FULL VALUE - JSE MAGAZINE

FULL VALUE

Despite its massive mineral wealth, SA is struggling to see merit in downstream sectors, with industry and government agreeing beneficiation is necessary though no one can decide on what the solution should look like

FULL VALUE

SA is the richest country in the world. At least, that’s in terms of commodity wealth, according to a 2010 report by Citigroup Inc. It ranked SA top of the rich list, with more than $2.5 trillion in mineral reserves – a massive 56% more than Russia, which comes in at second place.

Analysts believe that those standings haven’t changed much in the five years since then. In fact, in November 2012 the Mineral Resources ministry raised the estimate of the country’s mineral-deposit wealth to an eye-watering $3.3 trillion.

Yet, to look at our national balance sheet, you wouldn’t say that this is the case. Despite sitting on the world’s largest reported reserves of gold, platinum group metals, chrome ore and manganese ore, and the second-largest reserves of zirconium, vanadium and titanium, the downstream sectors aren’t seeing the level of value they should.

Deloitte’s report on the 2010 financial year saw SA achieving a gross revenue of $24.5 billion from sales of all minerals but only $9 billion was generated from processing those minerals.

Clearly something is not adding up. Based on its vast resource wealth, SA has relatively low levels of mineral beneficiation – the value-added processing that transforms those extracted minerals into a more finished – and more valuable – end product.

Zimbabwe’s President Robert Mugabe summed up the situation during a two-day SADC summit at Victoria Falls in August 2014.

‘Our region has abundant resources, which – instead of being sold in raw form, at very low prices – must instead be exploited and beneficiated in order to add value and cost to those products that we eventually export,’ he said.

‘This process should assist us in our efforts to industrialise and, in turn, increase employment opportunities for our people. I am confident that in our discussions, we will lay a foundation for the necessary value addition of our natural resources. Our material resources are capable of playing a pivotal role in the development of all SADC member states.’

Speaking at the Mineral Beneficiation conference held in Zimbabwe in February 2014, the country’s Chamber of Mines president Alex Mhembere said that when mining companies undertake exploration and are fortunate enough to find some mineable resources, they would have value added on the particular mineral four to five times.

‘When you complete a bankable feasibility study, you value add by up to 20 times. By the time you complete mine development and are producing a product like gold bullion or platinum group of metals concentrate, you will have value added more than 100 times.’

Fanus van Wyk, director and geo-environmental rehabilitation specialist at Agreenco Environmental Projects, says the benefits of beneficiation – com-monly known as the ‘value add’ – can be felt even as mines reach the end of their life cycle. ‘Beneficiation options offer the opportunity throughout the life cycle of the mine to take advantage of surface assets of which the hard mining costs have already been accounted for,’ he says.

‘Furthermore, the continued removal of unconsolidated surface deposits such as rock dumps, mine waste and tailings materials should become a strategic priority within the context of responsible environmental practices, which will also reduce risks associated with illegal mining of surface assets.

‘A well-planned beneficiation plan can result in a separate profit stream for a mine, and although the economy of scale might be small, it will cover infrastructure security and mine closure costs – permitting it is actioned during the life of the mine.’

The SA government has pegged beneficiation as a top priority for achieving its job creation and economic growth goals. Speaking at the 2012 Mining Indaba, then Minister of Minerals and Resources Susan Shabangu said: ‘Nationalisation is off the table. But the beneficiation policy is definitely going ahead. Beneficiation is the vehicle through which South Africa’s resource-based comparative advantage can be transformed into a national competitive advantage.’

In the 2015 national Budget Speech, then Finance Minister Nhlanhla Nene allocated R2.7 billion over the medium term to promote investment in mining and petroleum beneficiation projects. But SA – and its mineral-rich SADC neighbours – is struggling to find an economic model that will make beneficiation work. The troubled diamond and steel industries are a case in point.

