Beneficiation – the good, the bad and the necessary

Grant Thornton MD for Asia Business Services Lauren Patlansky (Supplied)

Grant Thornton MD for Asia Business Services Lauren Patlansky (Supplied)

Without its rich mineral deposits, South Africa would be a different place – there would be no Johannesburg, the economy would not be nearly as advanced as it is, our infrastructure far less developed and the country’s history would have taken on a different shape.

For more than a century, companies from around the world have mined in South Africa, paying for their share of our geological resources with foreign capital that was in turn used to build infrastructure and fund the growth of a nation.

Historically, the only price for extracting South Africa’s minerals and shipping them elsewhere involved the payments of taxes and royalties.

But allowing our mineral wealth to be stripped and shipped without bringing any direct benefit to the nation will soon be a thing of the past, as South Africa seeks the local beneficiation of its mineral resources, transforming them into higher value products, which can then be consumed locally or exported.

Addressing beneficiation

The government has made beneficiation policies a central part of its New Growth Path (NGP) economic development plan to “start reaping the full benefit of our commodities,” as stated by President Jacob Zuma in his 2011 State of the Nation address.

ENSafrica director in the mining business area, Otsile Matlou, said beneficiation is what the resource-rich countries of the world are looking at.

"The concept is not just a mining issue, but also a socio-economic one: it is no longer adequate for mine producing countries to mine and export raw materials.

"The trend is not to mine the mineral, concentrate it, then make mineral products with it, rather than mine it and ship it elsewhere for others to make something with it, only to then sell it back to where it originated.

“Beneficiation needs to happen. In a country with high unemployment, the process would create more jobs. We have a diamond industry, but our diamonds are cut elsewhere.

"The same applies to platinum – the mineral is shipped elsewhere, made into autocatalytic converters and sold back to us.

"Our coal is much the same – apart from the coal that is washed and crushed to sell to Eskom to power South Africa, our coal is exported to foreign shores.

“Our gold industry has the right idea: we mine it and refine it – Rand Refinery in Germiston is the largest gold refinery in the world. South Africa has the largest share of minerals in the world, and we should beneficiate more,” said Matlou.


The concept sounds simple, but in reality there are complications.

Mining is notoriously capital intensive, and projects are financed decades in advance. Before providing funding, financial institutions need assurances not only of sound skills and resources, but also of buyers.

Included in a project’s bankable documents is usually an off take of supply agreement, typically for a long term, committing the sale of the raw materials to an offshore buyer.

The introduction of a beneficiation policy with minimum local supplies would force the mining company to breach its loan conditions, jeopardising all such agreements.

Other complications include international trade obligations and bilateral investment treaties between South Africa and the more than 100 countries with whom we have trade agreements.

“For all these reasons, the question of local beneficiation is difficult to resolve.

Most agree the concept is good, but the financial and economic practicalities of the concept make it difficult to put into practice,” said Matlou.

Some, however, believe beneficiation makes little sense. Grant Thornton MD for Asia Business Services Lauren Patlansky said beneficiating to create jobs is an ineffective solution to South Africa’s unemployment problem.

“A more practical and long term solution is to identify the key factors that will attract investors. Investment creates opportunity, and out of opportunity naturally flows job creation and employment,” says Patlansky.

The other reality to consider, pointed out Patlansky, is that while the mining sector deals in mining extraction, mineral beneficiation crosses over into the manufacturing sector.

That will mean dealing with the complexities of labour forces from not one but two different industries, further complicating what is already a highly unionised mining sector.

Paul Collier, director of the Centre for African Economies at Oxford University, also believes beneficiation is not the answer to easing South Africa’s high unemployment rate.

“Governments become wrongly fixated about value added downstream.

"For most minerals, beneficiation does not make sense – there are far better prospects upstream. "The big opportunities to generate jobs lie in the setting up of infrastructure around a mine, like putting in roads, a railway line, power and water to supply the mine.

"This not only provides jobs for the duration of the life of the mine, but builds a thriving community of people whose livelihoods are dependent on the success of that mine.

“Upstream makes for more sense if you stop thinking parochially – this mine and this country, and have a broader view, thinking for the good of the sector and the region,” said Collier.

This article forms part of a supplement. Content was sourced independently by the Mail & Guardian supplements team.