Beneficiation strategy for the minerals industry: Department of Mineral Resources briefing

This premium content has been made freely available

Mineral Resources and Energy

25 July 2011
Chairperson: Mr F M Gona (ANC)
Share this page:

Meeting Summary

The Department of Mineral Resources briefed Members on its beneficiation strategy for the minerals industry of South Africa. The Cabinet had approved the strategy on 08 June 2011. The Department explained its basis for mineral beneficiation, its broad vision, its beneficiation value proposition, strategy development path, the global economic perspective, South Africa's comparative advantage, the strategy framework, cross-cutting constraints and interventions, and pilot commodity value chains. Increased beneficiation was envisaged as leading to increased export revenue, economic diversification, progress to a knowledge-based economy, opportunities for new enterprise development, and contributing to the creation of decent jobs and the alleviation of poverty. A global ranking of minerals illustrated South Africa's comparative advantage. The value of South Africa's mineral reserves was conservatively estimated at $2.5 trillion, excluding energy commodities, namely, coal, uranium and thorium. In conclusion, the strategy provided a coordinated approach to beneficiation and leverage for South Africa to become globally competitive while optimising its mineral resources rent, fast tracked the country's economic growth, complemented the Industrial Policy Action Plan and the New Growth Path, and provided the basis to invoke provisions of Section 26 of the Minerals and Petroleum Resources Development Act 2002 to enable security of mineral supplies.

A Democratic Alliance Member sought details of budget allocation for beneficiation in the current financial year. A Congress of the People Member was 'very dissatisfied' and found no substance in the strategy, was perturbed at the very slow progress - there had been talk of beneficiation for 17 years, asked how many businesses had been supported in beneficiation in the previous year and at what cost to the tax payer, and was concerned that beneficiation was one of those terms that could be banded around – even now there was not a proper industrial policy. African National Congress Members asked what the Department planned to do to ensure more production of end products from steel prior to export, how the Department coordinated its work towards beneficiation, and about inadequate skills. Members also asked how technikons and universities assisted in driving the strategy, what the private sector was doing to demonstrate its commitment, and about the role of the Planning Commission towards implementation. The Chairperson was unhappy that it had taken so long, since the 1994 White Paper, for the strategy to reach Cabinet adoption. Platinum was the most valuable commodity, but, like gold, was insufficiently reflected in the strategy. The public hearings would begin on 14 September 2011. The Department should attend the hearings to hear more suggestions and concerns. Such suggestions would assist the Committee. The strategy must not exclude valuable commodities. Members wanted clear recommendations on how the strategy document could be beefed up.

Meeting report

Beneficiation strategy for minerals industry of South Africa: by Department of Mineral Resources
Mr Siyabonga Ndabezitha, DME Chief Director: Mineral Promotion, introduced Mr Kagiso Menoe, DMR Director: Beneficiation, and Mr Joseph Katenga, DMR Chief Compliance Officer. Mr Katenga tendered apologies on behalf of the Minister of Mineral Resources and the Acting Director-General who were attending the Cabinet lekgotla.

Mr Ndabezitha briefed Members on the Department's beneficiation strategy for the minerals industry of South Africa.

Basis for mineral beneficiation [slides 2-6]
Mr Ndabezitha referred to the White Paper on the Reconstruction and Development Programme (RDP), November 1994 and emphasised that South Africa's RDP must attempt to increase the level of mineral beneficiation through appropriate incentives and disincentives in order to increase employment and add more value to South Africa's natural resources before export.

Mr Ndabezitha conceded that the situation that applied in 1994 had not changed much by 2011. South Africa's mining and minerals products contributed about 67% of its exports and the industry now employed about half a million workers.

He quoted the aims of the beneficiation policy as referred to and identified in the White Paper 'A Minerals and Mining policy of South Africa', October 1998. Government would promote the establishment of secondary and tertiary mineral-based industries aimed at added maximum value to raw materials. He referred also to the Minerals and Petroleum Resources Development Act 2002 (Act No. 28 of 2002) (MPRDA), Section 26, according to which the Minister might initiate or prescribe levels of beneficiation of minerals in the Republic.

