PCTI/20140826/CoB/PJ/33

• “an effective review of the minerals rights regime, lowering the cost of critical inputs including logistics and skills in order to stimulate private investment in the mining sector, and setting up a state-owned mining company that … promotes beneficiation, as well as greater utilisation of the mineral resource base of the country for developmental purposes, including potentially through a sovereign wealth fund.”

• “Refocusing the beneficiation strategy to support fabrication (stage 4) (rather than only smelting and refining, which are both capital and energy intensive), including stronger measures to address uncompetitive pricing of intermediate inputs, such as where appropriate, export taxes on selected mineral products linked to clear industrial strategies.”

• “if the mineral endowments are used to facilitate long-term capabilities, these resources can serve as a springboard for a new wave of industrialisation and services for domestic use and exports”;

• “attention will be devoted to stimulating backward linkages or supplier industries (such as capital equipment, chemicals, engineering services), especially as demand is certain, there is an opportunity for specialised product development, and the product complement is diverse. They are also more labour absorbing than typical downstream projects. Such products have the potential for servicing mining projects globally”

• “The (growth) differentiator is how much the country invests in human capital, product development and technology.”

• Minerals in the ground belong to the people as a whole and should benefit the economy as a whole;

• The state must capture the mineral resource rents and deploy them in developing long-term physical and human infrastructure (inter-generational equity);

• Mining must catalyse broader industrialisation through the realisation of all the economic linkages:• Backward Linkages into capital goods, services &

consumables;• Forward Linkages into manufacturing, energy and

infrastructure• Destructive monopoly pricing of mineral feedstocks

must be stopped! Minerals must be available for transformation at facilitatory prices, all along the mineral value chains.

• Investment in STEM skills and RDI is critical for realising the vast beneficiation opportunities.

What is Beneficiation?• Narrow definition:

– Value-added above a “base” state (ore, concentrate, metal)• Broader definition:

– Total domestic VA (value-addition), excluding all imported inputs.

Ore exportsBene= ∑SA_VA

∑VA = imports + local VA

Mining Concen-tration Smelting Refining Semis Manu-

facturing

∑VA = Imports + local VA

∑VA = Imports + local VA

∑VA = Imports + local VA

∑VA = Imports + local VA

∑VA = Imports + local VA

Conc exportsBene= ∑SA_VA

Alloy exportsBene= ∑SA_VA

Metal exportsBene= ∑SA_VA

Semis exportsBene= ∑SA_VA

Manu. exportsBene= ∑SA_VA

Beneficiation is the sum of local VA in the exported product =VA in all inputs plus the VA in the process.

= both backward and forward linkages!

Two approaches to DOWNSTREAM BENEFICIATION:

For rapid Job Creation, the domestic demand driven methodology is preferable, except for minerals with potential “producer power”. The DTI/IDC value chains approach reflects this.

2) “Demand-side” Methodology: Identifies critical mineral inputs into the economy needed for rapid job creation and then develops strategies for the cost-effective supply of those mineral feedstocks.

1) “Supply-side” Methodology: Starts from the national mineral endowment and then develops strategies for their beneficiation. (This generally appears to be the DMR approach in “A Beneficiation Strategy For The Minerals Industry Of South Africa”)

7

Critical feedstocks in the economy-Manufacturing: Steel/alloys, polymers (from coal, HCs), base metals

(Cu, Zn, et al)Energy (electricity):

Coal, natural gas (and CBM, shale gas), radioactive minerals, limestone (emissions)

Infrastructure: Steel, copper, cement (from limestone, gypsum, coal)

Agriculture: Nitrogen (from coal, gas), phosphate, potassium and conditioners (e.g. limestone, sulphides)

Plus -

The Principal Mineral-Based Feedstocks for rapidJOB CREATION

SA has ample resources for the cost-effective production of all of these critical feedstocks for

downstream job creation!

Producer power: Finally, where SA has potential producer power, there could be increased downstream (beneficiation) potential: e.g. PGMs

Mining: Concentration, smelting, refinin

g => metal/alloy

Forward Linkages:Intermediate products =>Manufacturing; Logistics; other sectors (agriculture , forestry, fisheries, etc.)

