PCTI/20140826/CoB/PJ/33
Mineral Value Chains
(MVCs)
Resource-based
Industrialisation?
Minister’s IPAP Update Briefing
Paul Jourdan
DTI, Tshwane, April 2013
Structure of Each MVC Report
• SA situation
• International context
• Downstream Mapping
• Downstream SA Opportunities
• Downstream Strategy (Options)
The upstream value added of each mineral value
chain will be consolidated into a single report as
they tend to be common – mining, mineral
processing and beneficiation inputs (capital
goods, consumables and services)
DTI/IDC Mineral Value Chains (MVC) Study
Project Elements and Time-line for Reports:
1. MPRDA Review Report - January 2013
2. MVC Context Report – February 2013
3. Ferrous MVCs Report – April 2013
4. Coal/gas MVCs (Polymers) Report – June 2013
5. Titanium MVCs Report – August 2013
6. PGM MVCs Report – October 2013
7. Mining Inputs Report – November 2013
8. Close-out (composite) report – December 2013
South Africa is well-endowed with mineral resources
South Africa’s Mineral Reserves, World Ranking, 2009 Production &
Nominal Life (assuming no further reserves) at 2009 Extraction Rates
Mineral
RESERVES
%World
*
16.7
72.4
7.4
2.4
17
12.7
0.8
Rank
*
3
1
6
6
2
1
13
PRODUCTION 2009
Mass %World Rank
0.265
60.2
1
3
1.6
3
6.762
*
1
250.6
3.6
7
0.089
*
*
0.18
3.5
5
197
7.8
5
55.4
3.5
6
Alumino-silicates
Antimony
Chromium Ore
Coal
Copper
Fluorspar
Gold
Iron Ore
Mt
kt
Mt
Mt
Mt
Mt
t
Mt
Mass
51
350
5500
30408
13
80
6000
1500
Iron Ore - incl. BC
Mt
25000
~10
*
55.4
3.5
6
Lead
Manganese Ore
Nickel
PGMs
Phosphate Rock
Titanium Minerals
kt
Mt
Mt
t
Mt
Mt
3000
4000
3.7
70000
2500
71
2.1
80
5.2
87.7
5.3
9.8
6
1
8
1
4
2
49
4.576
0.0346
271
2.237
1.1
1.2
17.1
2.4
58.7
1.4
19.2
10
2
12
1
11
2
Titanium- incl. BC
Mt
400
65
1
1.1
19.2
2
Uranium
Vanadium
Vermiculite
Zinc
Zirconium
kt
kt
Mt
Mt
Mt
435
12000
80
15
14
8
32
40
3.3
25
4
2
2
8
2
0.623
11.6
0.1943
0.029
0.395
1.3
25.4
35
0.2
32
10
1
1
25
2
LIFE
Years
192
117
813
121
146
444
30
27
451
61
874
107
258
1118
65
364
698
1034
412
517
35
Source: SAMI 2009/2010, DMR 2010; and Wilson & Anhaeusser 1998: “The Mineral Resources of South Africa”, CGS Pretoria (for BC- Bushveld Complex)
The in-situ value of South Africa’s mineral
resources is estimated at an astounding $6.24
trillion (2012). By value they comprise:
Mineral
Percentage
Precious Metals
60%
Ferrous Metals
19%
Energy Minerals
15%
Base Metals
3%
Industrials*
2%
Precious Stones
1%
Total
100%
Source: EcoPartners 2012, www.ecopartners.co.za
Global Context (demand)
Global Minerals Intensity of GDP (steel proxy)
Source: Adapted from http://advisoranalyst.com
What is Beneficiation?
•
Narrow definition:
– Value-added above a “base” state (ore, conc, metal)
Broader definition:
– Total domestic value-addition (excluding all imported inputs)
•
Imports +
local VA
Mining
Imports +
local VA
Concentration
Imports +
local VA
Smelting
Imports +
local VA
Refining
Imports +
local VA
Intermediate
products
Imports +
local VA
Manufacturing
Ore exports
Bene= ∑VA
Conc exports
Bene= ∑VA
Alloy exports
Bene= ∑VA
Metal exports
Bene= ∑VA
Beneficiation is the sum of local VA in
the exported product =
VA in all inputs plus the VA in the process.
=
Int. exports
Bene= ∑VA
both backward and forward linkages
Manu. exports
Bene= ∑VA
= the 5 key beneficiation
1. FISCAL: Capture &
5. FORWARD
invest of resource rents
Use depleting assets
(RRT) in long-term
to change national
economic physical &
human infra (inter- endowment structure
generational)
2. SPATIAL
Value-addition:
(beneficiation)
Export of resourcebased articles
4. KNOWLEDGE
Linkages (HRD & R&D):
“Nursery” for new tech
Puts in critical infraclusters, adaptable to
3. BACKWARD
structure to realise other
other sectors
Inputs: Capital goods,
economic potential &
consumables,
could stimulate LED
HRD, R&D
services, (also export)
Narrow “beneficiation” = forward linkages;
Total product beneficiation = back- & forward linkages (∑VA),
Total economy-wide beneficiation = all the linkages
Spatial Linkages:
Infrastructure (transport,
power, ICT) and LED
Backward
Linkages
Inputs:
Capital goods
Consumables
Services
Mining: Concentration,
smelting, refining => metal/alloy
Knowledge Linkages
Forward Linkages:
Intermediate products =>
Manufacturing; Logistics;
other sectors (agriculture ,
forestry, fisheries, etc.)
