Mineral Beneficiation in South Africa: Department briefing

NCOP Economic and Business Development

25 February 2013
Chairperson: Mr F Adams (ANC, Western Cape)
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Meeting Summary

The Department of Mineral Resources (DMR) briefed the Committee on mineral beneficiation in South Africa. The background to the concept of beneficiation was outlined, and reference made to the White Paper on Minerals and Mining Policy, which had specifically noted that this policy would develop South Africa’s mineral wealth to its full potential. Section 26 of the Mineral and Petroleum Resources Development Act (MPRDA) noted that the Minister may initiate or prescribe levels of beneficiation of minerals in the Republic. Maps were tabled showing the current location and state of beneficiation in the country, with specific emphasis on the Northern Cape and North West. An overview of the beneficiation strategy was presented. It was recognised that some limited beneficiation was occurring already, but there were attempts to bolster this, thereby increasing export revenue, creation of job opportunities and economic growth, in line with the National Development Plan (NDP). Several cross-cutting constraints had been identified, such as limited access to raw materials, shortage of critical infrastructure, limited exposure to research and development, inadequate skills and limited access to international markets. The implementation plan, having isolated these constraints, then looked to what potential solutions there were, and how these could be implemented by both government and business. The Presidential Infrastructure Coordinating Commission (PICC) did take account of the specific mineral sector requirements. The possibility of rebates and tax incentives were noted, and skills would be built around beneficiation. The framework recognised that mineral endowment was not sufficient on its own as it provided South Africa with merely a comparative advantage, which still had to be translated into a competitive advantage. The strategy identified some critical interventions that government could put into place. DMR had initially selected five elements of the value chain, and it was noted that in many, DMR was building on structures that had already been introduced. DMR had firstly decided to develop a framework for each of the value chains, but, having started and drawn up those for energy commodities, and for iron and steel, it then felt that it would in fact be more useful to draw a Consolidated Implementation Framework that covered all the value chains. DMR would follow a similar approach of identifying problems and seeking solutions, as well as determining how the private sector could contribute. It had expanded on the first two frameworks and was still working on the Consolidated Framework, which it would present around June 2013. This was described as providing a "game-change opportunity". DMR did not see beneficiation as an event but rather as a process. It was stressed that good coordination would be needed across the three spheres of government.

Members said that they would like to have a discussion with the Minister around several policy issues. The Member from Northern Cape firmly stated that beneficiation should be taking place as close as possible to the source of the mineral wealth, if it was to address the economic situation in some provinces, and build communities. They asked how government would address the lack of investor confidence, what kind of funding and guarantees were likely to be offered, and questioned whether market conditions were right for beneficiation at this stage, and what incentives were likely. DMR stressed, in response to questions, that access to markets was a vital part of the strategy, as well as access to the products, and assured Members that the "winner takes all" possibilities of foreign investors buying up all available resources were being addressed. Members asked how rising electricity prices could affect the strategy, asked for clarification of what was meant by energy commodities, made the point that other aspects, such as exactly how transportation would happen, had to be settled, and asked how soon the Comprehensive Framework could be presented. The DMR was asked to investigate and report back to the Committee on the theft of diamonds intended for beneficiation at the new Kimberley International Diamond and Jewellery Academy. Clarity was sought on why supply side and demand side interventions by government may be needed, and how these may impact upon willingness to invest.

Meeting report


Mineral Beneficiation in South Africa: Department of Mineral Resources briefing
Mr Thibedi Ramontja, Director General, Department of Mineral Resources and Mr Mosa Mabuza, Deputy Director General, Department of Mineral Resources, briefed the Committee on mineral beneficiation in South Africa.

The basis for the concept of mineral beneficiation was drawn from the White Paper on the Reconstruction and Development Programme, or November 1994, which had noted that mining and mineral products contributed three quarters +of South Africa's exports, and employed 750 000 workers. However, it was noted that this could be much higher if the raw materials were processes into intermediate and finished products before export. It was recommended that future policy provide more appropriate inputs for manufacturing in South Africa and increase employment.

The White Paper on Minerals and Mining Policy for South Africa, dated October 1998, noted that the new policy would develop South Africa’s mineral wealth to its full potential and to the maximum benefit of the entire population. This would involve the promotion of secondary and tertiary mineral-based industries aimed at adding maximum value to raw materials. Section 26 of the Mineral and Petroleum Resources Development Act (MPRDA) noted that the Minister may initiate or prescribe levels of beneficiation of minerals in the Republic.