Backward Linkages

Inputs:Capital goodsConsumables

Services

Knowledge LinkagesHRD: skills formation

R&D: tech developmentGeo-knowledge (survey)

Spatial Linkages:Infrastructure

(transport, power, ICT) and LED

Fiscal linkages:Resource rent capture &

deployment: long-term human & physical infrastructure

development

Knowledge linkages are a prerequisite for developing the crucial back/forward beneficiation linkages!

Mineral Based DevelopmentBeneficiation: Maximising the Mineral Economic Linkages:

“Deepening” the resource sector linkages: development of the resource inputs & outputs industries is critical ,

Finland managed to shift from a 1970 resources (pc) trajectory to a 1998 manufactures (mf) trajectory, through the development of its resources inputs (machinery) and outputs (value-addition) sectors (source Palma, G. 2004)

Finland: e.g. Forestry-grew capital goods

(machinery) & value-added exports (wood

manufactures, pulp/paper)Thru’ investment in R&D!

Finland: 1970 on primary commodities (pc- mining & forestry) inverted U-curve, but shifts to 1998

manufacturing curve (mf-resources inputs &

outputs/beneficiation).

Chile: 1970 on manufacturing U-curve (ISI), but shifts to 1998

primary commodities (mining & agriculture) curve, after opening up

its economy (coup) in the 70’s.

Prolong the life of the resources, migrate to exports of resource techs and value-added

products: survive beyond resource depletion!

International Lessons: Norway(Norway hydrocarbons: OG21 tech strategy)

>Tech exports

>Gas VA

>resources>recovery

R&DHRDStatoil

75kExtraction ex-linkages

Minerals often have large Resource Rents (unearned)

= better deposit

= Demand > Supply: limited resources

Resource Rent = Return on Investment (ROI) > costs including minimum return to effect the investment

Use Resource Rents to dramatically increase beneficiation and jobs!

Inputs(purchases)

Labour

“Normal” ROI

Resource Rents =

“luck” rents (unearned)

Miner

State

Time t

Tax (CIT)

Impose Resource Rent Tax (RRT) of 50% on ROI > normal SA ROIAllow reduction of RRT rate through greater beneficiation (offsets)

Constraints to SA up- & down-stream beneficiation• Lack of coherent state beneficiation strategy across

the critical ministries (DTI, DMR, EDD, Treasury, DST, et al). Each department has its own strategy;

• Monopoly pricing (IPP) of mineral feedstocks by venal companies (Sasol, AMSA, et al) destroys downstream opportunities;

• Disappearance of national mining technology development (RDI) capacity (demise of COMRO and exit of Mining Houses) has severely compromised the upstream capital goods cluster;

• Shortage of STEM skills due to problematic schooling pipeline (matric maths & science graduates);

• Lack of local content, value-addition and RDI requirements in Mining Licenses;

• Lack of mineral value addition incentives such as tax incentives/offsets (RRT);

• Constrained National budget to facilitate (need RRT)

Towards a National Beneficiation Strategy?1. Ensure tight coordination of ministries

(DMR, DTI, DoE, DST, EDD, DPE, Treasury, at al) to maximise the linkages through strategy alignment. PICC-type structure?

2. Amend the MPRDA objectives to include the maximisation of the developmental impacts of mining, to allow for backward and forward linkages conditionality and minimum RDI spend in mining licenses (local content, value-addition milestones and local RDI spend);

3. Amend the MPRDA to cater for a category of “strategic minerals” (critical feedstocks into job-creating sectors) with extraction and pricing conditions (especially steel and coal/gas);

4. Introduce a Resource Rent Tax (50% on returns above normal ROI) with deductions for greater beneficiation (local content and further value addition);

5. Public tender (“price discovery”) of all known un-concessioned mineral assets against developmental goals (up- & down-stream beneficiation);

State beneficiation levers lie in ownership of mineral resources!

