Supply chain and procurement

During the year, Exxaro reviewed and implemented a policy that aligns the business to the recently promulgated Department of Mineral Resources (DMR) codes of good practice and broad-based socio-economic empowerment charter for the South African mining industry. This preferential procurement policy tasks the group to use its purchasing power to ensure that external suppliers are engaged and every effort is made to contract with suppliers that have strong empowerment credentials or are making a tangible effort to transform their businesses to comply with BEE legislation.

Our commitment to procuring from historically disadvantaged South African (HDSA) companies is reflected in solid progress since 2005 when the level of discretionary spending with these companies was 24%, compared to 39% in 2008. With the promulgation of the DMR codes of good practice, our policy review now incorporates BEE expenditure targets specified in terms of capital goods, operational goods, services, black women ownership and SMMEs. For the review period, the target of 45% was marginally exceeded (45,03%), representing R3 billion spent with HDSA-owned companies. The target for 2010 is 47%, rising incrementally to 56% by 2014.

Exxaro’s major suppliers are encouraged to transform and secure accreditation in line with the codes of good practice, but with an indication of their narrow-based status. In line with Exxaro’s future expenditure, companies likely to have increased and longer-term business relationships with the group are viewed as strategic partners for transformation. These suppliers are encouraged to form partnerships with local SMMEs in areas of group operations.

Categorising expenditure as required by the DMR codes of good practice remains an industry-wide challenge. The targets shown graphically are annual percentages and reporting is in line with prevailing mining legislation.

As a group, we continue to give preference to companies that demonstrate HDSA involvement, development and support in ownership, management and skills development.