Full value
‘Implementation of any identified revised beneficiation programmes will require commitment from all stakeholders’

WARREN BEECH, PARTNER AND HEAD OF MINING, HOGAN LOVELLS

In October 2015, the State Diamond Trader hosted the South Africa Diamond Indaba in Sandton, under the hopeful banner of ‘enabling South Africa to become the heartbeat of diamond beneficiation in Africa’. The soundbites coming out of the indaba were jarring, as major figures offered candid assessments of the state of the industry and the challenges around diamond beneficiation.

‘Beneficiation as a social strategy has failed. You just have to look at the statistics to see this. The numbers speak for themselves,’ said Ilan Kaplan, vice-chairman of the South African Diamond Manufacturers Association.

Chairman of De Beers Consolidated Mines, Barend Petersen, was similarly forthright: ‘We need to start looking at beneficiation as a commercial undertaking, rather than a social imper-ative. Beneficiators operate businesses, and any support provided to them must be within this context – failing which, they will not be able to compete within the open international market.’

Petersen suggested leveraging partnerships across SA’s borders.

‘Let us not forego the opportunities that lie within the SADC region. We have a number of producer countries such as Namibia, Botswana, Angola, Zimbabwe and Tanzania within close proximity, with similar aspirations regarding beneficiation. What we need to consider are the benefits that we can derive as a region and individual countries if we collaborate to establish the SADC as a beneficiation hub.’

While the diamond industry struggles to sparkle, the steel industry has also hit hard times. ‘The steel industry is in its worst recession in 10 years,’ VTB Capital’s global head of commodities research Wiktor Bielski recently told Reuters. ‘There’s almost nobody who isn’t hurting right now. Less than 50% of the global industry can make money at current prices.’

In SA, demand for steel is now less than 5 million tons a year, with the rest stockpiled or exported – despite a potential annual capacity of 7.5 million tons. However, ArcelorMittal South Africa outgoing CEO Paul O’Flaherty remains positive and believes that beneficiation can help the industry.

full value_info

In an opinion piece for Business Report in September, O’Flaherty wrote that the steel industry plays a critical role in mineral beneficiation, given SA’s abundant iron ore reserves. ‘Steel quadruples the economic value of South Africa’s iron ore, adding more than R26 billion in value. Furthermore, steel is a key enabler of every part of the economy – including the automotive, mining, construction, energy and infrastructure sectors. (All of which have been identified as major growth drivers by the government’s own National Development Plan). The top five steel-consuming industries contribute some R600 billion to South Africa’s GDP (15% of the total) and employ more than 8 million people.’

Warren Beech, partner and head of mining at law firm Hogan Lovells, believes that any conversation around beneficiation must – as he puts it – ‘take place within the context of reality’, namely the challenges currently facing the industry and global economic demand and prices.

‘The far-reaching challenges facing the industry generally also apply to beneficiation, due to the mostly integrated nature of extraction and beneficiation,’ he says, adding that beneficiation remains a potential significant contributor to the survival and sustainability of the SA mining industry, even within the current environment.

‘There are still significant potential benefits to be extracted from the beneficiation process, with its various stages. Beneficiation is often, incorrectly, regarded as a single concept, without considering the various stages that are normally regarded as being part of the beneficiation process.’

Citing the primary mining legislation, the Mineral and Petroleum Resources Development Act, No. 28 of 2002, Beech defines beneficiation to include four stages: the primary stage, secondary stage, tertiary stage and final stage.

‘Each of the four stages may therefore provide an opportunity to beneficiate, to add greater value, for domestic or export use, and it is perhaps appropriate for the key stakeholders in the mining industry to take a critical view on current beneficiation programmes to identify potential value that can be unlocked in a sustainable manner, and to do things differently.

‘The potential importance of beneficiation cannot be overlooked,’ he says. ‘The implementation of any identified revised beneficiation programmes will of course require the fullest commitment from all relevant stakeholders, including the mining companies, government and the employees.

‘Government has historically identified the potential positives that may arise from beneficiation, and it is time for this commitment to be put into action.’

By Mark van Dijk
Image: Mr.Xerty © www.nomastaprod.com