The Department's beneficiation policy was intended to give effect to the pronouncements of the White Papers on 1994 and 1998. Recently the New Growth Path adopted by Government at the end of 2010 sought to place the economy on a production-led trajectory with growth targeted in 10 'job drivers', including, the mining value chain, with a particular emphasis on mineral beneficiation.

Broad vision [slide 7]
The Department envisaged increasing a ratio of beneficiation extent to mineral production in order to increase export revenue, facilitate economic diversification, expedite progress to a knowledge-based economy, create opportunities for new enterprise development, and contribute to the creation of decent jobs and the alleviation of poverty.

Beneficiation value proposition
[slides 8-9]
Mr Ndabezitha illustrated the Department's beneficiation value proposition – in other words, why we needed to beneficiate our commodities - firstly by a bar chart comparing prices in US dollars per ton for raw iron ore, sized, washed pellets, direct reduced iron/hot briquetted iron (dri/hbi), and steel respectively [slide 8]. This chart showed that the further down the revenue chain one progressed, the more revenue was derived from minerals. Secondly by a bar chart and graph showed employment figures (right vertical axis) and contribution to the gross domestic product (GDP) (right vertical axis) of iron ore in mining, steel mills, fabrication and manufacturing end users (horizontal axis) [slide 9].

The strategy development path [slide 10]
The Department and Mintek had conducted an initial research study in 2007. This led to a selection of pilot commodity value-chains informed by areas of greater opportunity to make an impact on employment and GDP, and subsequently a draft beneficiation strategy. Cabinet requested a revision. An inter-departmental task team was formed. This was led by the DMR and including the Department of Trade and Industry (DTI), the Department of Science and Technology (DST), the National Treasury, the Department of Public Enterprises (DPE), the Presidency, and, lately, the Department of Economic Development (EDD). After a further submission to Cabinet, the Department was given the go-ahead to consult with external stakeholders. These stakeholders raised concerns as to the constraints on beneficiation. The Cabinet adopted the strategy on 08 June 2011.

The global economic perspective [slide 11]
The world had entered a new phase of growth led by developing economies, in particular India and China. This growth would result in increased demand for mineral commodities. Main markets for South Africa's beneficiated goods would therefore come from those developing economies.

South Africa's comparative advantage [slide 12]
The Department believed that South Africa could satisfy the demand from the emerging economies for mineral commodities on account of its comparative advantage. Moreover, South Africa hosted some of the largest mineral reserves in the world. This advantage was illustrated in a bar chart giving global ranking of minerals such as the platinum metals (PGMs) – almost 90% of the world's reserves, manganese, chromium, gold, alumino-silicates, vermiculite, vanadium, zirconium minerals, titanium minerals, and others. Mr Ndabezitha pointed out that in 2010 a study by Citibank indicated that the value of South Africa's mineral wealth in situ [in its original, unmined, position] was conservatively estimated at US $2.5 trillion, excluding energy commodities, namely, coal, uranium and thorium. However, he pointed out, this possession of minerals really gave South Africa a comparative advantage: this was all that it did.

Strategy framework [slide 13]
Hence the beneficiation strategy sought to provide a framework to translate the comparative advantage of the minerals reservoir into a competitive advantage in the downstream minerals beneficiation. The strategy pillars included the legislative framework and multi- stakeholder forums, for example, the Platinum Beneficiation Committee, and international trade agreements.

Cross-cutting constraints and interventions [table, slide 14]
Constraints included limited access to raw materials for local beneficiation, shortages of crucial infrastructure, limited exposure to research and development, and inadequate skills. Potential instruments at Government's disposal and possible actions by business were listed. The Department expected business to support research initiatives and had provided business with incentives to that end. The Department realised that beneficiation needed specialised skills. The Department was working with higher education institutions together with the Sector Education and Training Authorities (SETAs) to ensure availability of skills to facilitate beneficiation of South Africa's commodities. In terms of the Mining Charter, the Department gave incentives to mining companies that invested in human capital development. To improve access to international markets the Department used South Africa's bilateral agreements and would be pushing very hard within the Brazil, Russia, India, China and South Africa of countries (BRICS) to enable South Africa's beneficiated commodities to have access to those markets.