The National Development Plan was a long-term vision, to 2030, and it sought to reduce unemployment by improving manufacturing within the country. The New Growth Path set a target of creating 5 million jobs in ten years. It identified certain structural challenges and placed emphasis on mineral beneficiation as well as increasing the rate of mineral extraction.

Mr Mabuza tabled a map showing the current state of mineral beneficiation, in respect of steel, ferrochrome, titanium oxide, coal to liquids and auto catalysts (see attached presentation). He emphasised where the minerals were situated in Northern Cape and North West. He noted that titanium deposits were specifically dealt with in the strategy. The coal to liquid plant was unique to South Africa and it improved coal and 40% of the country’s coal needs were supplied through this. Increasing the outputs here would make it possible for South Africa to reduce dependencies on others. Auto-catalytic converters consumed elements of platinum group metals. There were significant results already due to Department of Trade and Industry (dti) incentives. The amount of platinum consumed in South Africa since 1995 had grown from 2% to 20% presently. He also tabled a pie-chart showing the composition of exports in 2010, with precious raw metals and stones comprised 26% of export, and mineral products such as oil, coal and ore at 21%, and base metals and steel at 16%. There were opportunities to reduce raw exports and increase high value through the beneficiation strategy. 

He then presented an overview of the beneficiation strategy that the Department of Mineral Resources (DMR or the Department) had drawn. The broad vision recognised that there was already some beneficiation, but it aimed to increase the ratio of beneficiation extent to mineral production, and thereby also increase the export revenue, create opportunities for employment and economic growth. The strategy aimed also to facilitation economic diversification, expedite progress to a knowledge based economy, with specialist skills, and create opportunities for new enterprise development which in turn enabled creation of decent jobs and poverty alleviation. This was aligned to the vision of the National Development Plan (NDP).

Several cross-cutting constraints had been identified, such as limited access to raw materials, shortage of critical infrastructure, limited exposure to research and development, inadequate skills and limited access to international markets. The implementation plan, having isolated the constraints, then looked to what potential instruments that could be used to address the situation, and what action business should take to support government (see attached presentation for full details). The Presidential Infrastructure Coordinating Commission (PICC) did take account of the mineral sector requirements.

There was now the possibility of a 100% rebate for research and development in the beneficiation of minerals. In the most recent State of the Nation Address, the President had re-emphasised that skills and education remained apex priority, so the skills for beneficiation would be adequately built.

South Africa had become a member of a number of economic groupings over the years, and this membership presented it with an opportunity to liberate the economic blocs and identify opportunities for growth and implementation of the strategy.

The strategy framework recognised that mineral endowment was not sufficient on its own; it provided South Africa with merely a comparative advantage against other countries. The strategy of DMR sought to translate that comparative advantage into a competitive advantage and identified critical interventions that government could put into place. There were several interventions inherent in the beneficiation strategy.

Mr Mabuza then tabled the beneficiation strategy overview. The DMR had selected five quantifiable value chain elements and these included energy commodities. It was important to have cost competitiveness in energy. DMR believed that beneficiation would present the opportunity to contribute to energy security and bring the country back to cost-competitive energy. He reminded Members that iron and steel were one of the main sectors, and the new strategy identified this as an area of critical growth area. PIatinum and titanium metal production were also important. Other sectors included auto-catalytic converters and diesel and jewellery fabrication. In most of these areas, DMR would be building upon what was already in place.

Once it had concluded the drawing of the strategy, DMR had then sought to develop a framework for each of the value chains. It had concluded the work on two of them. In the energy commodities value chain, supply side interventions were identified. The necessary interventions were then assessed - for instance, he drew Members' attention to one of the constraints around shortage of skills and noted the detail of the implementation plan, which set out some recommendations on how to deal with that. There had been a lengthy discussion at DMR on infrastructure. The pillars of the new strategy tied in directly to the constraints.

The second strategy approved by Cabinet was in relation to the iron and steel value chain. That spoke to supply side interventions and also identified industrial financing, Research and Development, and demand side interventions, which basically had to do with access to the international market.

DMR then, on re-thinking its approach, recognised that it would not be particularly helpful to develop individual frameworks for every one of the value chains. It had then started work on a Consolidated Implementation Framework, and although this was not yet ready for final presentation, work on it was at an advanced stage. It had expanded on the first two developmental frameworks of energy and iron and steel. Everything included in the Consolidated Framework was aimed at creating an enabling environment, to prioritise and accelerate local mineral beneficiation. The framework could be brought to the Committee quite soon. It was an elaboration of the policy adopted in June 2011. It would augment and maximise the requisite developmental impact, on a national level.

