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Beneficiation debate comes of age: An overview
David McKay
Posted: Fri, 21 Oct 2005
[miningmx.com] --BENEFICIATION is likely to become as important an issue as ownership transformation to South Africa’s mining industry in the next two years. That much is obvious following a series of debates earlier this month in Parliamentary sub-committees to assess contributions concerning proposed legislation.
The impending laws –the Diamond Amendment bill and the Precious Metals Amendment Bill – are causing a stir.
Government’s perspective is that not enough is being done by SA’s mining industry to create jobs through downstream activity. The debate also has a strong political flavour, as many mining companies with registered offices in SA are listed offshore with international investors. Consequently, Government views the activity of mining as exploitative, almost neo-colonial.
Such concerns with regard to mining are manifest in other, separate legislative activities,
such as a royalty Bill that will be proposed in 2009. The logic for revenue-based royalties falls squarely on patrimony: Treasury, which is behind the Bill, argues that SA must be compensated for the exploitation of non-renewable resources.
Industry counters that beneficiation may create jobs but it’s not always profitable or sustainable. It also says that legislation intended to impose beneficiation, as contained in both Bills, will raise barriers to entry for foreign investors in SA resources.
“We support beneficiation – but only when it makes commercial sense and is economically defensible,” says Con Fauconnier, CEO of Kumba Resources and president of the Chamber of Mines of SA.
In any event, Kumba already supplies about 9m t/year of iron ore from its Sishen and Thabazimbi mines into Mittal Steel’s SA-owned factories. It also believes that its ore is semi-treated and attracts a subsequent premium from offshore customers.
Fauconnier was responding to
calls by Lindiwe Hendricks, Minerals & Energy Minister, who has clearly made beneficiation the clarion call of her tenure, just as her predecessor, Phumzile Mlambo-Ngcuka, made ownership transformation the centre of hers.
Says Hendricks: “More effort needs to go into beneficiation. If we’re going to meet our 6% growth rate then beneficiation will be an important contributor. I’ve issued a challenge and we’re expecting developments in that regard.”
Rhetoric of that ilk is not untypical of Government in forcing home the message of beneficiation. In March, Paul Jourdan, adviser to the Minerals & Energy Department and CEO of Mintek, said companies that didn’t invest in downstream industries were “selling their country short”. He controversially raised the idea of a freight tax that would be imposed on companies exporting ore rather than semi-producing.
“If you want to sell dirt, then the cost of taking it to the coast will be US$30/t,” Jourdan said in order to
illustrate how such a tax would work. “If you want to beneficiate it will cost $20/t. That will be a signal to the market that if you want to sell your country short you’ll have to pay for it.”
“There’s more stick than carrot,” says Roger Baxter, senior economist at the Chamber of Mines of SA, commenting on Government’s tactics in the beneficiation debate. Baxter says that the answer to SA’s beneficiation problems – particularly in the diamond industry, where the topic’s still emotive – is to improve the cost structure of downstream industries rather than to take punitive steps to install it.
However, in its defence Government has attempted to encourage beneficiation. Its Minerals & Petroleum Resources Development Act of 2004 asks mining companies to either begin or invest in beneficiation activities and consequently allow offsets to other conditions of the Mining Charter if companies choose.
It’s also showing signs of striking a note of conciliation. Some
member of the industry sceptically viewed the Diamond Amendment Bill sub-committee as window dressing.
However, Business Day reported that the Minerals & Energy Department director-general Nogxina said the draft legislation could be changed. “What’s critical is to ensure that when we deal with the promotion of manufacturing we don’t destroy the production sector, which has served SA so well.”
But there was no chance that the legislation would be withdrawn, as some diamond industry participants have hoped.
Though beneficiation is here to stay, implemented wrongly it could have the perverse effect of destroying jobs and damaging SA’s investment reputation.
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