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Mining subsidising inefficient beneficiation beggars belief – chamber

5th September 2013

By: Martin Creamer

Creamer Media Editor

  

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JOHANNESBURG (miningweekly.com) – The possibility of the South African mining industry providing effective subsidies to underpin inefficient mineral beneficiation beggars belief in a modern country trying to assert its regional economic credentials.

That is the view of Chamber of Mines of South Africa president Mark Cutifani, who adds that it is critical that the economics of mining are clearly understood, along with the conditions required to invest in an uncertain outcome.

“In mining we know very little about the resources we mine and we have to make large capital decisions on limited knowledge. If we then have to be the supporter of downstream inefficiency, we are setting ourselves up for failure.

“The possibility that the mining industry will provide effective subsidies to support inefficient industries beggars belief in a modern country trying to assert its regional economic credentials.

“Let me be clear: it is not that the mining industry does not support beneficiation, but the laws of economics are simple and all-powerful.

“South Africa needs to compete where we have competitive advantage, and the most important thing legislators can do is create an environment that incentivises the massive investment needed - in the mining industry, first and foremost, but also in the downstream businesses that make economic sense,” the chamber president adds.

On Monday, African Rainbow Minerals (ARM) ferrous division CE Jan Steenkamp outlined the reasons why the JSE-listed ARM and its joint venture partner Assmang would be beneficiating South African-mined manganese in Malaysia and not South Africa.

Steenkamp said that an attractive 15-year electricity supply agreement, at a fixed 2.5% escalation clause, has been concluded in Malaysia, where the electricity is already 12% to 15% cheaper than in South Africa.

The 160 000 t/y, $328-million manganese alloy smelting project in Sarawak, Malaysia, which would be built in partnership with China Steel Corporation and Sumitomo Corporation, had also managed to clinch the last distribution capacity from the first phase of the new hydro power station.

The project would enable the South African companies to hold on to the advantage of integrated production know-how boosted by high-grade South African manganese while it continued to search for a longer-term South African beneficiation solution, possibly closer to the source of the manganese in the Northern Cape.

“Our commitment to local beneficiation continues,” ARM executive chairperson Patrice Motsepe said, on the basis of it being globally competitive and profitable.

Assmang, which has had to close some of its ferrochrome furnaces in South Africa, will supply South African manganese ore for the project in Sarawak; China Steel will buy an estimated 30 000 t/y of the manganese alloys produced; and Sumitomo Corporation will coordinate the project and sell manganese alloys in specific markets.

Meyerton Success

However, a company that is succeeding in locally beneficiating close to 30% of the manganese ore it mines locally and thereby demonstrating its support for increasing value addition and downstream job creation is Samancor Manganese, which in March opened the largest operating furnace of its kind in the world at its Metalloys smelter in Meyerton.

The BHP Billiton group company succeeded in putting the broadest of smiles on the face of Minerals Minister Susan Shabangu, who presided over the opening of the R1-billion ferromanganese expansion, south of Johannesburg.

In doing so, Metalloys is placing no additional electricity burden on the hard-pressed State power utility, Eskom, because it cogenerates 20% of its power needs in its own power station, using its own offgas, and it does so at ultralow cost.

“Although the hurdles may sometimes be quite high and the issues difficult and complex, with the close collaboration between big business, communities, government, employees and all stakeholders, it can be done, right here in South Africa,” said BHP Billiton Manganese South Africa president Ravi Moodley at the opening.

Shabangu said the traditional focus on mining and exporting of unbeneficiated minerals needed to be refocused towards the government’s new beneficiation strategy, which provided a framework to translate the country’s sheer comparative advantage owing to its inherited mineral resources endowment into a national competitive advantage.

The strategy, she said, was aligned to the national industrialisation programme, which sought to enhance the quantity and quality of exports, promote the creation of decent employment and diversify the economy, including promotion of the green economy.

Minerals were a vital input to an industrialisation programme which was intended to accelerate manufacturing in South Africa for local consumption and for export, the Minister added.

Moodley calculated that with the downstream impact of associated industries and the creation of 2 000 mining jobs in the Northern Cape, Metalloys potentially sustained more than 10 000 jobs and, on the safety front, had not suffered a single fatal accident in the past 15 years.

The new M14 furnace is the latest of four large furnaces at Metalloys and of a size last built in South Africa 35 years ago.

The new 81 MVA furnace, built in 16 months, has a capacity to produce 120 000 t of high-carbon ferromanganese a year, with BHP Billiton’s marketing unit supplying ferroalloys and manganese ore to mainly the US and Europe and also India, Japan, China and South Korea.

Samancor Manganese’s Metalloys, operated by BHP Billiton, is the world’s largest integrated producer of manganese units.

The company owns two BHP Billiton-run mines that supply manganese to the alloy plant at Midvaal, in Gauteng.

BHP Billiton manages all the operations of Samancor Manganese, in which it has a 60% share, with the remaining 40% held by Anglo American.

The chamber president, who is also the CEO of Anglo American and who delivered a powerful address at last week's Mining Lekgotla, points out that the products of the South African mining industry already support 25% of industrial and other economic activities, beyond its 19% contribution to the South African economy.

The sector already contributes significantly in that 99% of South Africa's cement is manufactured locally from locally mined products; 30% of South Africa’s liquid fuels are produced from locally mined coal; 94% of the country’s electricity is produced from locally mined coal and most of South Africa’s domestic chemicals, fertilisers, waxes, polymers and plastics make use of locally mined minerals and coal.

Overall, another R300-billion in sales value and more than 200 000 jobs are created in the downstream beneficiation industries.

“So importantly, when we discuss the mining sector’s contribution to beneficiation and the impact that mining natural resources has on benefiting the nation and the world as a whole, please know that we’re already making an impressive impact,” the chamber president adds.

Edited by Creamer Media Reporter

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