• Impose local content milestones (year 5, 10, 15, 20) and RDI targets (3%VA/an) in all mining licenses;

• Introduce RRT and allow RRT offsets against greater local content;

• Ensure harmonised minerals and industrial strategy- create strong cluster (“PICC” for MEC?);

• Base the BEE purchase requirements in the Mining Charter on the BEE proportion of local value added, not total (imported) value;

• Establish beneficiation SEZs (e.g. Pt Valley);• Invest in the development of upstream

technologies (rebuild COMRO) and STEM skills (fund from RRT);

Beneficiation: Backward Linkages Strategies

• Introduce domestic pricing controls on “strategic mineral feedstocks” at EPP or cost plus reasonable return on investment (ROI);

• Align beneficiation strategies- strong state coordination through a “MEC” ministerial cluster;

• Impose beneficiation milestones in mining licenses at 5, 10, 15 & 20y (NGP proposes: ~50% in 20 years);

• Develop an RRT – value-addition offsets scheme;• Impose a small export tariff on select raw mineral exports

to encourage beneficiation, where viable;• Establish new steel producers to sell at EPP in domestic

market and discipline current IPP abusers;• Ban all scrap metal exports (reserve for domestic use);• Producer Power- PGMs: Introduce single-channel exports

to facilitate downstream beneficiation;• Establish “Beneficiation SEZs”;• Support beneficiation technology and skills development;• Link utility tariffs to value-added (transport, energy, etc.);• Develop regional power solutions (HEP, gas, etc.).

Downstream Beneficiation Strategies:

• Rebuild a mining technology development capacity as a PPP with the mining companies, mining capital goods cluster and the state;

• Set minimum local RDI spend (%VA/an) and STEM HRD spend in all mining licenses;

• Dramatically increase funding for R&D (from RRT);• Dramatically increase funding for STEM HRD (from

RRT): school maths & science, STEM graduates and technicians/artisans;

• Make engineering & science degrees free (notional state loan only).

• Discourage exit of tech skills- Convert state tertiary education subsidies into a notional “loan” (payable on exit).

Beneficiation - Knowledge Linkages Strategies

Regional Integration: We must increase our market to compete globally

• Progress the extension of membership of the Southern African Customs Union (SACU) to increase market for linkages industries; • Consider the formation of a SADC free trade zone for iron/steel, petrochems and energy (similar to ECSA- 1951 Treaty of Paris, precursor to the EU);• Invest in long-term trade infrastructure across the southern African region (NGP- from RRT),• Include regional producers in Producer Power strategies (e.g. PGMs); • Develop a regional mineral inputs strategy;• Develop a regional HEP strategy;• Develop a regional gas utilisation strategy;• Develop a regional mining inputs strategy;

The regional mining capital goods market is larger than the EU’s!

Share of diversified manufacturing exports, by region

Mining Capital Equipment Exports to Africa have grown 400% ($ million)

Note that this excludes mining based services. The export of mining-based services is extensive and growing very rapidly.

Source: Roberts 2011

Source: Kaplan 2011

SIMS Indicative JOB CREATION Guesstimates (400k to 1 million)Intervention/Action (2-5y) High

1000’sLow

1000’s Remove Mineral Export Constraints:

10% increase in mineral exports (CGE model) 95 5020% increase in mineral exports (CGE model) 191 10030% increase in mineral exports (CGE model) 286 150

• +10% Beneficiation VA 40 20• +20% Beneficiation VA 70 40• +10% local content VA 20 10• +20% local content VA 30 15• EPP Iron & Steel 90 60• EPP Polymers 80 50• EPP Base metals 20 10• EPP Cement 20 10• EPP Other (NPK, etc.) 30 10Coal @ cost plus (reduce energy costs) 20 10New HRD investment (teachers/bursars) 30 15New R&D invest (license & SWF) & geo-survey 5 33 Pilot Beneficiation Hubs 45 20Mineral Infrastructure Upgrades 4 2Mineral Asset Auctions 55 25SMC 15 5Greater regional exports/imports 80 40Regional trade infrastructure 6 3PGM VA Strategy 14 7New Mines (& EPP steel project) 100 50TOTAL (1000's) 1000 400

ACTIONS

Categorisation of SA into “Known” & “Unknown”

geo-terrains (CGS)

Amend MPRDA to impose linkages

conditions on licenses

Amend MPRDA for “Strategic Minerals” w/pricing conditions

Invest in Mineral Infrastructure (PPPs)

Introduce small export tax on select crude

mineral exports

Build SMC (State Minerals Company) for Strategic

Minerals & BEE

Introduction of a 50% Resource Rent Tax (RRT)

