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Evolving government policy aims to enhance the value of the country’s resource output and create jobs. And a new manganese furnace may be proof that it’s working.
A 2010 estimate from Citigroup (NYSE:C) identifies South Africa as the most resource-rich nation on Earth, with more than $2.5 trillion worth of reserves (not including energy resources such as oil and gas). The country is home to the world’s largest reported reserves of gold, platinum group metals, chrome ore and manganese ore, according to the South African government’s National Planning Commission.
South Africa is a particular standout in manganese: according to the US Geological Survey, the country is home to 75 percent of the world’s identified manganese resources. It was the number-one producer in 2012, with 3.5 million metric tons (MT) of output. However, it has struggled to increase its output, mainly because of antiquated or absent transportation infrastructure. Last year, for example, Gabon and Australia, which in terms of production come fourth and fifth, respectively, increased their production at a faster rate than South Africa; Gabon aims to become the leading producer of manganese within the next four years.
In addition, South Africa continues to export the bulk of its commodities as ores or in semi-processed forms, rather than as fully processed or finished products (such as jewelry), which carry a much higher value. That, along with the nation’s 24.9-percent unemployment rate, has spurred the government to develop a beneficiation strategy that aims to process more minerals in South Africa. The government hopes that it will create jobs, spur domestic resource consumption and lead to a more modern mining industry.
“As part of addressing the triple challenge of poverty, inequality and unemployment, government has developed a beneficiation strategy, which seeks to provide opportunities in the downstream part of the minerals sector,” said South African President Jacob Zuma in his February 2011 State of the Nation address.
Broad strokes of beneficiation plan begin to emerge
In June 2011, the government released its Beneficiation Strategy for the Minerals Industry of South Africa, which provides a road map for its approach.
“In 2008, gross revenue from sales of all minerals in South Africa amounted to just below R300 billion,” the policy document states. “Similarly, just over R86 billion was generated from processing of base metals, precious metals and other minerals, which represented 11 percent of the total volumes of minerals produced. This represents the national opportunity loss in export revenue and employment creation opportunities.”
The document names 10 minerals, including manganese, that the government sees as holding the most potential to gain from beneficiation. It also identifies five value chains that will be the focus of the government’s plan.
In the case of manganese, the policy aims spur the production of steel, for which manganese is essential, by increasing competition in the local steel industry. The policy also aims to facilitate the development of new steel and stainless steel plants in the country itself. Further, the document recommends investigating “mechanisms to protect and support the competitiveness of existing intermediary plants, such as ferro-chrome smelters.”
At the same time, the government has been investing heavily in transportation infrastructure to support the industry. As we reported last year, in September, the country assembled and tested its first-ever distributed power train for manganese at the new Tshipi Borwa mine, which recently blasted its first ore. In addition, South Africa has announced a 300-billion-rand (US$32.5 billion) plan to boost railway capacity, build and upgrade port facilities and add new fuel pipelines.
South Africa is not the only nation pushing miners to process more ore locally. Leading tin producer Indonesia, for example, plans to ban the export of a number of unprocessed mineral ores starting in 2014. There’s no sign that South Africa is planning to go that far. Last year, South African mines minister Susan Shabangu said the country’s beneficiation initiatives won’t lead to a “complete ban on exports.”
Recent developments show beneficiation is picking up steam
Two developments in recent weeks provide evidence that the government’s plan is moving forward. The first is the introduction of a new research and development (R&D) tax credit for mining companies. As BDlive reported, the new tax will provide an additional 50-percent income tax deduction on eligible R&D expenses.
Secondly, earlier this month BHP Billiton (NYSE:BHP,ASX:BHP,LSE:BLT) opened a fourth furnace at the Metalloys manganese smelting plant, owned by its 60-percent-owned subsidiary, Samancor Manganese. The new furnace has the capacity to produce 12,000 MT of high-carbon ferromanganese a year and will allow BHP to process 30 percent of the manganese ore that it mines locally, according to a March 6 Metal-Pages article.
In all, BHP has invested $1 billion rand ($83.7 million US) in the plant, which has the capacity to produce 120,000 MT of high-carbon ferromanganese a year. The facility will also contribute carbon dioxide to an onsite power-generation plant, which will help lower the smelter’s dependence on local power grids.
Shabangu, who was on hand to open the furnace, sees BHP’s investment as a clear win for the government’s plan. “Ladies and gentlemen, this project is positive proof that the Government’s vision of increased mineral beneficiation is beginning to take shape, and that it will happen within the context of sustainable development, as the technical specifications of this furnace show,” she said in a speech that was later posted on the government website.
Securities Disclosure: I, Chad Fraser, hold no positions in any of the companies mentioned in this article.
Related reading:
Gabon Aims to be the World’s Leading Manganese Producer