Fiscal linkages:
Resource rent capture &
deployment: long-term human
& physical infrastructure
development
HRD: skills formation
R&D: tech development
Geo-knowledge (survey)
Knowledge linkages are a prerequisite for developing
the crucial back/forward beneficiation linkages!
MVCs and Mineral Deposit Variability
• 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”).
Hybrid free mining (FIFA) and tender system
Define 3 Types of Mineral Terrains:
1.Unknown
Mineral assets
Exploration
Terrain (FIFA)
Exploration License
(Mining Licence Automaticity)
Resource Rent Tax
“Mining Charter” type
socio/labour conditions &
Minimum up- & downbeneficiation milestones
2.Partially
Known
Geo-Reserve
Terrain
•Further geo-survey:
CGS SMC, or subcontractors
•Risk exploration for
future step-in rights.
3.Known
Mineral assets
Delineation
Terrain (Auction)
Public Tender on:
• Tech & Fin Capability
• Rent share (tax)
• Up/downstream
beneficiation
• Infra development
• HRD & R&D, tech transfer
Mining Concession/Licence
Hybrid free mining (FIFA) and tender system
Define 3 Types of Mineral Terrains:
1.Unknown
Mineral assets
2.Partially
Known
3.Known
Mineral assets
However,
this hybridDelineation
Geo-Reserve
Terrain (Auction)
Terrain
regime requiresPublic Tender on:
Exploration License
•Further geo-survey:
substantial
amendments
CGS SMC,
or subResource Rent Tax
contractors
“Mining Charter” typeto the MPRDA!
socio/labour conditions &
•Risk exploration for
Exploration
Terrain (FIFA)
(Mining Licence Automaticity)
Minimum up- & downbeneficiation milestones
future step-in rights.
• Tech & Fin Capability
• Rent share (tax)
• Up/downstream
beneficiation
• Infra development
• HRD & R&D, tech transfer
Mining Concession/Licence
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
Exploration
Mining
Mineral
Processing
Smelting &
Refining
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
Resources inputs sector (up-stream) has a
comparative advantage in:
Fabrication Cap.goods
•Rolling
•Moulding
•Machining
•assembling
Fabrication
(manufacturing)
Value adding services
•Design
•Marketing
•Distribution
•Services
Putative strategies to grow the upstream (inputs) MVCs
• Amend the MPRDA to include upstream value addition (backward
linkages: local content) as an objective of the Act and strengthen the
Minister’s power to include such conditions in the mining
concession/license.
• Make local content commitments a bid variable with significant
weighting (30%?) for all new competitive mineral concessions
(auctions);
• Base the B-B BEE purchase requirements in the Mining Charter on
the BEE proportion of local value added in the goods or services
supplied, rather than the total value of the goods or services, to
eliminate destructive BEE fronting for foreign suppliers and to
increase the upstream developmental impact;
• DTI, DMR, EDD and DST to jointly comprehensive industrial subsectoral strategies to grow the mineral upstream sectors (capital
goods, services, consumables) including the use of instruments such
as import tariffs, investment incentives, innovation stimuli, market
access, access to finance, competitive inputs, tech development, etc.
• Task the nascent SMC and IDC with developing appropriate capital
goods, with the private sector and technology institutions,.
• Establish “Beneficiation SEZs” e.g. The mooted “PGM SEZ
• Develop Regional Trade Strategies for growing inputs markets
Backward (upstream) Value Addition (Inputs)
Share of diversified manufacturing exports, by region
Source: Roberts 2012
Mining Capital Equipment Exports
to Africa ($mn)
Source: Kaplan 2011
Note that this excludes mining based services. The export of mining-based services is extensive and growing very rapidly.
Markets: Sub-Saharan Africa & World GDP Growth
SSA GDP Growth (constant prices, % change)
8
7
6
5
4
3
2
1
0
2000
-1
2001
2002
Sub-Saharan Africa
2003
2004
2005
2006
2007
2008
2009
2010
2011
2010
2011
World
SADC GDP (PPP - million of international dollars)
1000
900
Source: IMF, World Economic Outlook (WEO) Database, October 2012
800
700
600
500
400
300
200
100
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Regional Trade Strategies are Critical to Growing the Backward MVCs
Two approaches to downstream MVCs:
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”)
2) “Demand-side” Methodology:
Identifies critical mineral inputs
into the economy needs for rapid
job creation and then develops
strategies for the cost-effective
supply of those mineral inputs.
For rapid Job Creation,
the domestic demand
driven methodology is
preferable, except for
minerals with potential
“producer power”. The
DTI/IDC value chains
selection reflects this
approach.