Develop new EPP iron ore & steel project:

Amend Exchange Control Regs for sales of

“precious metals”

Poss. nationalisation of obdurate IPP suppliers

Lower royalties to 1%

Ban scrap metal exports

Apply IPP rail & power tariffs to IPP abusers

Forensic audit of mineral rights “conversions”

JOBS in new mines & linkage sectors, >BEE

JOBS in New Mines &Expanded production

JOBS in Up- and Downstream

(manufacturing & services) Industries

JOBS in manufacturing

JOBS across the economy

JOBS in agric & Lower agric product prices

Up- & downstream JOBS. Grow B-B BEE.

JOBS in HRD, R&D

JOBS across the economy

JOBS in construction & infra. inputs industry

JOBS in construction & infra inputs industries

JOBS in PGM-based industries (H2 economy)

Fiscal Stability (JOB protection in slumps)

JOBS in expanded production & new mines

JOBS in LED (local & sending communities)

IMPACTS

1.Much greater coordination of key Ministries (DTI, DMR, DOE, DST, Treasury, DPE, et al) through a strong MEC Cluster with tight coordination (PICC type structure?);

2.Eliminate abusive pricing (IPP) of our resources!3.Introduce a RESOURCE RENT TAX (RRT) of 50% (ROI>15%)

and use it to drive value-addition through RRT deductions for downstream and upstream beneficiation;

4.Amend MPRDA for license linkages conditions (up- & downstream VA and HRD & RDI spend) and, for “strategic minerals”, with extraction and pricing conditions;

5.Investment in STEM skilling (incl. school maths & science), tech development (RDI) and geo-sciences (geo-mapping for future resources) from RRT receipts.

6.Maximise the development impact of mineral resources through Public Tender (price discovery) of all known unencumbered mineral assets;

7.Establish a Presidential task team to drive beneficiation.

We have the vision, the tools and resources to make it happen!

Thank YouKe a lebogaNgiyabonga

DankieInkosi

Extra slides

PPC T&I Beneficiation Aug 2014

National COMPARATIVE advantageResources Depletion

(mining finite resources)

Capture Resource Rents

Invest rents in long-term Human & Physical

Infrastructure(skills, power, transport,

water, ICT)

National COMPETITIVE advantage

Beyond finite resources= inter-generational equity

Finite Mining

Capture RESOURCE RENTS

Invest rents in competitive advantage:STEM SKILLSINFRA: ICT, transport, power, etc.

Sustainable development (beyond resources)

Hartwick’s Rule on inter-generational equity in the extraction of finite resources

IPAP 2014/15: Beneficiation InitiativesMineral Beneficiation (Upstream and Downstream)

• Leveraging state tariffs for mineral value addition • Viability of an Iron/Steel and Titanium Pigment Industrial

Complex • Development of Resources Capital Goods Development Plan

Metal Fabrication, Capital & Rail Transport Equipment • Leveraging the government’s CAPEX and OPEX programmes• Promoting localisation in the private sector • National Tooling Initiative • National Foundry Technology Network

Plastics, pharmaceuticals, chemicals and cosmetics • Plastics (coal/gas MVC)• Plastics trade policy measures

Upstream and Midstream Oil and Gas (HCs)• Strategy to leverage opportunities presented by SA’s shale gas

resources • The Saldanha Bay IDZ/SEZ (HC capital goods)

Transversal Interventions • Public Procurement, Industrial Financing, Developmental Trade

Policy, Competition Policy, Innovation and Technology, Special Economic Zones (SEZ) Regional integration

South Africa is well-endowed with mineral resourcesSouth Africa’s Mineral Reserves, World Ranking, 2009 Production &

Nominal Life (assuming no further reserves) at 2009 Extraction Rates

Source: SAMI 2009/2010, DMR 2010; and Wilson & Anhaeusser 1998: “The Mineral Resources of South Africa”, CGS Pretoria (for BC- Bushveld Complex)

Mineral Percentage

Precious Metals 60%

Ferrous Metals 19%

Energy Minerals 15%

Base Metals 3%

Industrials* 2%

Precious Stones 1%

Total 100%

The in-situ value of South Africa’s mineral resources is estimated at an astounding $6.24

trillion (2012). By value they comprise:

