 1.4tn in 2020 after being hit by Covid-19. Current estimates put the total market size at around USD 2.06tn at the end of 2022. A few facts and figures easily illustrate the scale of this vital sector in the global economy:
- Metals extracted in 2021 amounted to 2.8 billion tonnes, of which 93% was iron ore, with the remainder being industrial and precious metals
- In 2019, the total output of the mining industry was USD 5.9tn, nearly 7% of total global GDP. Rising consumption trends in Asia and specifically from China and India have contributed to growing demand for goods in this industry
- The top 100 mining companies had a combined market capitalisation of USD 1.72 trillion as of January 2023
- Over USD200bn worth of mining projects are currently underway globally
- Mining-related equipment has a market size of nearly USD 133bn in 2021, and is forecast to grow to USD 185bn by 2030
Global Mining Spend is a Big Force
Big mining implies big spend. While the world’s top 100 mining companies spent around USD 100bn on CAPEX projects in 2021, a deeper dive into the spend of the top 40 mining companies reveals they have increased their CAPEX spend from USD 71bn in 2021 to an estimated USD 82bn in 2022. Overall, mining industry ongoing procurement spend amounts to around USD 200bn annually. This number is expected to grow as the world further transitions past the challenges brought on by the pandemic.
In recent years, mining operations have faced numerous supply chain disruptions due to factors such as Covid-19 and the Russia-Ukraine conflict resulting in instability in receiving essential supplies. This, in turn, affected various global CAPEX projects and led the mining industry’s output to tumble with lower exploration budgets. This also caused scarcity of key transition metals such as copper. These factors have affected overall spend in the industry; however, this has now recovered as markets have reopened.
The global exploration budget of solid minerals has increased to pre-Covid levels and is expected to grow more in 2023, mainly due to the necessity of finding new copper and other materials are as reserves are depleting. Other factors include the rising need of finding more energy transition metals such as lithium, etc. The demand for copper is expected to rise up by three folds by 2040 while demand for cobalt is expected to increase by 20 times during the same period. Countries rich in these transition metals such as the African nations and Australia have seen an increase in exploration budgets and investments - and therefore mining procurement spend will continue to grow.
Mining Procurement Spend is Consequential
It is not just about the scale of mining spend. Mining spend can have both positive impacts and negative consequences in various areas, with this industry playing a vital role in many countries and industries. Therefore, procurement must incorporate an array of competing interests, e.g. cost reduction vs better quality; local vs global; etc.
Depending on where and when it is spent, it can both create as well as destroy value in mining projects. The efficiency and effectiveness of procurement may considerably raise or lower CAPEX and OPEX expenses during the lifetime of a project or operations.
There is a significant potential in mining having a positive impact on society at large, such as the creation of jobs directly or indirectly in local communities. However, there is the potential for mining spend to have negative impact on these communities as well, such as through the effects on the local environment if proper efforts are not made to deliver a sustainable project. Also, the trade-off between local and global procurement must be carefully balanced. Mining companies act and compete globally, but their operations are always ‘local’. This means that there is the need to balance social factors and community interest with economic considerations such as cost reduction. Not an easy challenge to meet.
Getting Mining Procurement Right Requires Good Leadership, Strategy & Tactics
Effective global procurement in the mining industry is not a simple endeavour and there are various factors to get right throughout the process. Moreover, many procurement ideas and approaches that ‘live on’ are dated and were developed in a previous world – e.g. before globalisation reached its current levels, before ESG became a strategic imperative; and, before new global supply markets rose to prominence.
Striking a proper balance in local vs global sourcing is crucial, as while localisation needs to be protected, the efficiency and cost effectiveness of global supply chains need to be leveraged as well. Hiring the right people, keeping them motivated, and retaining them is essential to ensure operations are supported by the right talent. Proper investment in developing the right capabilities and choosing the best partners must be made.
Operating models need to be planned, designed and readjusted to achieve the best results. Mining companies must have the right ‘inward’ orientation, such as having good strategy, goals, spend data, and process. But must also have the right ‘outward’ orientation and gather sufficient market intelligence in order to appreciate the right global supply markets and key strategic global categories of importance.
Getting all of the above right will help to determine who the winners and losers will be in the mining industry. What is clear is that in the coming decade, procurement and supply should be a top priority for mining industry procurement managers and teams given the risks and challenges in global supply chains.
Conclusion
The global mining industry will remain a large contributor to global value chains, and mining procurement spend will only increase in the coming years. As such, we need to understand the impact and consequences of procurement spend in this dynamic industry. When done effectively, procurement is a powerful lever for driving value in the mining industry that can reduce cost, manage quality, expedite schedules, mitigate risk, and ensure important ESG compliance across the supply chain. Good leadership, strategy and implementation will lead the way.
Imagine the entire world was your supply marketplace?
Axis Group Global Procurement & Supply has supported mining projects and operations worldwide for over 20 years. Our solutions are truly integrated and span the entire international value chain from source to final supply – including analytics, sourcing, procurement, supplier performance management, quality management, inspection, expediting and logistics.
If your project or operations are challenged by unacceptably high costs, extended lead times or risk, we can provide additional capability. Reach out to Axis Group International in Australia, Asia, the Middle East, Africa, or the Americas at solve@axisgroup-international.com, or call +61 483 386 118.