Mr Mabuza then tabled a slide showing how DMR would be taking the whole concept forward. The Consolidated Framework would seek to strengthen linkages across all sections of the value chain. It represented a "game-change" opportunity. However, he stressed that in order for the DMR to succeed in its objectives, it was necessary to have coordination across all three spheres of government, at the economic departments, and to build on existing strengths. It was important not to create unhealthy competition on the implementation of beneficiation initiatives. This was intended to optimise implementation and spread it across the provinces, in line with national development priorities.

Finally, Mr Mabuza stressed that DMR did not see beneficiation as an event, but rather as a process with game-changing opportunities. Beneficiation would contribute to a balanced spatial economic paradigm, and intensification of this in the short term represented a short-term and win-win opportunity for "South Africa Incorporated" namely, all participants across all organised value chains.

Mr K Sinclair (COPE Northern Cape) noted that the Minister was very busy with many issues, but would like to have engagement with the Minister. He would have liked the Minister to be present, particularly since the Director General was not mandated to deal with questions of policy.

Mr Sinclair noted that Northern Cape, his province, was poor, but had a lot of mining potential and existing mining activity. It was important to look at the breakdown, and the current beneficiation. The map that was tabled earlier by DMR had dealt with the critical issues. However, he said that if South Africa was really serious about addressing the economic backwardness of some provinces, then beneficiation should ideally happen close to the source. In one of the municipalities in Northern Cape, which was situated close to the biggest iron ore mine (and manganese resources), the residents were constantly complaining of the lack of beneficiation in that area. The excuse proffered for this was the cost of electricity. He urged that if government really wanted to assist, it had to make the commitment to invest specifically in that area. In exactly the same way as it had justified putting up aluminum smelters in some areas, so must it create economic space and climate in others to develop those areas. It was not good enough to tell the Committee that steel was being beneficiated in Saldanha, because wealth and prosperity were not being created where they were most needed.

Ms E van Lingen (DA, Eastern Cape) was also very worried about the costs of electricity, and the impact on the economic framework, and wondered if there were plans to deal with this. She was aware that the DMR had long-term plans, to 2030, but, after listening to some of the economists' proposals on the market, she wondered nonetheless if the immediate increase of 16% would be problematic in the short term and would hinder the strategy.

Mr Mabuza said that South African industrialists seemed to put a huge emphasis on access to electricity. He pointed out that many other countries who were beneficiating were doing so despite having less access to electricity than South Africa. He urged that it made little sense to try to look for the hindrances and use them as an excuse not to beneficiate. The country should be looking for solutions. Some of the opportunities included core generation. The Department of Energy was reviewing the Integrated Resource Plan. Certainly, the rise in electricity prices could have a short term impact, but the more question was rather how to factor in all challenges and opportunities. The DMR believed that the opportunities should predominant.

Mr Sinclair also said that last year, with the Marikana tragedy, had been one of the most difficult in creating a good climate for investment. In all cases, an investor would be taking into consideration the safety of the investment and a good return. At the moment, there was an unfortunate reality of lack of investor confidence. He believed that it was possible for government to do more to build this.

Mr Ramontja responded that DMR was speaking to stakeholders and reminded Members that on the previous day there were attempts to ensure that investors were encouraged.

Mr B Mnguni (ANC, Free State) said that he did not want to sound unduly pessimistic but reminded the Committee about studies commissioned earlier by the Minister of Finance that had noted the impediments that would have to be addressed in order to beneficiate.

Mr Mabuza responded that the DRM was aware of the economists' viewpoint, at one time, that South Africa was not ready for beneficiation.

Mr Ramontja added that the DMR was aware of the views of economists who, at one stage, had said that South Africa was not ready for beneficiation. However, the market conditions were constantly evolving, and currently DMR was confident that the work that had been done that would allow for a successful beneficiation strategy. 

Mr Mnguni also asked about the markets, particularly the beneficiation of diamonds into finished jewellery. He asked if there was sufficient rapport being developed with investors and foreign countries to ensure that they would purchase the goods.

Mr Mabuza said that there had been extensive work done on investigating the markets. It was recognised that South Africa itself was a very small market, and could not consume everything that might be beneficiated. Therefore DMR had a two-pronged strategy. One of the constraints identified was access to the international markets. DMR regarded South Africa as the first base, in combination with the international markets. It did have some plans, that it would present later, to demonstrate the different markets in South Africa and internationally as opportunities for successful beneficiation in the

Ms E van Lingen (DA, Eastern Cape) said that South Africa needed economic development, very fast. However, something that might have a negative influence could be the investment incentives. She wondered how the mining taxation would impact upon investments. There was also reference to industrial funding versus foreign investments. She wondered if this would take the form of a guarantee or direct state funding.

