[miningmx.com] — MINISTER of Mineral Resources Susan Shabangu is
under pressure to ensure her beneficiation policy and its dual promise of wealth and
job creation not only silences calls to nationalise South Africa’s mines, but also works
in favour of securing President Jacob Zuma a second term.
“Zuma needs to show critics who demand that mines be nationalised that he has a
better way of ensuring the country’s mineral resources benefit all South Africans,’
said an official in the Department of Mineral Resources (DMR).
The beneficiation strategy, which is being honed by the DMR to mimic models used in
Nordic countries, is central to Government’s thinking on what’s now being referred to
as “resource nationalism’.
This links directly to the ANC report on State Intervention in the Minerals Sector and
to Government’s promise to re-industrialise the country and create five million new
jobs by 2020.
Shabangu made full use of international audiences at the recent Mining Indaba,
where she made it clear that nationalisation was out and beneficiation was in. It’s
simply not acceptable, she said, that SA fails to capitalise properly on its estimated
$2.5tr mineral wealth.
“Beneficiation is the vehicle through which SA’s resource-based comparative
advantage can be transformed into a national competitive advantage. This is
important in the context of the country’s inequality and 24% unemployment rate,’
stated Shabangu. But she shied away from specifics, especially on the thorny issue
of how Government intends to secure raw materials for beneficiation and how it
intends to incentivise investment in beneficiation plants.
Mining Advisory Leader at Deloitte, Ebrahim Takolia, says that although the
beneficiation of minerals to finished consumer goods will increase the revenue gained
from the exploitation of the mineral resource, as well as increase the industry’s ability
to absorb labour, the beneficiation strategy isn’t going to create as many jobs as
Government is promising.
This is because job creation happens mainly in the first and second stages of the
beneficiation process, where the production of concentrates, metals and alloys
happens. This stage is also very power intensive, which is why the National Planning
Commission (NPC) has raised concerns that the benefits of job creation may well be
outweighed by the energy demands and carbon emissions of this stage. The NPC
calls for Government to be prudent about making the right tradeoffs.
While the third and fourth stages of beneficiation deal with making end products for
consumers, these final stages aren’t labour intensive. Instead they rely on two
things that SA is battling to grow and attract – technical skills and investment.
The competition that SA faces on this score is illustrated by chrome, which it
exports to China for beneficiation into ferrochrome.
China beneficiates it at a lower cost than SA can achieve, even when transport
costs are taken into account. “Incentives for investors are very important,’ says
Takolia, who adds that Government has to think strategically and take careful
account of business risk before rolling any plans out.
Xavier Prevost, a senior coal analyst at XMP Consulting and former employee of the
old Department of Minerals and Energy, questions whether SA will sufficiently
sweeten incentives for investors. How, he asks, is Government going to get around
the uncertain and costly supply of energy, the cost of labour and the skills deficit?
Although the nationalisation of mines is off the table, Prevost says proposals to
implement a new mining tax regime are disturbing to investors.
“Beneficiation as Government describes it requires significant investment.
“Entrepreneurs don’t want to invest here. Many would prefer to go to Mozambique,
Botswana and even Zimbabwe. There’s a still a lot of uncertainty when it comes to
South Africa,’ says Prevost.
– These articles first appeared in Finweek. If you want to subscribe to the digital
format of Finweek visit www.zinio.com.
