Manganese: Power before promise

The manganese industry has a lot in common with the platinum industry – they are both mining sectors with huge potential for development and for black economic empowerment ventures in South Africa.

But whereas the platinum industry is experiencing a storm with higher costs and lower selling prices, ­resulting in a rash of mine closures, manganese is only facing choppy waters – for now.

About seven new BEE mines in the Kalahari manganese field, west of Kuruman in the Northern Cape, are gearing up to begin production to supply the local and international steel industry.

The price of platinum depends mainly on ­vehicle sales, so the price tends to be volatile. Manganese, however, is essential for steelmaking and, since the rise of manufacturing in China, industry observers are hopeful that prices have stabilised and will not sink below current levels.

Since the international economic meltdown in 2008 manganese prices have fallen to about $3.50 to $5 a tonne, compared with about $12 a tonne at the height of the boom.

<strong>Frustration</strong>
If the government wants to help the manganese industry, it must hasten the support infrastructure &ndash; rail capacity and electricity supply. The lack of proper infrastructure caused the industry to miss the manganese boom in the decade before 2008 when South Africa could have more than doubled its production of the metal for export.

Observers say the frustration of established and new manganese miners in the Kalahari manganese field with the slow bureaucracy of Transnet, Eskom and the government is palpable.

As in the platinum industry, setting up new mines with junior miners &ndash; joint ventures between black empowerment groups and foreign or local companies that provide finance and expertise &ndash; has mushroomed since the Mineral and Petroleum Resources Development Act was passed in 2004. The Act, which forces holders of mineral rights to use them or lose them, has been successful in achieving greater mining activity.

Among others, ANC investment company Chancellor House Holdings has taken the opportunity and focused strongly on the minerals and energy sector. It has a stake in one of the new manganese ventures that has been described as being worth at least a billion rand.

About half of the seven new juniors in the manganese industry will start producing ore within the next year.

<strong>Tough conditions</strong>
By contrast, the platinum sector has recently been rocked by repeated announcements of closures by major  listed companies. The Bushveld igneous complex where platinum is mined is teeming with new, smaller companies that have gained mining rights in partnership with BEE entities, but are now facing tough conditions. Some of the smaller companies have closed or even gone insolvent without a mention in the mainstream press, according to Andy Clay, managing director of Johannesburg-based mining advisory company Venmyn.

The other boom sectors in the South African mining industry &ndash; iron ore, chrome and coal &ndash; also face increased costs. In the coal industry, where barriers to entry are much lower than in platinum or manganese, boom conditions still prevail because of strong export prices and the assurance that Eskom will buy production anyway.

But as with the other boom sectors, there is disappointment that costs have been much higher than necessary because of the lack of infrastructure.

Until the start of this decade, the manganese sector was dominated by two giants, Samancor and Assmang. These white-owned companies sat atop the best deposits in the industry  and they were mainly low-cost, open-cast operations. These two companies continue their activities following BEE deals and still account for most of the production.

Nonetheless, there is no reason to be depressed. The Kalahari manganese field accounts for about 80% of all of the world's manganese that can be mined and the area is bursting with high-grade ore &ndash; although, as time goes on, mining will increasingly have to take place underground and, therefore, cost more.

<strong>Considerable increase</strong>
In the shorter term, said Clay, the new companies in the Kalahari manganese field would account for 18% of world production within two years, a considerable increase in supply into a weakened market.

Most mineral prices are volatile, but the first of the new ventures moving into production are likely to have high enough margins and relatively favourable contracts to make good profits, whereas later entrants might not be as successful as supply to the market increases.

If ventures require further financing, the black empowerment partners will generally not have the funds to follow rights issues and their ­holdings will be diluted. Most of the BEE partners in the joint ­ventures hold 51% at present.

But the linchpin factor for everyone in the sector remains infrastructure. The existing rail infrastructure is overburdened and, at times, the desperation for transport has been so severe that shipping containers, which are normally used for lighter goods, have been loaded one metre deep with manganese.

Transnet has undertaken to add additional rail capacity from the remote manganese fields to Coega near Port Elizabeth to handle the new production. But this will take about five years. In the meantime, the new mines are likely to have to truck their ore to the port, which will cost about 75% more than it would by rail.

<strong>Sizeable increases</strong>
Such transport difficulties would be reduced if miners heeded the government's exhortation to add value to the product. But adding value in the manganese industry mainly means creating smelters, which consume large amounts of electricity.

Although South Africa still has ­relatively low electricity tariffs, the sizeable increases in recent years &ndash; and more on the way &ndash; make such investments relatively unattractive. Also, in the Kalahari manganese field at least, electricity at any price is simply not available. However, at least one emerging manganese producer is setting up a smelter at Coega.

Add to the infrastructure problems the possibility of "compulsory indigenisation" in whatever form, and "people just don't want to open their factories here", said Clay. They are more likely to continue investing in the Far East, where most of the world's smelter capacity lies, and even in Gabon in central West Africa, which is making hefty efforts to encourage investment.

The world price of manganese and the grades of the new mines will determine which of them thrives and whether any close.

Clay suggested that, because South Africa had 80% of the world's high-grade manganese ore reserves, "if we were able to control delivery &ndash; as a big company like BHP Billiton is currently trying to do with copper &ndash; we would have more control over prices".

"The European Union would protest, but the EU shouldn't be allowed to dictate to us," he said. "As in the fishing industry, perhaps quotas for production should be considered.

"Internationally, the mining industry is still in reasonable condition because there is a shortage of new good resources. There is great potential in South Africa in, for instance, manganese, iron ore, chrome, platinum and coal. But if you don't ­dominate the resource, then globalisation means that if you don't make investment attractive, people will just go elsewhere," said Clay.

"The South African government has said it doesn't want simple 'dirt diggers'. But some companies, among them the world's biggest ­mining companies, don't want to beneficiate &ndash; they just want to mine.

"Australia, for instance, is having considerable success as a nation by concentrating on mining. They are not saying they don't want dirt diggers."

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