Mr Ramontja commented that the Minister of Mineral Resources and the Minister of Finance would evaluate the current taxation regime and do a comprehensive study on the options. No regime would be imposed, without discussions, but there would be evaluations done from time to time. It would be necessary to look at whether the current levels in the mining industry were creating optimal value, and were globally competitive. The DMR would consider a "full basket" that would not compromise South Africa. The effects could not be considered before government took a decision on the issues

Mr Mabuza agreed that industrial financing was identified as a possible constraint and the DMR would be working with other relevant departments to address the issues. More work was still needed to determine whether there would be a decision on a guarantee, or on state funding

Mr B Mnguni (ANC, Free State) asked a largely inaudible question about incentives.

Ms van Lingen asked how and what "energy commodities" the DMR was looking at.

Mr Mabuza answered that energy commodities were essentially anything that inputted into beneficiation, and this could be renewable energy also.

Ms van Lingen commented that although it was clear that there was a plan, it was not so clear where it was heading. She thought that energy commodities surely should also include other resources, such as gas exploration. The plans were fast-moving. She was not unhappy with the reference to interventions and incentives, but questioned what could happen if South Africa, for instance, identified a need for a smelter, which would involve the country in long-term capital-intensive projects. She said that there were many questions around the bigger picture.

She referred to beneficiation at source and commented that the value lines were not correct. The main problem in many areas was that basic infrastructure needed to be upgraded. She commented on the huge emphasis still on road transport, and the enormous damage that the heavy trucks caused to the road infrastructure. Despite government having announced some years back that it was promoting the shift from road to rail, nothing substantial had been done to take this further.

Ms van Lingen also made the point that many women were working on the mines themselves, and they would move there with their children. If it was recognised also that beneficiation at source was the way to go, this would allow more families to move into areas and allow them to develop.

Mr Sinclair said that he wanted to raise an issue specific to the Northern Cape, although it was not linked directly to today's presentation. He asked about the DMR's role or involvement in the Kimberley International Diamond and Jewellery Academy (the Academy), which was established in 2011 with the intention that it should be a feeder for diamond beneficiation in the provinces. It was a noble objective, but the problem was that the state had bought diamonds to the value of R8 million to be used in the Academy, and they had disappeared from the safe. This raised two issues - one had to do with the licensing for the purchase of the stones, and the other was to do with how the theft occurred.

Mr Ramontja said that the DMR was not actively involved but he would investigate the matter and report back to the Committee.

Mr Sinclair said that the Committee had not received any formal invitations to the Mining Indaba. It was important to have exposure to government officials, but also for them to speak to MPs. He asked that this be done in future.

The Chairperson noted that the Mining Indaba was actually arranged by private companies and DMR had been a participant. DMR did tend to invite Members when it was hosting functions.

Mr Sinclair quipped that he was “a capitalist with a social conscience” and in that capacity, he was concerned about the implications of "supply side interventions" and "demand side interventions" and how they would influence investors, who were likely to promote capitalism.

Mr Ramontja responded that it was necessary to allow for "interventions", to cope with market failure. One of the most critical aspects to the Framework was having access to products. If there were long contracts made between mines and only selected buyers, this would meant that effectively there would not be development and it may be necessary to take corrective steps. The amendment to section 26 of the MPRDA sought to redress the problems of access to the markets. On the demand side, the DMR had a role to play also. He gave an example of the fact that several years ago, platinum was not extensively used in jewellery, so there was little demand for it. If the DMR was able to take active steps to promote a product, then investors would be more likely to invest.

Ms van Lingen asked when the Consolidated Implementation Framework was likely to be developed, and particularly whether this would be within the current parliamentary term.

Mr Ramontja responded that DMR hoped it would be ready by June 2013.

Mr Mnguni asked about the long-term possibility, as noted by economists at the Mining Indaba, of a "winner takes all" scenario. There had been a prediction that China was now buying up as many resources as possible in order to beneficiate from them later, and other countries were also actively seeking products. He asked if South Africa was sure that it would have security of supply.

Mr Mabuza answered that section 26 of the MPRDA would ensure access to the products.

The Chairperson thanked the DMR for the briefing, and said that the Committee looked forward to receiving more details of the plan. He also reminded the officials to send through a report on the Academy.

The meeting was adjourned.


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