1. THE BENEFICIATION STRATEGY FOR THE MINERALS INDUSTRY OF SOUTH AFRICA
PRESENTATION TO PPC ON MINERALS RESOURCES
26 July 2011

2. PRESENTATION OUTLINE Basis for Mineral Beneficiation Broad Vision
Beneficiation Value Proposition
Strategy Development Path
Global Economic Perspective
South Africa’s Comparative Advantage
Strategy framework

3. PRESENTATION OUTLINE (Cont...)
Cross Cutting Constraints and Interventions
Pilot commodity value chains
Concluding remarks

4. BASIS FOR MINERAL BENEFICIATION
White Paper: The Reconstruction and Development Programme (November 1994)
“Mining and minerals products contribute three-quarters of our exports and the industry employs three-quarters of a million workers, but this could be much higher if our raw materials were processed into intermediate and finished products before export. Our RDP must attempt to increase the level of mineral beneficiation through appropriate incentives and disincentives in order to increase employment and add more value to our natural resources before export. Moreover, this policy should provide more appropriate inputs for manufacturing in South Africa.”

5. BASIS FOR MINERAL BENEFICIATION
White Paper: A Minerals and Mining Policy for South Africa (October 1998)
“The aim of the policy will be to develop South Africa’s mineral wealth to its full potential and to the maximum benefit of the entire population. Government, therefore, will promote the establishment of secondary and tertiary mineral-based industries aimed at adding maximum value to raw materials.”
Section 26, MPRDA, 2002
The Minister may initiate or prescribe levels of beneficiation of minerals in the Republic
The concept of mineral beneficiation was developed and aptly embedded within the Mining and Minerals Policy, which identified the need to adopt a policy that will create an enabling environment for the development of the country’s mineral wealth to its fullest potential
A further 4 years later, the MPRDA enunciated the Mining and Minerals Policy, with mineral beneficiation explicitly provided for in s26 of the Act

6. BASIS FOR MINERAL BENEFICIATION
THE NEW GROWTH PATH
Sets a target of creating 5 million jobs in 10 years
Identifies structural challenges that impede desired growth rates, including
Logistics, energy infrastructure and skills, which raise costs
Economic concentration and price collusion in key parts of the economy, which raise costs and limit innovation and new enterprise development
An uncompetitive currency that limits employment growth in manufacturing, mining, etc.
A persistent balance-of-trade deficit funded with short-term capital flows attracted largely at high interest by international standards
Seeks to place the economy on a production-led trajectory with growth targeted in 10 ‘job drivers’, including, inter alia:
The mining value chain, with a particular emphasis on mineral beneficiation as well as on increasing the rate of mineral extraction
With the adoption of the NGP last year, its objectives are clear, developmental focussed, with unquestionably Big-Hairy-Audacious-Goals (that are most certainly attainable)
The NGP identifies structural challenges that are also relevant to mineral beneficiation (as it will subsequently be demonstrated) and their remedial action, as proposed in the NGP, also advances towards the resolution of the binding constraints to mineral beneficiation
The NGP identifies mineral beneficiation as one of the priority growth nodes for job creation

7. BROAD VISION
Increase a ratio of beneficiation extent to mineral production and increase export revenue
Facilitate economic diversification
Expedite progress towards a knowledge based economy
Create opportunities for new enterprise development
Contribute to creation of decent jobs and poverty alleviation
The vision seeks to
Effect the objects of the Mining and Minerals Policy of 1998
Elaborate the relevant provisions of the MPRDA
Support the developmental policies of government such as job creation, industrialisation (minerals as key input into industrialisation), the NGP, and so on

8. BENEFICIATION VALUE PROPOSITION
The next to slides talk to the value proposition that beneficiation holds for the country
This slide shows the increase in value of realised from beneficiating minerals in this case iron ore. This would directly translate into increased export earnings if the percentage of mineral production that is beneficiated is increased.
Source: DMR

