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Mar 09, 2012

09/03/2012 (On-The-Air)

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Every Friday morning, SAfm’s AMLive’s radio anchor Xolani Gwala speaks to Martin Creamer, publishing editor of Engineering News and Mining Weekly. Reported here is this Friday’s At the Coalface transcript:

Gwala: The world’s first flying car is to go on display in New York next month.

Creamer: We have been talking about Terrafugia now for some time and now they are actually going to display this car, which can go from car to plane in 30 seconds.

The situation is that you would have to have a pilot’s licence and a driver’s licence, but they have negotiated with the highway authorities and the aviation authorities and they have got the thumbs up on both sides. Once you come down and land at the airport, you fold up your wings and you drive home.

The width of this vehicle is about 2,3 metres if you haven’t got your wings out as a normal car, and about 8 metres when you give it wings. Interestingly it uses unleaded fuel, it doesn’t need the aviation fuel. It is simply something that looks like very futuristic at the moment.

One would think that it needed many more years of discovery. But the Massachusetts Institute of Technology team that has developed this, through Terrafugia, has now got to the stage where it is usable.

Gwala: It is amazing.

Creamer: The price is going to be about R2-million, so that could be a bit of a problem, but they are taking deposits at about R80 000.

Gwala: I can’t imagine this. You go to the airport and you use your own car, you don't have to worry about SAA or the other airlines.

Creamer: They will be at the New York International Autoshow, which begins in 28 days.

Gwala: South Africa’s once-booming ferrochrome industry, which employs 200 000 people, is suddenly under serious threat from China. What is the issue here?

Creamer: We have had a fantastic ferrochrome business where we add value to chrome. This has always been a beneficiated industry.

We know that the government is coming in now with beneficiation policies, but this has been going on for many years. What is happening now, is that platinum miners in particular are going for UG2 Reef, which is a different reef to the Merensky Reef. In that reef is also chrome, so they are ending up with streams of chrome faster then they expected.

They are looking for markets for these, so China, which doesn’t have any of its own chrome, is taking our chrome. China’s production is on the ascendancy, the 300 000 tons which we were down in South Africa in the ferrochrome business last year, that was the exact ascendancy in China.

They are getting half of their chrome now from South Africa. India, which was right next door to China, was initially the biggest supplier of unbeneficated raw-chrome to China, but the Indian government stepped in and they also want to add value at home with the beneficiation process. They have intervened and put taxes on the export of the chrome from India.

So, our South Africa government is thinking of doing the same, brining in as a temporary measure and intervention and export tax just to make that production in China a little bit more expensive. In the longer term they want to have a different quota system where people can earn credits by supplying their chrome into the local South African market so the value can be added here.

It is going to be part of the whole beneficiation strategy that there are ten commodities with about five supply chain areas that are going to be beneficiated and one if them is this chrome area.

They are looking before the end of the year and I think it should come sooner then that for some sort of tax to be imposes to make it less beneficial for China to get this chrome and also to then go into a longer term strategy where we can not only keep this big employment level of 200 000 people and contributing about R42-billion a year to the GDP. But, there is also a potential to grow it, we host most of the world’s chrome reserves between ourselves and Zimbabwe.

Zimbabwe has already imposed a ban on their export of chrome, so that is an even stronger measure. We haven’t really resorted to that which wouldn't really work with our World Trade Organisation membership, but temporarily bringing in taxes is accepted and this is what is going to be done.

Gwala: Resource rent. That’s the name of the new tax game confronting South Africa’s mining industry.

Creamer: Resource rents tax, those three words are on the lips of everybody in mining at the moment because of the latest document that has come through. The ANC document, the State Intervention Mining Study that has been done. It recommends that South Africa moves into a situation of resource rents.

Once the private sector companies get a good internal rate of return, and they are mentioning about 22%, that if you get this internal rate of return and you are still earning profits above that, the government is looking for a post-profit participation at a rate of 50% in terms of this study.

Of course, this is still a study it hasn't gone before the government yet, it is just an ANC document which came against the background of looking into mine nationalisation. We had those calls for mine nationalisation, so they have come in with this.

The initial studies and one of the leaders in our mining industry Micheal Solomon, who was the former Wesizwe platinum CEO and is now with the J&J Group. He thought he would do an experiment and he took a South African deposit.

Theoretically he then added the resource rents to it. He then took this deposit and planted it in Australia, US and Chile to see how competitive we would be. With the resource rents, unfortunately South Africa becomes uncompetive.

Even with our royalties we can see that we are fairly evenly balanced competitively with the rest of the world, but the moment you bring in these resource rents, in fact, if you put that theoretical deposit in Australia the Australians would be R500 000 ahead of us. So it would be a no brainer if someone had an opportunity to mine in Australia or South Africa they would go for Australia. I think it needs to be carefully worked out because the intention of the document is to look after future generations with these rents. In other words, you take this money and you put it in a sovereign wealth fund, offshore.

Once these metals and minerals are taken out of the ground our future generations aren’t going to benefit from this, but if we take some cash now and we put it in that sovereign fund, future generations will benefit. But, people are saying that perhaps they can use the royalty money for that.

This document does want to cut down on royalties bringing them down to 1% so maybe there is a balance somewhere along the way here, but in the meantime it seems that these resource rent taxes will make South Africa uncompetitive against the rest of the world.

Gwala: Suddenly it is an ongoing discussion, there is a lot to come out of this one. Thanks very much. Martin Creamer is publishing editor of Engineering News and Mining Weekly, he’ll be back with us at the same time next week.

Edited by: Creamer Media Reporter
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