Pilot commodity value chains [slides 15-21]
The Department had identified as a pilot for the beneficiation strategy 10 commodities and five value chains. Mr Ndabezitha emphasised that these commodities were intended to be used as a pilot. These were not the only commodities and value chains that existed. These value chains for the pilot were energy commodities, iron and steel, pigment and titanium metal production, autocatalytic converters and diesel particulate, and jewellery fabrication. Energy was viital to any industrialisation process. Security of energy supply was of the utmost importance. Value chain interventions included quantification of the country's uranium and thorium reserves, since these, with coal, were the main energy commodities, and support for research and development (R&D) into alternative and future energy sources, for example, fuel cells was of great importance. Steel products were vital inputs into labour-intensive manufacturing processes but anti-competitive pricing was a major constraint to growth. Value chain interventions included encouraging investment into the South African steel industry to break the prevailing anti-competitive behaviour. The pigment and titanium metal value chain was a potential key growth area as increasing urbanisation was expected to underpin demand for Ti-mineral concentrates for pigment and aerospace component manufacture. Value chain interventions included investigation into the viability of establishing a chlorine plant in conjunction with a pigment plant, and developing a more cost effective primary titanium metal production. The DST was already advanced in dealing with the challenges of pigment and titanium metal. South Africa accounted for one in 10 autocatalytic converters produced globally. Tightening emissions legislation would underpin future growth in this sector. Value chain interventions included invoking provisions of the law to ensure security of PGM supply, and unlocking the intrinsic value in the PGM sector. Jewellery fabrication was another labour intensive value chain that would beneficiate gold, platinum and diamonds. Value chain interventions included establishing a metal advance scheme and promoting existing incentives in the jewellery sector. The Department would develop its implementation plans for the five pilot commodity chains and implementation plans for other value chains to be developed thereafter.

Concluding remarks [slide22]
▪ The strategy provided a coordinated approach to beneficiation
▪ Provided leverage for South Africa to become globally competitive and optimise its mineral resources rent
▪ Fast tracked the country's economic growth to tackle the challenges of development
▪ Complemented the National Industrial Policy Framework (NIPF), the Industrial Policy Action Plan (IPAP) and the New Growth Path (NGP).
▪ Provided the basis to invoke provisions of Section 26 of the MPRDA to enable security of mineral supplies
The strategy was therefore not a blue print for individual commodity value chains but provided a framework within which value chain specific interventions would be anchored.

[Please refer to the attached presentation document for full details.]

The Chairperson pointed out that Mr Ndabezitha's reference to the White Paper on the Reconstruction and Development Programme (RDP), November 1994 [Basis for mineral beneficiation, slides 2-6] was not included in the paper copy of the presentation document. If there had been any changes in the document, Members should be provided with the latest copy. [Note: electronic copy provided to PMG had the same defect as noted by the Chairperson]

The Chairperson believed that there was no doubt that beneficiation could make a major contribution to reducing the unemployment rate. However, progress since the White Paper of 1994 had been slow. From the promulgation in 2004 of the MPRDA, which had been enacted in 2002, it had taken four ministers for the beneficiation strategy to be produced. The real work had started only in 2004 and had been accelerated in 2009. This delay had been a serious challenge. Had it been the result of resistance within the industry or the lack of requisite skills within the Department? What had been the constraints? Moreover, the Chairperson noted that the strategy would not just contribute to easing unemployment but to the generation of revenue.

Mr E Marais (DA) asked the Department to give details of its budget allocation for beneficiation in the current financial year 2011/12.

Mr P Dexter (COPE) was perturbed at the very slow progress with beneficiation. There had been talk of it for 17 years. He asked how many businesses had been supported in terms of beneficiation in the previous year, and at what cost to the tax payer. Also what was the turnover of those businesses and how many jobs had been created? Given the new policy, what were the targets for the next financial year?

Mr Dexter was concerned that, given this new policy was one of those terms that could be banded around. However, it was an industrial policy issue, but even now, in his view, there was not a proper industrial policy.
What were the Department's projections for the future?

Ms F Bikani (ANC) asked what the Department planned to do to ensure more steel production and production of end products from steel prior to export.

Ms Bikani complained that the slides were not numbered.

