[miningmx.com] — THERE is a new buzzword linked with South Africa’s mining industry, and it doesn’t start with an “n’.
Nationalisation may be all the rage for now, but while ANC Youth League president, Julius Malema, succeeded in grabbing headlines, government made steady progress to formulate its ideas around beneficiation: the development of the country’s mineral value chains, in official speak.
In principle, the concept of adding more value to unprocessed minerals before its leaves the country is laudable and very much needed. It creates jobs and earns foreign income, both of which South Africa has in short supply.
Yet, as is so often with this government, good intentions can pave the road to hell, such that forcing miners to be the suppliers of raw materials – which in itself is controversial if market-related prices are not paid in return – could be met with more resistance if the strategy is not well thought-out.
Just to recap the process so far:
The Department of Mineral Resources’ beneficiation strategy – which say that limited access to raw materials was a major holdback – was adopted by cabinet in June.
The strategy earmarks ten strategic commodities and selects five value chains from these. The first two value chains will be presented to cabinet in October and will cover the iron and steel industry, as well as energy commodities. The remaining three chains cover autocatalytic converters and diesel particulate filters, jewellery fabrication as well as titanium metal and pigment production.
On its plans for iron and steel, the strategy is likely to tie-in with what government has been forthright about so far. It seeks concrete steps to reduce steel prices and at the same time broaden the manufacturing base. The cheaper ore is supposed to be sourced from Sishen at cost plus 3%.
“We believe that the unbundling of Iscor in 2001.embedded two very important developmental objectives and the first one was that a proportion of all ore which is mined at Sishen is made available at cost plus 3% to support competitive steel manufacturing in South Africa,’ Minister of Trade and Industry Rob Davies was quoted last year already.
How this objective will be reconciled with any of the possible outcomes in the High Court case over the disputed 21.4% right in Sishen remains to be seen. What is less clear is the extent to which government will require the other sectors to chip in to raw materials supply and at what price.
But chip in they seemingly will.
“In the past, when we issued mining rights and licences, we did not attach certain conditions, like saying a certain percentage of your production must be available for local beneficiation,’ Sapa quoted the DMR’s chief director of mineral promotion, Siyabonga Ndabezitha, last week.
“But now we have realised that maybe we need to do things differently, and make sure that in all the new licences that we’ll be issuing, there would be certain conditions, which would make it possible for new entrants to have access to the required raw materials.’
Addressing the Africa Down Under mining conference in Perth, Australia, former DMR director-general and now special adviser to the Minister of Resources, Sandile Nogxina, was less explicit about quotas, but did say the amended Mineral and Petroleum Resources Development Act would “ensure there is sufficient feedstock available for downstream beneficiation’. The state would probably envision the state-owned mining company to fulfil a role in this regard, but it is safe to assume there will also be an obligation on private miners.
The proposed conditions on mining companies, and beneficiation as a viable concept, has detractors for many other reasons.
Commenting on Ndabezitha proposals, mining law experts from Webber Wentzel, Peter Leon and Jonathan Veeran, said in a note to clients the allocations of a percentage of production to local activities as a condition to new mining rights, could amount to a breach of South Africa’s international law obligations under a World Trade Organisation agreement.
As for its part, Kumba in March said a study it commissioned has shown that lower iron ore prices and cheaper steel won’t have a significant effect on steel output, as steel accounted for a small share of costs of most downstream manufacturers – a view which obviously also support its own purposes.
Then the question remains how much beneficiation – which is usually energy intensive – could take place given South Africa’s chronic power shortages and the escalating costs thereof. The Energy Intensive Users Group, which consists of Eskom’s 36 biggest clients, last week said that should the prevailing trend of 25% annual increases in power costs be allowed to continue, the costs involved in ferrochrome production – an established beneficiation sector in South Africa – would exceed that of India and China at around 2015. A R100/tonne carbon emissions tax would exponentially exacerbate the problem.
It won’t be fair to dish beneficiation completely before the policies haven’t been made public, but the concerns that has been raised so far are also equally valid.
Interestingly, an Australian legal eagle who also presented at the Africa Down Under conference, Michal Blakiston, likened beneficiation to nationalisation, saying both concepts are on the same side of the coin as resource nationalism.
Desperate to abolish the “n’ word to history, South Africa’s miners are on the back foot to show how they contribute to upliftment and the transformation of the economy. They’ll be hard pressed to compromise on beneficiation to secure some sort of viable future.