9. BENEFICIATION VALUE PROPOSITION (Cont...)
This slides shows indicative values of the real potential presented by the steel value chain
While minerals consumed in the steel manufacturing process span Fe, coking coal, Cr, Ni, V and limestone amongst others, we thought it apt to demonstrate the point with the largest mineral contributor, which is Fe-ore, representing approximately 80% of minerals consumed in this process and as a result, the conservative potential with a minimum 20% upside potential in values presented
In 2008, 48Mt of Fe-ore were mined in RSA, employing people and contributing R15.6Bn to GDP
Only 20% (9.7Mt) of this Fe-ore was consumed in local steel mills to produce 8.2Mt of standard steel, which in turn almost matches both GDP contribution and employment figures – although this stage of beneficiation is fairly highly geared toward capital intensity, it is a necessary evil in the stages of development for beneficiation of this mineral, as the greatest benefit is leveraged from further down stream and side-streams
Out of the 20% Fe-ore consumed in local steel manufacturing, 6.5Mt or 2/3 derives from the KIO/AMSA commercial agreement of cost plus 3%, representing 80% of KIO’s total Fe-ore production (Sishen mine) – this provides the best case study for further exploration of imposition of a developmental pricing across all Fe-ore producers in the country, as KIO announced a headline earning of 47% in its 2010 financial results, which it achieved under the conditions of this commercial arrangement
28% (2.3Mt)of standard steel was consumed locally in fabrication to double GDP contribution and create employment of a factor of almost 7 folds (6.6)
The manufacturing/end use bar indicates the support base of other industries that consume steel (both standard and fabricated) amounting to 6.1Mt, of which 5.3Mt is locally produced and 0.8Mt is imported, reflecting their collective contribution to the GDP and total employment – these industries include, albeit not limited to construction (40% of steel), automotive (11%), machinery and equipment (9%), mining (7%) packaging (7%), appliances (4%) agriculture (2%). This demonstrates the significance of steel to national economy
South Africa exports 34% (2.8Mt)of its standard steel production, whilst it imports 16% (1Mt) of its local consumption

10. STRATEGY DEVELOPMENT PATH
An initial research study (DMR/MINTEK)
Selection of pilot commodity value-chains informed by areas of greater opportunity
A draft beneficiation strategy
Dedicated task team (inter-departmental) – DMR, DTI, DST, NT, DPE, Presidency
External stakeholder consultation
Approval of strategy by Cabinet

11. GLOBAL ECONOMIC PERSPECTIVE
The world has entered into a new growth phase led by developing economies
This growth will result in increased demand of mineral commodities such as iron ore for infrastructure development, consumer products etc.
Main markets for South Africa’s beneficiated goods will therefore come from these developing economies

12. SOUTH AFRICA’S COMPARATIVE ADVANTAGE
South Africa is host to significant reserves of minerals that are important to the functioning of most modern economies, with an estimated in situ value of
In-Situ value conservatively estimated at US$ 2.5 Trillion, excluding energy commodities (coal, uranium, thorium)

13. COMPARATIVE ADVANTAGE
STRATEGY FRAMEWORK
COMPARATIVE ADVANTAGE
MINERAL RESOURCES RESERVOIR
[IN SITU VALUATION OF US$2.5 Trillion (Non-energy)]
COMPETITIVE ADVANTAGE
(Strategy Pillars)
Legislative Framework
(MPRDA, DAA etc.)
Multi stakeholder forums (e.g. Platinum Beneficiation Committee)
International trade agreements
Beneficiation strategic interventions
BENEFICIATION STRATEGY PROVIDES A FRAMEWORK TO TRANSLATE COMPARATIVE ADVANTAGE
In outlining the strategy, we start from the understanding that mineral endowment provides a mere comparative advantage and that unless something is done, the country will continue to enjoy the comparative advantage only, which will ultimately dissipate as mineral resources are finite by nature
It is for this reason that the mineral beneficiation strategy is a critical instrument that seeks to provide a framework to translate this comparative advantage to a competitive advantage
Our ability to achieve the objectives of the country’s industrialisation drive is premised on our ability to secure input minerals at a competitive pricing that will lay the basis for attainment of our desired levels of global competitiveness
Proximity to abundance of mineral reserves of strategic significance to the industrialisation programme is an added advantage for both local and international manufactures based in RSA. Today, security of mineral supply is considered to be one of the greatest advantage/threat to the industrialised economies. The recent exercise of thwarting supply of rare earth minerals by the People’s Republic of China bears testimony to this fact, which threatened the survival of advanced manufacturing economies in super-alloys without supply of such minerals, such as Japan, USA, Western Europe, as China produces 97% of REE’s, it sought to muscle it dominant position
There’s scope for expansion of existing beneficiation/manufacturing infrastructure – South Africa is not starting from scratch
Existing infrastructure provides an added advantage to beneficiation
The country can prowess a readily available and trainable labour force – For instance, the excellent performance of the Rosslyn plant staff against its global peers, including plants in its country of origin, Germany, corroborates this observation.
Our regulatory stability and strength can drive the behaviour to achieve our intended goals

