The challenge to beneficiation of minerals in South Africa is that in some respects the country is going backwards and de-industrialising, with China grabbing some of what modest beneficiation already takes place in this country.
This was one of the findings of a discussion panel at the fourth annual Trade and Investment Conference, hosted by the Department of Trade and Industry, at Sun City recently: Africa Dialogue 2012. Deloitte, the professional firm, was the knowledge partner to the DTI for the conference.
The panel discussion was moderated by Deloitte Mining Advisory Leader (South Africa), Ebrahim Takolia, with additional speakers Susan Shabangu, Minister of Mineral Resources; Joaquim David, Angolan Minister of Mines and Geology; Geoffrey Qhena, CEO of South Africa's Industrial Development Corporation (IDC); and Mark Cutifani, CEO of AngloGold Ashanti, the biggest gold producer in Africa.
Cutifani noted that other countries both within the BRICS bloc and within Africa were “far more aggressive than South Africa in introducing incentives for beneficiation, and in protecting its internal manufacturing industries.
“Is it not time to become much more aggressive and hard-nosed about beneficiation, offering some inducements to business?” he said.
The discussion took place against the backdrop of the imminent publication of the Department of Mineral Resources' beneficiation strategy. These will become part of the Industrial Policy Action Plan, which should be finalised before the end of the year.
Beneficiation has been a buzzword for some years now, but is much misunderstood. The panel recognised that much beneficiation already takes place in South Africa and elsewhere on the continent, but that a significant increase might require South Africa's miners become manufacturers – something unlikely to happen in the short-term.
Takolia posed a question to the panel: “Why has beneficiation not occurred to a greater degree in resources-rich South Africa, and indeed the rest of Africa, when it clearly ought to be a logical and natural progression from having the natural resources? It would have the potential to create jobs, generate additional revenue and positively affect the region's terms of trade.”
Shabangu answered that industrialisation was the firm policy of the government, a policy which in turn intends value-add take place with all its raw materials. She further explained that the policy did not foresee our miners becoming manufacturers and therefore venturing outside their core business, but that they make available a certain percentage of their output for the purposes of local manufacture.
On the question of whether the DTI would introduce incentives for beneficiation, Shabangu said the policy of the government was a more broad-based approach that goes beyond just incentives. It requires the availability of the relevant mineral resource, and the co-operation of the mining houses would be sought in this regard, but it would also require skills development, or at least a strategy which would bring skills to the country; and would require infrastructure.
“Therefore, this strategy requires an integrated approach by several ministries, because no beneficiation policy can succeed without all the essential elements,” said Shabangu.
The leapfrog from current beneficiation levels to what we aspire to — in order to achieve significant industrialisation and employment — requires a depth of skills and technological innovation we have yet to reach. Starting on a journey to full value-chain exploitation provides an opportunity for investment in education, skills development and engineering research and knowledge creation. If we meet these challenges, there will be no reason beneficiation of minerals cannot happen on large scale.
“If we do not have the necessary skills then we have to partner with countries that do, and this we are already doing. We are looking at sending trainees to India to acquire skills for jewellery making, and are also in discussions with other BRIC countries in a similar vein. But, in parallel with creating new industries, we also have to create new markets,” she explained.
David highlighted some of the challenges in coming late to these value-add markets: “It is not an easy task due to the barriers to entry posed by countries already dominating beneficiation. Even though Africa has the raw materials and is heading towards fundamentals of greater stability of predictability of supply, other countries have the advantage of human capital and are already installed as efficient suppliers with which we struggle to compete on price,” he said.
Angola had recently introduced a new minerals policy, which offered incentives to beneficiate. However, what African governments needed to be focusing on is establishing power and transportation infrastructure. “Beneficiation is highly capital intensive, and this needs to be put in place before beneficiation can happen on a meaningful scale,” said David.
In fact, capital was no barrier at least in South Africa, with local corporates sitting on cash reserves exceeding R520 billion. Government was keen for them to invest this in the real economy, particularly small business development.
Government planned to insist on the establishment of manufacturing capacity in South Africa.
Present on the panel was Qhena, CEO of the IDC, one of the biggest investors in new beneficiation projects in southern Africa, including its most recent R3.4 billion investment into Pallinghurst platinum mine, which has set ambitious goals on output, jobs and beneficiation in its bid to become the world's third-largest platinum producer.
He said the investment — the largest the government-owned funder has made in five years — met two of the state's key agendas, of employment creation and adding value to raw minerals. “This project will certainly transform the local platinum mining and beneficiation landscape.”
Qhena said one of the primary outcomes it looks for from its investments, in addition to beneficiation, is greater competition, which in turn creates more efficiency.
Ashanti's Cutifani said there were many innovative ways to implement beneficiation other than direct manufacturing. “We have a great deal of land associated with our activities in Africa, and given that mining is a primary source of infrastructure development, this land is well serviced. We're looking at employing this land and making it available to entrepreneurs for the purposes of non-mining ventures.”
He applauded South Africa's Mining Charter and said Ashanti was looking at this as a blueprint for its own strategies of engagement with local communities around its mines, and was implementing it in other countries.
On the question of why this has not previously been done across Africa, Cutifani attributed the reason to a lack of policy certainty. The opportunity was only now arising as African governments were becoming more stable and policy more predictable.
“In fact, there is a large part of the global investor community that still does not trust the policy framework of African countries. The challenge for miners is that we need a time horizon of 20-30 years in which we can be assured of policy stability. Therefore, we need governments that are capable of looking 20-30 years ahead. In a country, if we cannot see five to 10 years ahead, we will not even consider it,” he said.