Minerals Beneficiation Policy to grow economy and provide jobs
During 2011, the government approved and implemented a minerals beneficiation policy for South Africa which provides a framework for SA’s substantial mineral resource reservoir to be translated into a competitive advantage, rendering exciting opportunities for long-term investments with a significant impact on the importing and exporting of precious metals.
For over 130 years, SA’s mining industry has boomed with rich mineral resources and through this, has supported the development of various other world-class industries and services such as energy, finance, engineering, seismicity, geology and metallurgy, which either supply the mining sector or use its products.
As a result, lucrative opportunities exist for further downstream processing in iron, carbon steel, stainless steel, aluminium, platinum group metals and gold with a wide range of materials becoming available for jewellery, including gold, platinum, diamonds, tiger’s eye and a variety of other semi-precious stones.
It was therefore a natural step for government to identify the beneficiated minerals industry as one of six key sectors in government’s New Growth Path (NGP) strategy to drive economic growth and create five million new jobs by 2020.
Beneficiation entails crushing and separating ore into more valuable substances by a variety of techniques. Downstream involves a range of activities such as smelting and refining, labour-intensive activities such as crafting jewellery, and metal fabrication such as machinery and equipment manufacture. Side-stream refers to infrastructure, research and development, human resource development, and inputs such as capital goods, consumables and services.
The successful achievement of large-scale beneficiation is embedded within the framework, and spans the full spectrum of the five major mineral categories, namely precious metals and minerals, energy minerals, non-ferrous metals and minerals, ferrous minerals, and industrial minerals.
Previously, SA mostly exported raw minerals and semi-processed minerals rather than high valued finished products. Therefore the formula and strategy deployed within the new policy will detail how best to add value to commodities. Mineral Resources Minister Susan Shabangu said that SA now has a proper plan of execution which would enable the country to move forward in dealing with beneficiation at various levels.
Shabangu said a critical pillar was a policy regime that offers positive incentives like a deeper skills pool, a favourable tax climate, lowering cost of capital, and addressing limitations imposed on the mining industry by rail and energy infrastructure deficiency. The strategy is also aligned to other national programs including the energy security program and the Advanced Manufacturing Technology Strategy (AMTS).
The strategy is based on the need to unlock downstream and side-stream values, and provides an initial analysis of opportunities and challenges with suggestions on various ways of implementation to enhance value addition. The total net worth of beneficiation will be maximised by a combination of downstream and side-stream linkages.
Typically, a mining company will be in one of the following assessment phases regarding beneficiation: strategic assessment, which is an analysis of considerations, risks and opportunities, focusing on government incentives and social imperatives like job creation; feasibility assessment, to identify opportunities to determine the viability of such initiatives; or implementation, determining the feasibility of an initiative with a fully developed implementation plan and schedule.
The mining of minerals and metals remains a cornerstone of the economy, making a significant contribution to economic activity, job creation and foreign exchange earnings. Therefore, as a vital input to the government’s industrialisation program, the new beneficiation policy will increase sources of local and international retail use, which would enhance export revenues.
As a world leader in mining and famous for its abundance of mineral resources, accounting for a significant proportion of the world’s production and reserves, SA produces a noteworthy amount of platinum, gold, diamonds, base metals, coal, chrome and manganese, with the second-largest reserves of zirconium, vanadium and titanium.
In 2009, coal became the largest component of SA’s mining industry in sales value with total sales of R65.4-billion, followed by platinum group metals at R58-billion and gold at R49-billion, accounting for 71.2% of total mineral sales. The addition of exports of secondary beneficiated minerals, such as catalytic converters, ferro-alloys, steel, chemicals and plastics, took the exports of the country’s mineral complex to about R280-billion, or about 50% of SA’s total merchandise exports.
In 2010, SA as a resource economy, was estimated to possess approx US$2.5 trillion in non-energy situ mineral wealth, making it one of the wealthiest mining jurisdictions in the world. Despite this, SA continued to export most of its minerals as ores or semi-processed minerals rather than high value finished products.