14. Cross Cutting Constraint
Potential Instruments at Government’s disposal
Action by Business
Limited access to raw materials for local beneficiation
Leverage the state’s custodianship of the country’s minerals to facilitate downstream beneficiation
The MPRDA is currently being amended to strengthen beneficiation provisions
Leverage on the beneficiation offset element of the Mining Charter
Strengthen and leverage on existing pieces of legislation such as Diamond export levy to promote reliable access to raw materials
Take advantage of the mineral value proposition to expand local demand for mineral ores
Comply with legislation
Shortages of critical Infrastructure
Leverage on existing infrastructure planning mechanisms and programmes such as the critical infrastructure programme to properly consider infrastructure requirements for mineral beneficiation
Leverage on the NGP, which seeks to unlock infrastructure bottlenecks through massive expansion of transport, energy, water, and communications capacity.
Utilise the state’s infrastructure (public good) as an effective instrument to promote local beneficiation
Align production plans with national programs
Embrace energy efficiency
Explore co-generation prospects
Limited exposure to Research and Development
Leverage on the ten year plan for science and technology
Support and develop competitive technologies
Inadequate skills
Promote skills development and partner with the relevant SETA’s for training and labour development
Leverage on and enhance the National Skills Development Strategy and the Sector Skills Plans for required skills
Investment in Human Capital Development
Co-operate with government to leverage and enhance the National Skills Development Strategy and the Sector Skills Plans for required skills
Access to international markets
Implementation of international trade agreements to enhance mineral beneficiation in RSA (investment $ markets))
Leverage on trade agreements

15. PILOT COMMODITY VALUE CHAINS
10 minerals for 5 value chains
Energy commodities
Iron and steel
Pigment and titanium metal production
Autocatalytic converters and diesel particulate
Jewellery fabrication
The research study selected 10 minerals, which effectively prioritises 5 value chains, namely:
Security and diversification of energy supply – for instance, the research work on the use of fuel cells in energy generation for the automotive, household and industrial purposes is near implementation. This will not only provide a new demand driver for the mineral which the country enjoys almost 70% of global share in reserves, but will also be a trailblazer in new, sustainable and renewable sources of energy for the future
Industry minerals, such as steel, the productive capacity and consumption of which constitute a critical element of economic development
Advanced metals (E.g. Titanium metals used in aeroplane manufacturing)
Autocatalytic converters and diesel particulate used for industrial purposes and automotive sectors
Jewellery still presents potential value
However – the immediate priorities for implementation will focus on the first two value chains of energy security and steel

16. PILOT COMMODITY VALUE CHAINS (ENERGY)
Energy vital to any industrialisation process security of energy supply is of the utmost importance
Main energy commodities are Coal Uranium and Thorium
Value chain interventions:
Quantification of the country’s uranium and thorium reserves
Support for R&D into alternative and future energy sources (e.g. Fuel cells)

17. PILOT COMMODITY VALUE CHAINS (IRON AND STEEL)
Steel products are vital inputs into labour intensive manufacturing processes but anti-competitive pricing is a major constraint to growth
Value chain interventions:
Invoke regulatory provisions to ensure sustainable and developmentally priced input commodities
Encourage investment into the South African steel industry to break prevailing anti-competitive behaviour by competitors

18. PILOT COMMODITY VALUE CHAINS (PIGMENT AND TITANIUM METAL)
This value chain is a potential key growth area for the country as increasing levels of urbanisation are expected to underpin demand for Ti-mineral concentrates for pigment and aerospace component manufacture
Value chain interventions:
Investigation into the viability of establishing a chlorine plant in conjunction with a pigment plant
The development of a more cost effective primary titanium metal production

19. PILOT COMMODITY VALUE CHAINS (AUTOCATALYTIC CONVETERS)
South Africa accounts for 1 in 10 autocats. produced globally and tightening emissions legislation will underpin future growth in this sector
Value chain interventions:
Invoke provisions of the law to ensure security of PGM supply
Development of metal access mechanism
Unlock the intrinsic value within the PGM sector

20. PILOT COMMODITY VALUE CHAINS (JEWELLERY FABRICATION)
South Africa is the land of gold, platinum and diamonds and jewellery fabrication is another labour intensive value chain that will beneficiate these minerals
Value chain interventions:
Establishment of a metal advance scheme
Promotion of existing incentives in the jewellery sector

21. WAY FORWARD
Development of implementation plans for the five pilot commodity chains
Implementation plans for other value chains to be developed thereafter

22. CONCLUDING REMARKS
Strategy provides coordinated approach to beneficiation
Provides a leverage for RSA to become globally competitive and optimise mineral resources rent
Fast tracks the country’s economic growth to tackle the challenges of development
Compliments the NIPF (IPAP) and the NGP
Provides the basis to invoke provisions of s26 of MPRDA to enable security mineral supply
The strategy is therefore, not a blueprint for individual commodity value chains, but provides a framework within which value chain specific interventions will be anchored.

23. Alive with possibilities…..
ENDS.....