There is a very clear need for government and industry to come together to address the problems facing South Africa’s mining industry, particularly its chrome sector, say global energy and resource specialist consultancy Venmyn Deloitte MDs Andy Clay and Chris De Vries.

Clay notes that, with between 70% and 80% of the world’s chrome located in South Africa, the mining of chrome for supply to the steel industry is a strategic and well-established sector in the country. With the development of upper group two (UG2) ores in the platinum industry over the past 15 years, together with the steady rise of operational costs, the local chrome industry finds itself in a challenging position, despite the abundance of the commodity.

Clay explains that, initially, UG2 ores were not considered to be feasible for platinum production, owing to their high chrome content, or viable sources of chrome by large, established ferrochrome smelters, which preferred higher-quality lower-group and middle-group chrome ores. In trying to extract the maximum value from South Africa’s natural resources, however, the platinum-group-metals (PGM) industry has increasingly been exploiting UG2 ore, recovering PGMs and selling the surplus chrome to the international market at relatively low prices.

Clay highlights that most of this low- priced chrome has been sold to ferrochrome smelters in China, while South African ferrochrome smelters – using higher grades of chrome and subject to escalating power and labour costs, as well as restricting regulations – have been increasingly unable to remain price competitive.

The concerns of high operating expenses, predominantly influenced by high power and labour costs, and untenable regulations are not unique to the chrome industry but prevalent across many mining sectors in South Africa.

Clay urges government and industry to come together to consider dynamic ways of addressing the problems and negotiating a path forward if the country is to make the most of its natural resources.

“The South African mining industry was relatively stable until the introduction of the Mineral and Petroleum Resources Development Act of 2002 in 2004, which effectively gave unfettered access to anybody who wanted mineral rights.”

This led to China becoming a big disrupter in the supply and demand balance of many of South Africa’s key industries, states Clay, pointing out that the mining industry has made it abundantly clear to government that South Africa has a significantly valuable and varied minerals and metals footprint, which needs protecting.

“Chrome has always been seen as a significant strategic advantage to South Africa; however, the preservation of this advantage presents a conundrum. Should the sale of UG2 ores to China be restricted, this would be detrimental to South Africa’s PGMs industry, but highly beneficial to our chrome industry,” he explains.

De Vries points out that the smaller ferrochrome smelters operating with limited chrome resources have been put under care and maintenance and gone into business rescue. Subsequently, only a few larger companies, which have the necessary scale to prevail in these conditions, dominate the local market.

He adds that another factor that may have a bearing on the market, however, is the dearth of capital expenditure in the PGMs industry over the past five years, which could see a reduction in UG2 output in the near future. De Vries highlights that this could potentially improve ferrochrome producers’ competitive advantage.

Regardless, he maintains that a key area of focus in South Africa needs to be the beneficiation of metals. “As South Africa has the bulk of the world’s chrome, we should be able to mine and beneficiate it competitively. However, this is not the case under present conditions, therefore, we either need to find a way to recover that position or face the reality that only the major ferrochrome producers are going to be able to survive, while the rest of the country’s chrome is exported in an unbeneficiated condition.”