Local Content in the Niger Resource Sector Stefano A. Borghi Drill Masters Africa Ltd The First UK-Niger Investment Forum 2012 London, 14 th June 2012.

Local Content in the Niger Resource Sector

Stefano A. BorghiDrill Masters Africa Ltd

The First UK-Niger Investment Forum 2012London, 14th June 2012

Summary

1. The Impact of Local Content on the Economic Development2. Which Local Companies to Develop?3. The West African Drilling Market4. Drill Masters Africa: An Emerging Company from W. Africa5. Proposals to Promote the Local Content in Niger6. Next Steps

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1. The Impact of Local Content on the Economic Development

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MNCs Local Companies

TECHNOLOGY TRANSFER Avoiding ToT Open to ToT

DEVELOPMENT OF KNOW-HOW

Operating as an “enclaves”

Interacting with local economy

DEVELOPMENT OF MANAGEMENT SKILLS

Employing expatriates

EmployingLocal managers

LOCAL VALUE ADDED Closed Global Supplier List

Using other local firms

RE-INVESTMENT OF PROFITS

Not much left behind

More likely to re-invest locally

CREATION OF COMPETITIVE ADVANTAGES

Perpetuation of dependence

Young MNCs in services from emerging markets

1.1 Why Local Content Is Also Important to Mining MNCs

• The availability of skilled manpower affects the exploration costs and timing

• Local content 1. reduces the lead time of exploration programmes2. improves the relationships with the local communities3. ensures that mining is more sustainable4. constitutes a competitive advantage in an increasing competitive mining

market

• Ultimately, LC ensures that the “licence to operate” is renewed by the local Governments to the miners!

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2. Which Local Companies to Develop?

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Source: Balmoraltrust 2012

2.1 Who is Ahead of the Game?

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Source: Balmoraltrust 2012

The Local Content Index is here defined as:(regional share of world drillers) / (regional share of world gold production)

i.e. Australia has been able to capitalise on its natural resources, to create a large - export oriented - drilling sector….. Why should not W. Africa do the same?

2.2 Drilling Companies by Ownership

• At least 95% of the shares of listed Drillers are owned by OECD countries

• The great majority of Directors of those companies are from OECD countries

• Listed OECD companies account for $1bn per year of drilling contracts in West Africa – a missed opportunity for local businesses

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Source: Bloomberg

3. West African Drilling Market

• Mining companies are increasingly directing their exploration expenditure into previously under-explored emerging markets, such as Africa

• West African mineral exploration spending in 2011 was approximately $924 million, up 70% from 2010

• Since 2007, exploration spending has grown at a Compound Annual Growth Rate of 25.7%, surpassing the global average of 13%

• The emerging markets drilling sector is fragmented and underserviced

• Barriers to entry: availability of skilled labour, lead times for ordering new equipment and opportunity cost of alternative investments in West Africa

• Ghana, a top exploration play, is a net exporter of drilling workers worldwide!

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Sources: Westhouse, Bloomberg

4. Drill Masters Africa – An Emerging Company from W. Africa

• Ghana based drilling company servicing the booming gold exploration industry• Profitable, fast growing business • Re-investing all the cash flow, debt free• Strong management team with proven record at building successful businesses• Only local company competing in the Ghanaian market• Wholly owned and managed by West Africans

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4.1 Drill Masters Africa – A Pioneer in Local Content

• Employs and train mostly local staff (90%)• Operates an extensive Training Programme and Bonus Schemes• Helps the local communities (drilling wells as well)• Opening new local companies in partnership with locals in West Africa

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5. Proposals to Promote Local Content in Niger

• To extend the Article 19 and 21, respectively, of the Niger Mining Code 2006 and the Niger Oil Code 2007, which gives preference to local workers ,giving also preference to LOCAL COMPANIES (defined on ownership, staffing and local value added)

• To Establish a Fund to promote local SME in the service sector, funded by the revenue from the resource sector (Kristina Svensson, World Bank, January 2012, Indaba)

• To Promote Local Early Stage Exploration Companies

• To create a Mining And Drilling College to support Investment in Mining in Niger, foster Local Content In Niger and create the basis for an Export Industry of Drillers and a source of foreign remittance

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6. Next Steps

• Drill Masters Africa is prepared to participate into a local Joint Ventures, providing• Full transfer of technology and know-how• Management Support during the start -up

• DMA would warmly welcome proposals by the Government or local partners to participate and support the JV

• DMA is available to provide technical assistance and on-the-job training to a Nigerien drilling college (*)

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(*) The usual limitation for training is the lack of available rigs to allow trainees to gain practical experience

The End

Thank You!

We look forward to meeting you next year with some progress and news.

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Address: Drill Masters Africa2 Rose Street, AbelenkpePO Box CT5812, Accra, GhanaPhone/ fax: +233 302 784729Email: [email protected]