The need to step up
Beneficiation cannot take place by command or at the whim of government officials, it can occur only where it makes economic sense to do so and where the necessary conditions are in place to make such value-adding initiatives viable and sustainable.
In fact, says Mark Tyler, head of mining and resources for Nedbank Capital, South Africa enjoys a measure of success in beneficiating imported materials because, in some instances, these desirable conditions do exist.
For example, South Africa imports alumina and coke from Australia and converts these materials into aluminium at Richards Bay, because it is economically feasible to beneficiate Australian raw materials locally, given the country’s continued access to relatively cheaper electricity despite the current power and energy woes.
At one stage, Tyler says, India’s giant Tata multinational group was considering beneficiating Indian ferrochrome at Richards Bay. It set up a smelter at the northern KwaZulu-Natal port with the intention of importing Indian chromite and converting it into ferrochrome—again driven by the fact that the cheaper electricity and input costs made it economically viable.
On the other hand, says Tyler, it is futile to put pressure on people to beneficiate diamonds in South Africa when it does not make economic sense—because even though labour is readily available, productivity and skills levels do not match those of Israel, for example, where South African-produced, high-quality diamonds are cut.
“We’ve had a competitive advantage in the raw materials that require electricity for conversion, so with coal, aluminium and to a certain extent iron ore and steel it makes sense to beneficiate in South Africa.” In instances where South Africa has the raw materials and the technology to match, beneficiation becomes an economically viable option, Tyler says. The prime example is the enormous success story of platinum, which is beneficiated to the absolute maximum in South Africa. It is converted to bullion, to bars or to platinum jewellery, with the major use being its conversion to autocatalysts (catalytic converters) for use in motor vehicles.
“The platinum industry has set the benchmark for beneficiation,” says Tyler, “and you can’t do any better than they have done. When it comes to the precious metals side of the platinum industry, they have the technology available and the government’s Motor Industry Development Programme (MIDP) provides useful input. Motor manufacturers that include South African-made catalytic converters in their motor vehicles—or export these autocatalysts for use in other countries—are entitled to receive import incentives.
He says: “The platinum industry in South Africa understands platinum chemistry. They are able to set up the manufacturing operations—which are quite capital-intensive as opposed to being labour intensive, so there is not too much of a skills problem—all of which help to make the case for establishing the industry in this country.” This is despite the fact, Tyler says, that the platinum industry suffers a competitive disadvantage in that catalytic converters are transported mainly by air, incurring high transportation costs in exporting catalytic converters from this country.
In an attempt to step up the pace and the range of beneficiation South Africa should take the opportunity to make the whole of its manufacturing industry more competitive, Tyler says. He points out that manufacturing operations have been set up to manufacture jewellery-type products with some success. In sectors such as diamond cutting works there has been some progress made in setting up various initiatives to get the highly automated diamond cutting end of the market, which primarily involves the cost of capital goods, under way in South Africa, Namibia and in Botswana.
So what are the key priorities and challenges ahead in stepping up South Africa’s beneficiation drive? The primary need, Tyler says, is skills development. “We need to develop our manufacturing skills and to increase the level of skills in the country. At present we have an abundance of labour and a paucity of skills. That’s untenable, and the higher you go up the value chain, the more labour intensive the industry becomes. We are uncompetitive, not necessarily because our costs are high, but because skills and productivity levels are low.”
The second priority in Tyler’s view, particularly for those industries that are heavily dependent on a reliable electricity supply, is to resolve South Africa’s power crisis. He believes this is achievable, but that skills development is likely to be more complicated and complex. “I believe we will have to go through a period where we import some skills and let people learn from these skilled craftsmen and women at a practical level. It’s not about putting people through schools—its going to need extensive on-the-job training.
“Then we need to persuade government to become more involved in areas of beneficiation that make economic sense—not to command beneficiation, but to intervene where necessary in initiatives to improve the transportation network for example, to intervene more in skills development and generally to work to make the entire spectrum of South African industry more competitive.” There are international role models for this, he says.
These include the “island industries”, such as Singapore, which beneficiates a wide range of imported raw materials with spectacular success and is a global manufacturing centre. “They make sure that their labour supply is productive even though it is quite expensive in Singapore. The infrastructure is in place to do the conversion work and they make sure that the ports, railways and electricity supply functions reliably and efficiently.
“Even the United Kingdom has a worthwhile beneficiation story to tell, but there are only rare instances where officials have commanded the mineral producers in a country to somehow add value and where any notable success has been achieved.”