The gross revenue from sales of all minerals in SA for FY 2010 amounted to R227 billion. Similarly, just over R86 billion was generated from processing base metals, precious metals and other minerals, representing approx 11% of the total volumes of minerals produced in 2008.
Demand from India was mainly mineral products worth R14.8bn and SA imported R6.2bn of the same category of goods. The main export item between the US and SA was R15bn worth of precious metals and stones. SA exports to Japan amounted to R24.2bn in precious metals and stones. In the case of the UK, R13.5bn of precious metals and stones was the biggest export.
According to a breakdown of foreign trade by the SA Revenue Service, 2010 showed that China was SA’s biggest trading partner with more than R52bn spent in the sectors that include base metals, coal and iron ore. A year ago a Chinese official signed a trade agreement saying China would attempt to increase its imports of beneficiated, high-value products from SA.
For future exports, according to a report issued by Deloitte, opportunity certainly knocks for mineral beneficiation. Beneficiation is largely attributed to the rise in resource nationalism, which is underpinned by higher commodity prices. Resource nationalism refers to government efforts to assert greater control over natural resources located on their territory.
A large portion of the value extraction process has traditionally taken place outside of resource rich countries. Thus mineral beneficiation will bring a number of benefits to the SA economy and the mining industry with increased local and international revenue streams.
The mineral beneficiation process involves the actual extraction of the ore, the concentration of the particular mineral into concentrates, and the further beneficiation of the mineral into a saleable product typically defined by industry standards such as gold doré (22+ carats), platinum bars (99,99% Pt), and saleable merchandise available to the consumer at a margin.
The government has identified ten commodities that possess the most potential in maximising the extraction value. These minerals are: chromium, manganese, coal, uranium, nickel, diamonds, platinum, gold, titanium, iron-ore, and vanadium.
The ten commodities have been clustered according to their value chains and the government has identified five value chains that will be the preliminary focus of the new strategy. The five value chains are: energy commodities (coal, uranium and thorium); iron and steel (iron-ore, chromium and manganese); pigment and titanium production (titanium and vanadium); autocatalytic converters and diesel particulate filters (platinum); and jewellery fabrication (diamonds, gold and platinum).
Deputy Mineral Resources Minister Godfrey Oliphant said access to finance was critical for beneficiation in the diamond sector with only two commercial banks, Nedbank and ABN Amro, being involved in providing loans to small players. He said the Department of Mineral Resources was looking at different models for funding small players in mineral beneficiation, which included the Israel Bank and the State Bank of India.
Oliphant suggested that a local financial institution should consider developing a diamond-funding model. There are only five major polished diamond wholesalers in SA and since most of the beneficiators in SA do not have access to overseas markets, they have to sell their polished diamonds to these wholesalers who have the propensity to drive down the prices of polished diamonds, thereby squeezing the margins of the beneficiators which renders business unsustainable.
Oliphant said the African Growth and Opportunity Act provided access to the US which drives half of the world’s jewellery market. In addition, a free trade deal existed with the EU which provides ample opportunities for local beneficiators to grow their markets internationally.
Furthermore, the high value and low bulk of gold, platinum and diamond jewellery lends itself to more export markets such as Japan and China. The department will explore successful means and more avenues to facilitate access to these lucrative markets.
The beneficiation of gold and diamonds requires the establishment of integrated jewellery hubs throughout the country. Although the manufacturing of platinum jewellery is not a priority area for platinum group metals (PGM) beneficiation, the integration of specialised platinum jewellery facilities into any of the jewellery hubs would be well received.
Given the heritage of mining in this country, coupled with the concept that mineral resources are limited, but creativity is unlimited, the time has never been more favourable for a more coordinated growth in mineral value addition.
The beneficiation initiative presents one of the rarest opportunities for SA to continue sustainable growth, ensuring that SA’s mineral wealth is developed to its full potential for the benefit of the entire population.
Word count: 1504
Written for: Capemedia – Mining Prospectus
Editor: Tracee Harvard – traceeh@capemedia.co.za – 021 681 7000
Deadline: 16 January 2012