Gwede Mantashe. Picture: SUNDAY TIMES
Gwede Mantashe. Picture: SUNDAY TIMES

Until SA has sorted out its electricity prices and constraints, beneficiation, which is the upgrading of the value of mined minerals, will happen offshore, says mineral resources & energy minister Gwede Mantashe.

While not being drawn into debating the merits of the economic strategy blueprint released by the Treasury at the end of August, which argues for a change in thinking around beneficiation, Mantashe concedes that electricity-intensive processing of minerals is deeply problematic.

Mining itself has buckled under a rapid escalation in electricity tariffs from debt-laden and mismanaged state-owned Eskom. Prices for mining companies have increased 523% since 2006, according to the Minerals Council SA.

Mantashe has spoken of the introduction of administered power prices for large industrial users such as mining companies, smelters and manufacturers, giving them cheaper electricity.

“What is it we are going to beneficiate? Mining must be productive to give feedstock,” Mantashe says.

“You must do exploration, extraction, you must have the minerals and then you can beneficiate. That beneficiation will happen if the price of electricity is affordable.

“If electricity is not affordable, our chrome, iron ore and manganese will go to Asia for beneficiation and we’ll buy it back. Our electricity is too expensive and it kills any initiative for beneficiation in mining.”

The Energy Intensive Users Group has said more than 40 furnaces that produced ferroalloys in the manganese and chrome industries have been shut, mainly due to the cost of electricity. SA is now the largest exporter of chrome ore to China, which makes ferrochrome for the stainless steel industry. SA was once the largest producer of ferrochrome.

The 77-page Treasury document, intended to fuel discussion on developing a fresh strategy for SA’s stalled economy, calls for beneficiation in the minerals industry to move up the value chain into the primary industries supplying mines with machines and technology, giving the economy a much-needed boost in industrial capacity.

“SA’s industrial base was founded on supplying the mining industry. It is a globally competitive industry supplying mines across Africa and the world,” says Paul Miller, MD of CCP 12J Fund, who is seeking these types of businesses in which to invest.

“We should provide incentives where we already have a comparative advantage. Creating completely new industries to compete against vastly more established competitors like diamond cutting and … jewellery manufacturing doesn’t seem to be a sensible use of resources,” he says.

The department’s website notes that beneficiation will be forced on the industry through regulations and policies, with the government at one stage talking about ring-fencing minerals it deemed strategic and compelling their sale at “developmental prices” to give manufacturers access to cheap raw materials.

Forcing beneficiation on the industry is difficult. SA’s track record in some areas of beneficiation has been poor. In the diamond cutting and polishing industry, there are fewer than 300 companies adding value to SA’s diamonds, down from 4,500 20 years ago.

For a senior executive in the platinum group metals industry, the proposal in the Treasury document is a most welcome development, potentially changing the nature of beneficiation into creating a manufacturing business to supply mines with local equipment, machinery and equipment more cheaply than imported items.

“Beneficiating minerals, the mines just can’t do it and we won’t do it. Our shareholders won’t support it. But the industrialisation of our inputs, machines, technology, that is very important to us and miners can support that,” said a CEO who declined to be named.