The Principal Mineral-Based Feedstocks for rapid
JOB CREATION
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:
Agriculture:
Producer power:
30
Steel, copper, cement (from limestone, gypsum,
coal)
Nitrogen (from coal, gas), phosphate, potassium and
conditioners (e.g. limestone, sulphides)
Plus -
Finally, where SA has potential producer power,
there could be increased downstream
(beneficiation) potential: e.g. PGMs
SA has ample resources for the cost-effective
production of almost all of these critical
feedstocks for downstream job creation!
Ferrous MVCs
Iron, chromium, manganese into steels & specialty steels
SA Steel Production and Location
Source: Kumba 2011, “The South African iron and steel value chain”, Joburg, March 2011
Plus stainless steel (Columbus 600ktpa) in Middleburg
Steel flows in South Africa in 2008
Source: Kumba 2011, “The South African iron and steel value chain”, Joburg, March 2011
SA Steel Demand Sectors
However, the monopoly pricing (IPP) of steel
severely curtails manufacturing jobs
Hot rolled coil steel prices, US$/t
World export price
Value received on
local sales (IPP)
Amount that local
customers pay
above exports
Value received on
exports (EPP)
Transport costs might be as high as 47%
of the cost of importing flat steel!
Source: Iscor 2004 in DTI presentation to the Portfolio Committee of Trade & Industry, 24 Aug 2010
Putative Steel Strategies
• Use state ownership of mineral rights to apply cost-plus ore pricing
conditions to local customers and on local customers (for their domestic
on-sales) for select “strategic” mineral feedstocks, particularly iron/steel.
This will require amendment of the MPRDA.
• Strengthen the Competition Act to allow for the effective imposition of
competitive pricing in the domestic market: Regulate steel prices against
a basket of international prices.
• Introduce competition through state facilitation of new players• Progress the IDC Masorini/Scaw projects
• Assess the viability of the NMM and Cascades projects
• Reserve resources for tender against the establishment of a steel
plant to supply the domestic market at competitive prices
• Ban all exports of base & ferrous scrap, to lower domestic scrap prices
• Use state infrastructure tariffs (energy, transport) to leverage
competitive prices, through applying a surcharge to companies that
monopoly price (IPP) in the domestic market.
• Trade a user-concession (BOT) on the Saldanha ore line, with
establishing a new steel plant (NMM?) and local ore sales at cost-plus
with an on-obligation to the customer (steel plants).
• Invest in technology development to configure a large scale process to
economically exploit the appropriate BC magnetite seams to produce
titanium dioxide and pig iron, which could form the basis of a new steel
competitor.
Coal/gas: Polymers
Most plastics are derived from petrochemical feedstock
(naphtha) which in turn originates from oil, natural gas and coal.
In SA the gas comes from coal
Coal/gas – Nitrogenous Fertilisers
Fertiliser Raw Materials Producers
*Taken over by Meridian/Farmers World. # Plant mothballed
Source: Grain SA “Fertiliser Report”, 2011
International and local urea prices: IPP pricing
Zerihun Gudeta Alemu 2010
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
Around 1 million jobs have
been lost since 1970,
aggravated by monopoly
fertiliser pricing!
Source: Sandrey, R. et al. (2011),
Putative Coal/Gas MVC Strategies
• Use state ownership of coal mineral rights to apply costplus 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.
PGM MVCs
Platinum and palladium resources in other countries, compared to South Africa
Source: Cawthorn R.G. 1999
Pt 75% & Pd 50%
Case for producer power to effect price stability
and greater value addition?
Platinum Supply 2001-2012
Source: JM 2012
Platinum IndustrialSource:
Demand
JM 2012
SA dominates
supply, but most
PGM intensive
manufacturing is
done in OECD
countries
Putative PGM MVC Strategies
• Assert state’s right to market PGMs by amending the
Exchange Control Regulations to require authorisation to
market PGMs, as per gold.
• Task the PGM miners with establishing a single export
channel to stabilise prices and establish a “stockpile”
which could be partly held by the Reserve Bank (portion
of national reserves in the form of platinum)
• Engage Russia & Zimbabwe on joining a single channel
export mechanism.
• Task the single channel mechanism with developing a 58 year plan for the value chain to be progressively
relocated to the producer states.
• Include value-addition milestones in PGM licenses;
• Dramatically increase state & private PGM R&D
activities
Titanium MVCs
•South Africa is the 2nd largest producer of Ti
feedstocks globally (mainly slag) and has the 2nd
larges resources (excluding the BC magnetites);
•Over 90% of Ti is used to make pigments
(paper, plastics, paint, etc. industries)
•A small quantity goes into Ti metal (aerospace,
medical, sports)
•SA has a tiny share of the downstream industry
Putative Ti tanium MVC s Strategies
• Use state ownership of mineral rights to apply
beneficiation milestones on titanium miners;
• Encourage/facilitate Exarro to locate a world-scale
pigment plant (>300ktpa) in SA, using chloride
technology (Tronox);
• Fund R&D into technologies to realise the huge Ti
potential in the BC magnetites (Fe & Ti) resources (level
21 = 70% of world)
• Continue to support the Ti powder and forming
technology development initiatives;
• 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).
Thank You
paulj1952@gmail.com