Ms Bikani asked for details of required compliance with legislation. She noted the role of the DST, but what role did the DMR's own entities – Mintek and the Council for Geosciences play in the whole process to ensure coordination of work towards beneficiation? These entities were given research budgets.

The Chairperson was impressed with the competitiveness of Mintek and the Council for Geosciences in research. Ms Bikani's question was of especial importance. He noted South Africa's expenditure on research and development as a percentage of the GDP as compared to that of other countries. We were spending far less.

Ms Bikani noted a continual repetition of the inadequacy of skills, especially in mining. No picture was given that we were making use of investments in a proper manner. There was obviously a gain from skills development, but what was the Department doing to ensure best use of skills developed?

Ms Bikani asked the Department for an explanation of autocatalytic converters.

Ms Bikani asked what programmes the Department had established to encourage investments that would ensure benefit to the small scale miners.

Ms Bikani asked about budget values for the whole beneficiation strategy.

Mr X Mabasa (ANC) asked how the Department related to the technikons and universities in driving the strategy with particular reference to skills development. To what degree were they part of the planning?

Mr Mabasa thought that the private sector was set to benefit at the end of the day when there were skills in the country. What was the private sector doing to develop skills, firstly by showing its commitment and secondly by making financial contributions?

Ms B Tinto (ANC) was concerned that more people were losing their jobs while more people needed training. Was the Planning Commission part of the new strategy? The Commission could perhaps help to ensure that the beneficiation strategy could be implemented effectively.

The Chairperson asked for more details about the rate of minerals extraction with reference to new mines that must be established and the mineral rights that would be given. He asked about the translation of the comparative advantage to a competitive advantage with reference to a Platinum Beneficiation Committee. Members understood that this particular committee had difficulty in talking about a detailed beneficiation approach to platinum, and noted the absence of a broader discussion on the beneficiation of platinum in the broader strategy itself. It did not constitute one of the major commodities discussed. It was left out almost altogether. On the other hand, given the present performance of commodities, platinum was the most valuable commodity. At the same time, the Department acknowledged South Africa's rich reserves of platinum. 'It boggles my mind that we cannot talk more authoritatively in terms of the beneficiation of platinum.' By beneficiating platinum the Department would be catching up with the commodity boom and the most performing commodities. He was also concerned that we were not putting gold into 'the melting pot'. He wanted explanations of these omissions. He also asked about long-term contracts. Knowing that a beneficiation strategy was to be developed, these companies had locked themselves into long-term arrangements and such companies would argue that they had international commitments that they had to fulfil.

Mr Ndabezitha replied that the Department had not yet done a cost-benefit analysis of each value chain. It was required by Cabinet to present its plan for its implementation of the value chains by the end of September 2011 and was now working hard on questions of budget to ensure that these five value chains were successfully implemented. The budget would be an integral part of this plan.

It was difficult to say at this stage how many businesses had been supported in terms of beneficiation in the previous year, and what the Department's projections were. This would be possible on completion of the above plan for the implementation of the value chains.

There had been an agreement when Iscor had been privatised to Acelor Mittal with an expectation that this benefit would be passed on to the local consumers. Unfortunately that had not happened. The contract signed did not spell out that the benefit must be passed on to them. The Department had now conferred with the DTI to develop a developmental pricing mechanism for local consumers. There was a task team now working on the model that would hopefully address those challenges.

The Diamonds Amendment Act of 2005 allowed the State Diamond Trader to purchase up to 10% of run-off from all producers in the country. Over the past three years the Department had discovered that the run-off mine concept was very problematic for local cutters and polishers, since run-off included the stones that could not be cut. In terms of the country's production, there was very little that could be cut by small enterprises. The purpose of the legislation was to ensure that rough diamonds were accessible to small cutters and polishers.

Mintek and the Council for Geosciences conducted a great deal of research. Mr Ndabezitha had assumed that everyone knew about this so had not said much about it. The Department always ensured that these entities' strategic plans related to the Department's objectives. The research that underpinned the current beneficiation strategy was conducted by Mintek together with the Department. Mintek had done much work in beneficiation, including technology for processing gold for small scale miners.

