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South Africa can’t get away with just 'digging dirt' – Paul Jourdan
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5th June 2013
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CAPE TOWN ( – While Australia could get away with mining minerals and exporting them without paying attention to local value addition, South Africa could not, independent South African mineral policy analyst Paul Jourdan told the International Mining and Metals third African Iron Ore conference here.

With its far larger population and far fewer square kilometres, South Africa had no option but to concern itself with mineral beneficiation, which he defined as the total domestic value addition embodied in the final exports, excluding all imported inputs.

“Australia can dig dirt for the next 200 to 300 years, and they’ll be fine,” he said.

But South Africa, at one-sixth of Australia’s size and with nearly three times its population, was compelled to introduce ore beneficiation strategies for mineral value chains and resource-based industrialisation.

“Just digging dirt is not an option for us,” the former Department of Trade and Industry (DTI) deputy director-general, former Mintek head and coauthor of the African National Congress’s State Intervention in the Minerals Sector document said in response to Mining Weekly Online questions.

Jourdan is currently working with the DTI, Department of Mineral Resources, Department of Science and Technology and the State-owned Industrial Development Corporation (IDC) to develop mineral value chains.

Speaking on the opportunities for the beneficiation of iron-ore, he presented a five-point plan, beginning with the inducement of new players.

He flashed on to a big screen a map showing iron-ore deposits, mines, steel plant and steel plant options, which fell into two types.

There were coastal entities, from which he proposed steel-for-ore deals, for example, granting 20-million tons of ore for 5-million tons of steel, and there were inland entities.

Inland, the IDC’s Scaw expansion would be for long products, there would be a possible new Middelburg plant for flat steel products, a Highveld Steel and Vanadium expansion for flats, a potential integrated plant at Kathu, where reductant expense was an issue, and a possible steel mill and world-scale pigment plant using iron-ore from the Bushveld.

He believed that ore for steel negotiated with a foreign customer at export parity prices would probably be the most powerful arrangement.

The second strategy was the introduction of competitive tendering for known iron-ore assets, with bids based on the amount of value added.

He advocated only issuing prospecting rights on ground with no known resources and accused most mining companies of delineating deposits already well known rather than discovering new deposits.

There was also the issue of the deposits themselves having huge differences in richness, which rendered the current one-size-fits-all policies problematic.

There were deposits good enough for high free carries, like diamond deposits in Botswana, but there were others too marginal for free carries, which meant that not everyone should be forced to beneficiate.

The resource rents proposed would vary immensely, with the rents only being levied on returns on investments over and above normal returns, which were sometimes as high as 500%.

The best way to flush that out was through a competitive system with a value-addition factor to allow for a market response.

“Then you’ll get the best deal, rather than to force miners to beneficiate when they can’t,” he added.

He gave export tax and royalties the thumbs down, for adding to costs, increasing cutoff grades and constraining new mines.

Export taxes and royalties were inefficient and caused a loss of resources.

Instead, resource rents tax, which targeted the rich mines that made well above the average return on investment, would be reduced in proportion to value addition.

The State needed to have access to mineral resources for value addition, with a portion of select resources allocated at cost plus reasonable return.

This would be linked to the stipulation of local competitive pricing (EPP) with EPP on-obligation on all local value-adding customers.

He cautioned that there could possibly be bilateral investment treaty repercussions if EPP were imposed on old-order licence holders.

Also recommended was the use of State utility tariffs to enhance value addition.

Transnet had, in the past, been doing the opposite, charging higher tariffs for higher-value cargo and lower tariffs for lower-value cargo.

“Transnet’s new proposal is to discount with increasing value addition, with no discounts for dirt digging,” he said.

The tariffs for raw ore would be raised and tariffs for beneficiated products lowered so that it was income neutral to the ports company.

Road, power, ports and even State finance entities would apply the model, so that when the IDC financed dirt-digging, the interest would be less favourable, for instance, than its financing of a car plant.

South Africa’s major power constraints needed to be resolved with the help of shale gas and regional gas, and steel technology needed to be reintroduced to deal with issues of Bushveld ore.

Although the Bushveld hosted between 25-billion and 27-billion tons of iron-ore, virtually all iron-ore mining was taking place in the Kalahari basin, which had only 3-billion tons.

“The future resources are very much the Bushveld Complex,” he said.

Edited by: Creamer Media Reporter


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Picture by: Reuters