Source: EcoPartners 2012, www.ecopartners.co.za

Main Formations & Bodies• The Witwatersrand Basin: Gold (>90% of current production),

as well as considerable resources of uranium, silver, pyrite & osmiridium;

• The Bushveld Complex: PGMs with associated copper, nickel & cobalt. Also, chromium (chromite seams) and vanadium & titanium bearing magnetite (iron ore) seams, as well as industrial minerals, such as fluorspar & andalusite;

• The Transvaal Supergroup: Large resources of manganese & iron ore;

• The Karoo Basin: Considerable bituminous coal & anthracite resources;

• The Phalaborwa Igneous Complex: Copper, phosphate, titanium, vermiculite, feldspar & zirconium;

• Kimberlite pipes: Diamonds (also occur in secondary alluvial, fluvial and marine deposits);

• Heavy mineral sands: Titanium (ilmenite & rutile), zircon and magnetite, mainly in coastal paleo-dunes;

• Bushmanland Group: lead-zinc with copper & silver.

Source: www.cgs.gov

Only a few areas are endowed with mineral

assets: Most parts of SA have little on no

economic minerals!

Global Minerals Intensity of GDP (steel proxy)

Source: Adapted from http://advisoranalyst.com

Global Context (demand)

In addition to the beneficiation embodied in the final exported product (∑VA = all up/downstream VA), there is also indirect “beneficiation” to the wider economy through building the national factor & infrastructure endowments.

Justin Lin argues that “a developing country can change its industrial and economic structure by changing its endowment

structure” consisting of both its factor endowments (land/natural resources, labour, and physical & human capital) and its

infrastructure endowments: both hard/tangible infrastructure and soft/ intangible infrastructure (institutions, regulations, social

capital, value systems, etc.).

However,

Thus, indirect beneficiation in the wider economy includes:•Building the knowledge linkages (human capital & tech)•Building the spatial linkages (hard infrastructure)

However, in order to change the factor and infrastructure endowments, the resource rents need to be reinvested in building them. = Fiscal Linkages

= the 5 key beneficiation

5. FORWARDValue-addition: (beneficiation)

Export of resource-based articles

3. BACKWARDInputs: Capital goods,

consumables, services, (also export)

4. KNOWLEDGE Linkages (HRD & R&D):

“Nursery” for new tech clusters, adaptable to

other sectors

2. SPATIALPuts in critical infra-

structure to realise other economic potential & could stimulate LED

Narrow “beneficiation” = forward linkages; Total product beneficiation = back- & forward linkages (∑VA),

Total economy-wide beneficiation = all the linkages

1. FISCAL: Capture & invest of resource rents

(RRT) in long-term economic physical & human infra (inter-

generational)

Use depleting assetsto change national

endowment structure

HRD, R&D

• Mineral deposits embody a massive variation in resource rents (returns above those necessary to attract investment = average return on investment: ROI), much greater than any other sector except for hydrocarbons (oil and gas).

• In SA ROI in mining varies from average (ca 15%, e.g. marginal gold deposits) to several hundred percent (e.g. iron and manganese ore deposits) = resource rents.

• Consequently it is difficult to design a minerals regime with generic linkage conditions (local content, value-addition, skills formation, etc milestones) that will efficiently maximise the potential development impact of all deposits over time.

• In general, a mineral regime will set minimum linkage development obligations in order to make investment into marginal deposits attractive.

• The best way to flush out the maximum linkage development that any specific mineral deposit could support, would be to get a market response through the public tender of the property against linkage development commitments (a form of developmental “price discovery”).

MVCs and Mineral Deposit Variability

Hybrid free mining (FIFA) and tender system

ExplorationTerrain (FIFA)

Exploration License(Mining Licence Automaticity)

Resource Rent Tax“Mining Charter” type

socio/labour conditions &Minimum up- & down-

beneficiation milestones

3.KnownMineral assets

1.Unknown Mineral assets

DelineationTerrain (Auction)

Public Tender on:• Tech & Fin Capability• Rent share (tax)• Up/downstream

beneficiation• Infra development• HRD & R&D, tech transfer

Mining Concession/Licence

2.PartiallyKnown

Define 3 Types of Mineral Terrains:

Geo-ReserveTerrain

•Further geo-survey: CGS SMC, or sub-contractors

•Risk exploration for future step-in rights.