Skills development was a difficult question to answer. It was not a competency of the Department but of the Department of Higher Education and Training (DHET) together with the SETAs. However, the Department was collaborating closely with those institutions including the Mining Qualifications Authority (MQA) to ensure that the Department's policies could be implemented. Mining companies were required to make a contribution to human capital development. Whereas the norm in industry was 1% of expenditure on payroll, there had been agreement in the Department's sector that at least of the next three years mining companies would raise this percentage to 5%.

The Department acknowledged the challenges of the prevailing anti-competitive behaviour, but wanted to encourage competition in the iron and steel sector. There were small players but markets were dominated by 'that player'. A new steel manufacturing concern might be established. Unfortunately he was not at liberty to talk about this matter, which he had read about in the newspapers. However, from a policy perspective, the Department wanted to encourage the establishment of another major steel manufacturing in South Africa.

The Department had no direct relationship with the universities and universities of technology. However, the was an indirect relationship in so far as the Department was part of the MQA. Also through the Mining Charter the Department gave mining companies credit if they contributed to human capital development by providing bursaries to university students.

The policy interventions in the private sector referred to were introduced only last year and it had not yet been possible to determine if they were having the desired results. However, private companies were expected to show commitment to beneficiation if they were to receive recognition.

The Department had recently finished its analysis of what was happening in the industry. The picture that was emerging was that ferrous mining companies were beginning to employ more people after the 2008/09 recession and job losses. The PGMs had become the single largest employer in the entire industry.

The Planning Commission had not been part of the deliberations on the beneficiation strategy. However, Ms Tinto had raised a very important point that the Department must take into consideration.

An audit had been conducted on mineral rights. The new mines were not opened at the rate at which the Department had issued the mining rights. In terms of current amendments to the legislation, the Department would make it a condition of a mining licence that the licensee would make available a portion of its production for local consumption.

 Mr Ndabezitha fully agreed with the Chairperson on the lack of detailed discussion on the PGMs. He acknowledged that the PGMs were the largest employer in the entire industry. Although employment in the gold sector may have been decreasing since the 1980s, it was still one of the largest employers in the industry. The Department acknowledged that it needed to pay more attention to these sectors.

Long term contracts were one of the obstacles that we have identified and a very difficult question to answer. He referred back to his earlier response on conditions of mining licences.

The private sector also did some research. The Department had, the previous day, had a most interesting discussion with Anglo American Platinum on its research into fuel cells, which required PGMs.

South Africa compared poorly with other developing countries in research and development spending. Other developing countries spent 3% of their GDP on research and development. These were some of the weaknesses that the Department hoped to overcome. In the Mining Charter the Department had stipulated that mining companies that spent money on research and development would receive credits.

Mr Menoe explained autocatalytic converters. These used PGMs and were part of the vehicle exhaust system. These converters helped to reduce noxious and harmful emissions. He gave details of the metals used and the particular gases that were converted into less harmful gases.

Mr Bikani began a brief round of follow-up questions with her impression was that skills development was not the Department's special concern or priority, even though the Department considered it a challenge.

Mr Dexter was at a loss. He found no substance in the strategy and was 'very dissatisfied'. It seemed 'woolly'. It was one thing to have a policy, but targets and budgets must be specified. He agreed with Ms Bikani's observations on skills development. He hoped that there would not be another 17 years of the same.

The Chairperson said that Members should not, however, be despondent. The Committee had already scheduled the forthcoming public hearings on the beneficiation strategy. These would begin on 14 September 2011. The Department should attend the hearings to hear more suggestions and concerns. Such suggestions would assist the Committee. There was a need to avoid omitting valuable commodities. The strategy must not exclude them. There was pressure from industry. Talk shops were not enough. Members wanted clear recommendations how the strategy document could be beefed up.

Mr Ndabezitha acknowledged that there had been some reluctance on the part of the industry to support the Department's benefication drive. The industry had argued that beneficiation was energy intensive. However, the Department was working with Eskom to solve that problem, and had suggested co-generation. While there might be pockets of resistance, there was now general acceptance of beneficiation.

The Chairperson thanked the Department and looked forward to seeing it at the public hearings.

Committee Programme
The Committee adopted its 2011 Third Term Programme with corrections.

