JOHANNESBURG (miningweekly.com) – Side-stream beneficiation required more recognition in South Africa, with much of the focus having been on defining downstream beneficiation, Chamber of Mines (CoM) senior executive Roger Baxter said on Wednesday.

“Little attention has been given to the significant side-stream beneficiation sectors that exist because of mining. Mining creates the ‘critical mass’ necessary for the establishment of other industries, such as stock markets, financial services, contracting services, heavy engineering, power, transport, manufacturing and so on,” he said, while addressing delegates at a Gordon Institute of Business Science forum on facilitating further minerals beneficiation in South Africa.

He added that in countries such as Canada and Australia, the side-stream beneficiation industries had been given due recognition and support by their governments.

“Active support of the capital goods sector, the financial services sector, the research sector and other side-stream mining related sectors will further grow the country’s competitiveness and export capability to the benefit of all.”

Baxter said side-stream beneficiation was playing an important role in South Africa’s economy, which saw it currently creating 1.3-million jobs, and accounting for about 19% of gross domestic product (GDP) and 20% of investment.

“Supporting and facilitating downstream and side-stream beneficiation will create more value in the economy, help grow exports and investment to the benefit of all. The chamber and its members look forward to engaging with government, Parliament and other stakeholders on this important process,” Baxter put forward.

He said to achieve this, mining companies would have to support the side-stream and downstream processes; the related research and development; and the material funding arrangements, which has historically not worked; and provide inputs to the domestic fabricators at world determined prices. Further, training and market development support was also critical.

“A lot of players can access the product, but they cannot afford to buy it if they do not have cost-effective funding solutions in place compared with our global competitors.

“While business supports the concept of growing the downstream mineral beneficiation sector, this can only be achieved by creating a facilitating investment environment that attracts manufacturing companies to invest or expand in South Africa,” Baxter said.

Further, he emphasised that existing downstream beneficiation in South Africa was being underestimated, with the CoM calculating it to be worth R300-bilion and creating about 150 000 jobs.

Last year, 43 t of platinum was sold into the domestic market and converted into catalytic converters; the sector was estimated to be worth about R20-million and created 5 000 jobs, with South Africa accounting for about 13% of global catalytic converter production.

Further, 125-million tons of coal was converted into over 200 000 MW of electricity, and 45-million tons of coal were converted into liquid fuels, plastics, fertilisers, polymers, and chemical feedstocks, among others, and had an estimated value of R165-million.

About 99% of the country’s cement was made locally from locally mined products and 80% of the country’s steel requirements were manufactured locally from locally mined iron-ore, chrome, manganese and coking coal.

Baxter highlighted the importance of distinguishing between manufacturing and mining benefication, noting that much of the focus in the beneficiation debate had been on why the mining sector was not doing enough to drive manufacturing/fabrication beneficiation.

Complexity of Competitive Advantage Unpacked

He said the vast majority of manufacturing beneficiation (jewellery fabrication and diamond cutting) took place in countries that had little or no mine production of precious metals and diamonds, adding that the availability of mined precious metals and diamonds at world-determined prices did not necessarily provide an advantage.

“Competitive advantage issues, such as natural resources, are no longer considered to be a key driver of manufacturing beneficiation investment, rather cost-competitive production and skills craftsmanship are.”

Baxter further noted that a national collective effort, through government’s Beneficiation Strategy, the Industrial Policy Action Plan 2013-2015/16, the National Development Plan and the National Growth Path was required to promote greater manufacturing beneficiation in South Africa.

To assist this effort, a thorough assessment of why the country had done poorly in respect of manufacturing beneficiation was necessary, while an enabling environment that attracted manufacturing fabrication companies to invest in South Africa would have to be created.

Creating an enabling environment would include improving access to foreign markets for manufactured products, the judicious development of special economic zones, lowering the cost of capital in South Africa, creating access to intermediate inputs at world competitive prices, providing the right types of skills for such projects, improving logistical infrastructure and creating incentives for research and development.

Manufacturing as a percentage of South Africa’s GDP was 15% and had continued to decline over the past three decades. With the exception of some niche products and the automotive industry, most subsectors of the manufacturing sector have battled to become competitive.

Baxter said this was attributable, in part, to infrastructure constraints and increasing input costs in South Africa, with electricity prices charged to the mining sector having risen from 18c/kWh in 2007 to 61c/kWh in 2012, marking a 238% increase.

Diesel costs had risen by an average of 15.7% a year on the back of higher international oil prices, which was up by 69.3% overall, while the average remuneration for a worker employed in the local mining sector grew by 12% a year between 2007 and 2012, nearly five percentage points higher than producer inflation.

However, Baxter pointed out that despite the spike in the country’s electricity costs, South Africa’s electricity was still competitive, having been ranked seventh cheapest in the South African Network Infrastructure Review. He noted that the real challenge came with electricity supply constraints.

“Clearly there are infrastructure constraints that affect South Africa. Government has the plan in place to expand the electricity supply pool, but we have to ask how we will expand other sources of supply, not only renewables, but mining companies generating their own power,” he said.

Baxter noted that South Africa required one government department to champion beneficiation, as the country lagged on the implementation front.

“If you look at the broader beneficiation environment, it includes basic education and training, tertiary education and training, infrastructure, transport, energy, minerals. So, almost all government departments have some role to play. But it is important that one government department plays the role of a central champion and ensures other departments are involved,” he stated.