Hybrid free mining (FIFA) and tender system

ExplorationTerrain (FIFA)

Exploration License(Mining Licence Automaticity)

Resource Rent Tax“Mining Charter” type

socio/labour conditions &Minimum up- & down-

beneficiation milestones

3.KnownMineral assets

1.Unknown Mineral assets

DelineationTerrain (Auction)

Public Tender on:• Tech & Fin Capability• Rent share (tax)• Up/downstream

beneficiation• Infra development• HRD & R&D, tech transfer

Mining Concession/Licence

2.PartiallyKnown

Define 3 Types of Mineral Terrains:

Geo-ReserveTerrain

•Further geo-survey: CGS SMC, or sub-contractors

•Risk exploration for future step-in rights.

However, this hybrid regime requires

substantial amendments to the MPRDA!

Finland: The mature forestry industrial cluster 1997a

BACKWARD LINKAGES

1. Specialized inputsChemical and biological inputs (for production of fibres, fillers, bleaches)

2. Machinery and equipmentFor harvesting (cutting, stripping, haulage)For processing (for production of chips, sawmills, pulverization)For paper manufacture (30% of the world market)

3. Specialized servicesConsultancy services on forest managementResearch institutes on biogenetics, chemistry and silviculture

NATURAL COMPARATIVE ADVANTAGE

Abundant forestry reserves and plantations

(400-600m3 per capita)b

FORWARD LINKAGES

1. RoundwoodSawnwoodPlywood (40% of the world market)

2. Wood productsFurnitureFor construction

3. Wood pulp

4. Paper and cardboardNewsprintArt paper (25% of the world market)Toilet paperPackagingSpecial products

Source: Ramos 1998 p111 (CEPAL Review, #68, 12/1998);

a: Generates 25% of Finland’s exports; b: Compared with 25-30m3 per capita in the rest of the world.(SA has a similar comparative advantage in minerals)

SIDE LINKAGES

Related activitiesElectricity generationProcess automationMarketingLogisticsEnvironment industries (paper)Mining (sulphuric acid)

Using a natural comparative advantage to develop a competitive advantage

Linkages in the SA PGM industry and the relationship between firms (Lydall 2011)

Forward Beneficiation

Backward beneficiation

OUTPUTSPaper IndustryChemicals IndustryBuilding materialsIndustry

Metals ProcessingIndustry

ConstructionOther domesticsectorsExports

INPUTSChemicals industry

Machine industryEnergy Supply

Transport Business services

Other sectors

Imports

Labour costs

Cost of capital

Finland: Minerals Sector Purchases and Sales 2007

Source: Hernesniemi, H, Berg, B, Rantala, O & Suni P: Kalliosta KullaksikummustaKlusteriksi: Suomen mineraaliklusterinvaikuttavuusselvitys, ETLA 2011

In 2011 The Research Institute of the Finnish Economy (ETLA) completed a major study on the broader economic impact of

their minerals sector and showed a 6:1 employment generation (50% abroad) in other upstream and downstream

industries, due to their well-developed mineral linkages.

Mining MineralProcessingExploration

Smelting &Refining

Fabrication(manufacturing)

expl. capital goods• geophysical• drilling• survey• etc.

mining capital goods• drilling• cutting• hauling• hoisting, etc.

processing cap. goods• crushers/mills• hydromet plant• materials handling• furnaces, etc.

Refining Cap. Goods•Smelters•Furnaces•Electro winning cells•Casters

Fabrication Cap.goods•Rolling•Moulding•Machining•assembling

exploration services• GIS• analytical• data processing• financing• etc

mining services• mine planning•consumables/spares• sub-contracting• financing• analytical, etc

processing services• comminution• grinding media• chem/reagects• process control• analytical, etc

Refining services•Reductants•Chemicals•Assaying•Gas & elec supply

Value adding services•Design•Marketing•Distribution•Services

Resources inputs sector (up-stream) has a comparative advantage in:

0

100

200

300

400

500

600

700

800

900

1000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

SADC GDP (PPP - million of international dollars)

Markets: Sub-Saharan Africa & World GDP Growth

-1

0

1

2

3

4

5

6

7

8

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

SSA GDP Growth (constant prices, % change)

Sub-Saharan Africa World

Source: IMF, World Economic Outlook (WEO) Database, October 2012

Regional Trade Strategies are Critical to Growing the Backward MVCs

MINERAL Mine production (2007), sales & jobs

Local beneficiation (sources: JM, DMR, SASOL, Rand Refinery, GFMS, PPC, Lafarge, Mittal Steel,

Further Beneficiation Jobs (SIMS)

PGMs 304 tons (R78 billion sales, 186 000 employees, etc.)

Manufacture & export of 16.2 million platinum catalytic converters (15% of world share), 4000-5000 jobs and R22 billion in export value

Producer Power=~7-14k jobs

Coal 248 mt (R44.2 billion sales, 60 439 workers)

Final product – 201 929 GWh of electricity (86% of SA’s electricity supply), value created R40 billion, 30000 jobs (in Eskom).Final products : Synfuels 7.3 mt valued at R29 billion; Gas sales 112.9MGJ at R2.7 billion; Polymers 1.73 mt at R9.4 billion; Solvents 1.72 mt at R13.8 billion; Olefins & surfectants2.2mt at R22.6 billion; Other (waxes, fertilisers, etc) R13 billion; 31 860 jobs, R98 billion in sales, R17 billion in taxes (link to iron ore below)

Cost+ coal to Eskom =~10-20k jobsEPP polymers=~50-80k jobs

Gold 254 tons (R38 billion in sales, 169 057 employees)

~400 tons refined at Rand Refinery (490 jobs), 7.4 tons of jewellery fabricated employing 2800 people , 8.4 tons of coins fabricated employing 100 people & 4300 jobs in wholesale & retail of gold jewellery.

minimal

Iron ore 42.1 mt (R13.4 billion in sales, 13 858 employees)

~6.4 mt of local steel production (4.2 mt flats & 2.1 mt long products). 4.4 mt local sales & 1.4 mt exported with total revenue of R29 billion and 10 000 employees.

EPP steel=60-90k jobs

Diamonds 15.25 mc (R10 billion, 20 000 workers)

1.2 mc imported (cost R14.9 billion), 13.9 mc exported (value R13.2 billion), local sales valued at R4.9 billion (value of cut diamonds valued at R6.3 billion), 2000 cutters.

minimal

Nickel 37.9kt (valued at R9 billion) Stainless steel production, ~650 kt stainless produced worth R12 billion. About 150kt used locally. (jobs?)

EPP Ni (included in base metals) =~10-20k jobs

Copper 117.1kt (valued at R5.8 billion)

Tubing and wire industry (jobs?) EPP Ni (included in base metals) =~10-20k jobs

Manganese 6 mt (valued at R3.6 billion) Manganese alloys-• 1mt produced. 0.2mt sold locally &0.8mt exported, total sales value R6.5

billion.(jobs=2000). Chemical products (jobs?)

• >Mn alloys• 200 series SS= ~10k jobs

Industrialminerals

Total sales value of R7.5 billion

Cement industry, 14.2 million tons of local production of cement+/- R20 billion industryFertiliser industry (600kt of fertiliser consumed locally - potash, phosphates, limestone) (jobs)

EPP cement =~10-20k jobsEPP NPK =~10-30k jobs

Chromite 9.7mt (valued at R3 billion) Chrome alloys –• 3.5mt produced, 0.4mt sold locally, 3mt exported, total sales R17.5 billion (jobs?)Chemicals and refractories

• >Cr alloys• >Ferritic SS• >200 Series SS=~5-10k jobs

TOTALS About R213 billion ~about 450 000 workers

Rough sales value created of about R157 billion (conservative) =~200-500k jobs(incl. removal of infra constraints)

Estimates of further downstream beneficiation in South Africa, (2007 data) Source: Adapted from Migdett 2010 and ANC SIMS 2012

IDC, PIC, CEF, DPE, SMC, etc.

(pension funds-currently under fund

managers)

(Special Purpose Vehicle: )

Private Shareholders

Combine State & Union Holdings to exert control over supply into domestic economy?

However, the monopoly pricing (IPP) of steel severely curtails manufacturing jobs

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Hot rolled coil steel prices, US$/t

Value received on exports (EPP)

Value received on local sales (IPP)

Source: Iscor 2004 in DTI presentation to the Portfolio Committee of Trade & Industry, 24 Aug 2010

Amount that local customers pay above exportsWorld export price

Transport costs might be as high as 47% of the cost of importing flat steel!

Fertilisers: Grain production Costs in SA

Source: Corné Louw 2011,

Fertilisers constitute 30-50% of grain/oil seeds input costs, and the IPP-EPP differential is 30% to 50% :

Competitive fertiliser prices could have a significant impact on both job retention and expansion in the agricultural sector

Total employment in agriculture in South Africa, 1968-2010

Source: Sandrey, R. et al. (2011),

Around 1 million jobs have been lost since

1970, aggravated by monopoly fertiliser pricing!

• Use state ownership of coal mineral rights to apply cost-plus domestic polymer/fertiliser pricing conditions on Sasol;

• Regulate polymer/fertiliser prices against a basket of international prices (ICISLOR, Platts, Harriman);

• Strengthen the Competition Act to allow for the effective imposition of competitive pricing in the domestic market (amend the Competition Act)

• Introduce competition through state facilitation of new players by the reservation of suitable coal/gas resources for tender against new capacity at EPP or cost plus into domestic market;

• Increase state control of Sasol (currently 26% owned by the IDC & PIC) to >50%, through a strategic alliance with the Union pension funds;

• Use state infrastructure tariffs (energy, transport) to leverage competitive prices from Sasol.

Putative Coal/Gas MVC Strategies

Platinum and palladium resources in other countries, compared to South Africa

Source: Cawthorn R.G. 1999

PGM MVCs

Pt 75% & Pd 50%Case for producer power to effect price stability and greater value addition?

Mine production: 2011 2012 Reserves Reserves %Ilmenite:

Australia 960 940 100000 15.4%Brazil 45 45 43000 6.6%Canada 750 700 31000 4.8%China 660 700 200000 30.8%India 330 550 85000 13.1%Madagascar 280 280 40000 6.2%Mozambique 380 380 16000 2.5%Norway 360 350 37000 5.7%South Africa 1110 1030 63000 9.7%Sri Lanka 31 60 NA NAUkraine 300 300 5900 0.9%Vietnam 550 500 1600 0.2%Other countries 40 40 26000 4.0%World (ilmenite) 6100 6200 650000 100.0%

Rutile:Australia 440 480 18000 42.9%Brazil 3 5 1200 2.9%India 24 25 7400 17.6%Mozambique 6 8 480 1.1%Sierra Leone 64 100 3800 9.0%South Africa 122 131 8300 19.8%Ukraine 56 60 2500 6.0%Other countries 18 17 400 1.0%World (rutile) 8730 8830 42000 100.0%World (ilmenite & rutile) 6700 7000 700000

Titanium Mineral Concentrates World Mine Production & Reserves 2012

However, SA potentially has 70% of global reserves in the Bushveld magnetites!

• MVCs should encompass all the SA value in the final consumed or exported product, i.e. both local content and beneficiation;

• Little MVC headway has been made, principally due to widespread monopoly pricing (IPP) of mineral feedstocks and the decline in upstream industries and R&D due to exit of the old “Mining Houses”;

• Nevertheless there appears to be strong case for MVCs, particularly the critical feedstocks in job-creating sectors: manufacturing, energy, agriculture and infrastructure, as well as minerals where SA has potential producer power, and in inputs industries (capital goods);

• Regional markets (economic integration) could facilitate beneficiation (economies of scale), particularly in inputs industries (local content);

• MVCs could gradually transform SA’s comparative resources advantage into a competitive advantage, especially the local content (capital goods & services) dimension;

• Wide-ranging instruments could be available to the state to facilitate beneficiation, including conditions on mining licences, anti-trust legislation, incentives, HRD and R&D, but many will require amendments to current legislation;

• There appears to be substantial potential for downstream beneficiation in the ferrous, coal/gas, PGM and titanium job-creating value-chains (MVCs).