The Chairperson advised Members that in future the Committee would hold its meetings on Wednesdays, unless otherwise instructed by the parliamentary authorities. Present arrangements for 'committee week' had, for the third time, proved confusing and unsatisfactory, as it was very difficult to ensure a quorum.
Such difficulties were illustrated by the long list of apologies that the Committee Secretary had read at the beginning of the meeting [Apologies: Mr C Gololo (ANC) and Mr R Sonto (ANC) who were participating in the Portfolio Committee on Public Enterprises study tour to Venezuela; Mr H Schmidt (DA) who had a constituency commitment; Mr E Lucas (IFP) who had a prior engagement; Mr E Mtshale (ANC) who was in hospital; and Ms D Mathebe (ANC) who was on an oversight visit with the Portfolio Committee on Home Affairs. Ms B Tinto (ANC) had attended a meeting of the Portfolio Committee on Energy but joined this meeting thereafter. Ms L Mjobo (ANC) attended, although she also had an obligation to attend the meeting of the Portfolio Committee on Sport and Recreation].

Included in the programme was a further interaction with Aurora to obtain an update on new developments.

Ms Bikani requested an official report from the liquidator so that when Members met Aurora they would have the correct details.

Ms Bikani was perturbed that women in mining were not receiving enough attention.

The Chairperson noted especially that the public hearings on the mining charter would, on 24 August, include representations from women in mining. He noted that the Chamber of Mines wanted to attend on 26 August.

The Committee would visit Limpopo in September. The Chairperson noted that this province was not much different from the Northern Cape in levels of poverty. He called upon the Committee's researcher to provide detailed figures on Limpopo's poverty.

The Chairperson emphasised that the public hearings beginning on 14 September on the beneficiation strategy must be adequately publicised to all stakeholders.

The programme included a DMR briefing on 21 September 2011 on progress so far on the State-owned Mining . The Department was expected to explain precisely what was planned. The Committee would discuss the subject in the light of its own experience of Chile and Bolivia, and decide in the meeting if further public hearings would be required.

Committee Minutes: adoption
The Committee adopted its minutes of 16 February, 23 February, 1 March, 8 March, 16 March, 23 March, 25 March, 13 April, 20 April, 25 May, 15 June, 22 June, and 28 June 2011 with amendments.

The Chairperson noted that it was a recurrent problem that the Committee's deliberations were insufficiently captured in the minutes. Also he expected that, in accordance with a directive from the Chair of Chairs, the Committee in future would consider and adopt its minutes regularly, rather than accumulate a backlog.

Ms Bikani said that she referred regularly to the reports of the Parliamentary Monitoring Group (PMG) for full details.

The Chairperson asked the Committee Secretary to ensure that a sound recording was made at every meeting, and to liaise with the Parliamentary Monitoring Group (PMG).

The Chairperson asked the PMG if the Committee would incur any charges for the use of PMG's .

Mr Abdullah Driskell, the PMG Monitor, undertook to provide a detailed, written response, as PMG had recently introduced some changes in its access policy in its efforts to ensure sustainability.

The Chairperson thanked Members who had made a special effort to attend this portion of the meeting, in spite of multiple commitments, in order to form a quorum.

Committee Reports
Tabling of the following Committee reports was postponed: Oversight visit to Kimberley and the surrounding areas, Northern Cape 22-26 November 2010; oversight visit to Schmidtsdrift, Northern Cape, 3-4 June 2011; and report on the Mine Health and Safety Council, Mine Health and Safety Inspectorate, Council for Geosciences, Mintek, State Diamond Trader, South African Diamond and Precious Metals Regulator, and the Petroleum Agency of South Africa. This last report contained the Committee's deliberations on the briefings and strategic plans of these state-owned entities and adoption of their strategic plans.

The Chairperson said that these reports required deliberations before adoption. If a quorum was available at the forthcoming strategic forum workshop, Members would deliberate on them there.

The Chairperson emphasised that he wanted to see the Department in attendance at the public hearings on the beneficiation strategy beginning on 14 September 2011. Its presence would enable the Committee to refer to it for clarification on matters that might arise. The Committee's strategic planning session would be held at the Protea Hotel, Saldanha Bay (details to be confirmed). He indicated that observers, if they had the means to travel there, could attend: 'Our meetings are by law open'.

The meeting was adjourned.

Share this page: