RADS

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PCTI/20140826/CoB/PJ/33 Mineral Value
Chains (MVCs) Resource-based Industrialisation? M
inisters IPAP Update Briefing Paul Jourdan DTI,
Tshwane, April 2013
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MVC Study SOW
Review of existing work, policies and strategies related to the development of key backward forward linkages for the 4 value-chains
Develop broad policy directions for the beneficiation strategy and concrete proposals for the 4 value-chains
Value chain analysis including industry mapping and analysis, ID of key challenges and opportunities, state levers to address the challenges/opportunities and the prioritisation of policy/strategy proposals
To increase the backward VA (local content) of the minerals sector (from exploration, through mining, concentration, smelting, refining to beneficiation for the supply of critical feedstocks into manufacturing).
Which key sub-sectors/products of SA minerals capital goods sector can be grown/developed to take advantage of key procurements of mining activities, i.e. High-level sectoral mapping
How the Mining Charter ( MPRDA) can be leveraged to increase procurement of SA produced capital equipment
How the offset provisions of the MPRDA can be leveraged to promote access to raw materials (including competitive pricing ) and unlock downstream industrial projects
Development of key concrete action plans for the 4 value chains, including Detailed industry analysis Key opportunities challenges for further downstream beneficiation, including use of "producer power Identification of industrial opportunities and the development of investment projects, taking into account SA infrastructure constraints.
3
Structure of Each MVC Report
SA situation
International context
Downstream Mapping
Downstream SA Opportunities
Downstream Strategy (Options)
The upstream value added of each mineral value
chain will be consolidated into a single report
as they tend to be common mining, mineral
processing and beneficiation inputs (capital
goods, consumables and services)
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DTI/IDC Mineral Value Chains (MVC) Study

• Project Elements and Time-line for Reports
• MPRDA Review Report - January 2013
• MVC Context Report February 2013
• Ferrous MVCs Report April 2013
• Coal/gas MVCs (Polymers) Report June 2013
• Titanium MVCs Report August 2013
• PGM MVCs Report October 2013
• Mining Inputs Report November 2013
• Close-out (composite) report December 2013

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IPAP Underlying Principles and Outcomes

• IPAP predicated on need to bring about
  significant structural change in the economy
  reverse the threat of deindustrialisation and
  strengthen diversified manufacturing base,
  especially in value adding, labour intensive
  strategic sectors.
• Predicated on state supporting, nurturing and
  defending industrial development. Seeks to assert
  state leadership in a context where state largely
  steers but does not row
• Identifies a range of complementary interlocking
  policies that require alignment, and in some
  cases subordination to, Industrial Policy, such
  as aspects of macro policy, trade policy, dfi
  finance, skills policy, regional integration,
  technology and innovation etc
• Predicated on stronger developmental
  conditionalities and reciprocal obligations from
  beneficiaries of state support in areas such as
  competetiveness upgrading employment retention
  and creation, investment etc.

6
IPAP Opportunities

• Beneficiation
• Resource endownment constitutes single biggest
  opportunity for competitive advantage
• the dti has launched a comprehensive research
  project that will develop a strategy to identify
  commercialisation opportunities in projects for
  forward beneficiation and backward supply chain
  development in key mineral value-chains
• Key consideration is required alignment with
  amendments to Mineral Petroleum Resources
  Development Act (MPRDA) to secure developmental
  prices
• Infrastructure development
• Regional industrial integration and new export
  markets
• Local procurement and supplier development
• BRICS

7
South Africa is well-endowed with mineral
resources
South Africas Mineral Reserves, World Ranking,
2009 Production Nominal Life (assuming no
further reserves) at 2009 Extraction Rates
Mineral RESERVES RESERVES RESERVES PRODUCTION 2009 PRODUCTION 2009 PRODUCTION 2009 LIFE
Mass World Rank Mass World Rank Years
Alumino-silicates Mt 51 0.265 60.2 1 192
Antimony kt 350 16.7 3 3 1.6 3 117
Chromium Ore Mt 5500 72.4 1 6.762 1 813
Coal Mt 30408 7.4 6 250.6 3.6 7 121
Copper Mt 13 2.4 6 0.089 146
Fluorspar Mt 80 17 2 0.18 3.5 5 444
Gold t 6000 12.7 1 197 7.8 5 30
Iron Ore Mt 1500 0.8 13 55.4 3.5 6 27
Iron Ore - incl. BC Mt 25000 10 55.4 3.5 6 451
Lead kt 3000 2.1 6 49 1.2 10 61
Manganese Ore Mt 4000 80 1 4.576 17.1 2 874
Nickel Mt 3.7 5.2 8 0.0346 2.4 12 107
PGMs t 70000 87.7 1 271 58.7 1 258
Phosphate Rock Mt 2500 5.3 4 2.237 1.4 11 1118
Titanium Minerals Mt 71 9.8 2 1.1 19.2 2 65
Titanium- incl. BC Mt 400 65 1 1.1 19.2 2 364
Uranium kt 435 8 4 0.623 1.3 10 698
Vanadium kt 12000 32 2 11.6 25.4 1 1034
Vermiculite Mt 80 40 2 0.1943 35 1 412
Zinc Mt 15 3.3 8 0.029 0.2 25 517
Zirconium Mt 14 25 2 0.395 32 2 35
Source SAMI 2009/2010, DMR 2010 and Wilson
Anhaeusser 1998 The Mineral Resources of South
Africa, CGS Pretoria (for BC- Bushveld Complex)
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The in-situ value of South Africas mineral
resources is estimated at an astounding 6.24
trillion (2012). By value they comprise
Mineral Percentage
Precious Metals 60
Ferrous Metals 19
Energy Minerals 15
Base Metals 3
Industrials 2
Precious Stones 1
Total 100
Source EcoPartners 2012, www.ecopartners.co.za
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Main Formations Bodies

• The Witwatersrand Basin Gold (gt90 of current
  production), as well as considerable resources of
  uranium, silver, pyrite osmiridium
• The Bushveld Complex PGMs with associated
  copper, nickel cobalt. Also, chromium (chromite
  seams) and vanadium titanium bearing magnetite
  (iron ore) seams, as well as industrial minerals,
  such as fluorspar andalusite
• The Transvaal Supergroup Large resources of
  manganese iron ore
• The Karoo Basin Considerable bituminous coal
  anthracite resources
• The Phalaborwa Igneous Complex Copper,
  phosphate, titanium, vermiculite, feldspar
  zirconium
• Kimberlite pipes Diamonds (also occur in
  secondary alluvial, fluvial and marine deposits)
• Heavy mineral sands Titanium (ilmenite
  rutile), zircon and magnetite, mainly in coastal
  paleo-dunes
• Bushmanland Group lead-zinc with copper silver.

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Only a few areas are endowed with mineral assets
Most parts of SA have little on no economic
minerals!
Source www.cgs.gov
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Global Context (demand)
Global Minerals Intensity of GDP (steel proxy)
Source Adapted from http//advisoranalyst.com
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What is Beneficiation?

• Narrow definition
• Value-added above a base state (ore, conc,
  metal)
• Broader definition
• Total domestic value-addition (excluding all
  imported inputs)

Imports local VA
Imports local VA
Imports local VA
Imports local VA
Imports local VA
Imports local VA
Ore exports Bene ?VA
Conc exports Bene ?VA
Alloy exports Bene ?VA
Metal exports Bene ?VA
Int. exports Bene ?VA
Beneficiation is the sum of local VA in the
exported product VA in all inputs plus the VA
in the process. both backward and forward
linkages
Manu. exports Bene ?VA
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However,
In addition to the beneficiation embodied in the
final exported product (?VA all up/downstream
VA), there is also indirect beneficiation to
the wider economy through building the national
factor infrastructure endowments.
Justin Lin argues that a developing country can
change its industrial and economic structure by
changing its endowment structure consisting of
both its factor endowments (land/natural
resources, labour, and physical human capital)
and its infrastructure endowments both
hard/tangible infrastructure and soft/ intangible
infrastructure (institutions, regulations, social
capital, value systems, etc.).

• Thus, indirect beneficiation in the wider economy
  includes
• Building the knowledge linkages (human capital
  tech)
• Building the spatial linkages (hard
  infrastructure)

However, in order to change the factor and
infrastructure endowments, the resource rents
need to be reinvested in building them. Fiscal
Linkages
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The MVC cluster the 5 key beneficiation
linkages
5. FORWARD Value-addition (beneficiation) Export
of resource-based articles
1. FISCAL Capture invest of resource rents
(RRT) in long-term economic physical human
infra (inter-generational)
Use depleting assets to change national endowment
structure
4. KNOWLEDGE Linkages (HRD RD) Nursery for
new tech clusters, adaptable to other sectors
2. SPATIAL Puts in critical infra-structure to
realise other economic potential could
stimulate LED
3. BACKWARD Inputs Capital goods, consumables,
services, (also export)
HRD, RD
Narrow beneficiation forward linkages Total
product beneficiation back- forward linkages
(?VA), Total economy-wide beneficiation all
the linkages
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The MVC cluster (Mineral Linkages)
Spatial Linkages Infrastructure (transport,
power, ICT) and LED
Forward Linkages Intermediate products
gt Manufacturing Logistics other sectors
(agriculture , forestry, fisheries, etc.)
Backward Linkages Inputs Capital
goods Consumables Services
Resource Extraction Mining Concentration,
smelting, refining gt metal/alloy
Fiscal linkages Resource rent capture
deployment long-term human physical
infrastructure development
Knowledge Linkages HRD skills formation RD
tech development Geo-knowledge (survey)
Knowledge linkages are a prerequisite for
developing the crucial back/forward
beneficiation linkages!
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MVCs and Mineral Deposit Variability

• Mineral deposits embody a massive variation in
  resource rents (returns above those necessary to
  attract investment average return on
  investment ROI), much greater than any other
  sector except for hydrocarbons (oil and gas).
• In SA ROI in mining varies from average (ca 15,
  e.g. marginal gold deposits) to several hundred
  percent (e.g. iron and manganese ore deposits)
  resource rents.
• Consequently it is difficult to design a minerals
  regime with generic linkage conditions (local
  content, value-addition, skills formation, etc
  milestones) that will efficiently maximise the
  potential development impact of all deposits over
  time.
• In general, a mineral regime will set minimum
  linkage development obligations in order to make
  investment into marginal deposits attractive.
• The best way to flush out the maximum linkage
  development that any specific mineral deposit
  could support, would be to get a market response
  through the public tender of the property against
  linkage development commitments (a form of
  developmental price discovery).

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Hybrid free mining (FIFA) and tender system
Customising mining leases to max MVCs
Define 3 Types of Mineral Terrains
2.Partially Known
3.Known Mineral assets
1.Unknown Mineral assets
Mining Concession/Licence
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Hybrid free mining (FIFA) and tender system
Customising mining leases to max MVCs
Define 3 Types of Mineral Terrains
2.Partially Known
3.Known Mineral assets
1.Unknown Mineral assets
However, this hybrid regime requires substantial
amendments to the MPRDA!
Mining Concession/Licence
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The resource curse can be avoided! Deepening
the resource sector linkages development of the
resource inputs outputs industries is critical
, but requires the development of a resources
tech capacity!
Finland e.g. Forestry- grew capital goods
(machinery) value-added exports (wood
manufactures, pulp/paper) Thru investment in RD!
Finland managed to shift from a 1970 resources
(pc) trajectory to a 1998 manufactures (mf)
trajectory, through the development of its
resources inputs (machinery) and outputs
(value-addition) sectors (source Palma, G. 2004)
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Using a natural comparative advantage to develop
a competitive advantage
Finland The mature forestry industrial cluster
1997a

• BACKWARD LINKAGES
• Specialized inputs
• Chemical and biological inputs (for production
  of fibres, fillers, bleaches)
• Machinery and equipment
• For harvesting (cutting, stripping, haulage)
• For processing (for production of chips,
  sawmills, pulverization)
• For paper manufacture (30 of the world market)
• Specialized services
• Consultancy services on forest management
• Research institutes on biogenetics, chemistry
  and silviculture

NATURAL COMPARATIVE ADVANTAGE Abundant forestry
reserves and plantations (400-600m3 per capita)b

• FORWARD LINKAGES
• Roundwood
• Sawnwood
• Plywood (40 of the world market)
• Wood products
• Furniture
• For construction
• Wood pulp
• Paper and cardboard
• Newsprint
• Art paper (25 of the world market)
• Toilet paper
• Packaging
• Special products

SIDE LINKAGES Related activities Electricity
generation Process automation Marketing Logistics
Environment industries (paper) Mining (sulphuric
acid)
a Generates 25 of Finlands exports b
Compared with 25-30m3 per capita in the rest of
the world. (SA has a similar comparative
advantage in minerals)
Source Ramos 1998 p111 (CEPAL Review, 68,
12/1998)
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Linkages in the SA PGM industry and the
relationship between firms (Lydall 2011)
Backward beneficiation
Forward Beneficiation
However, in SA the linkage sectors only provide
1 job for every mining job (CoM), cf 13 in
Finland
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e.g. HC Development Strategy (Norway OG21 tech
strategy)
gtTech exports
gtGas VA
RD HRD Statoil 75k
Extraction ex-linkages
gtresources
gtrecovery
23
In 2011 The Research Institute of
the Finnish Economy (ETLA) completed a major
study on the broader economic impact of their
minerals sector and showed a 61 employment
generation (50 abroad) in other upstream and
downstream industries, due to their
well-developed mineral linkages.
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Resources provide opportunities for up-, down-
side-stream linkages MVCs

• Resources inputs sector (up-stream) has a
  comparative advantage in
• Relatively large local market
• Development of techs for local conditions
• National asset permits for concessioning with
  strong linkages conditionality

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IPAP Metal Fabrication, Capital and Transport
Equipment Ferrous MVC and backward linkages for
all MVCs

• Continuous SOC engagement on supplier development
  and localisation has led to embedding
  localisation policies and programmes at Eskom and
  Transnet with high localisation thresholds
• An Intra-Departmental Task Team Report on Iron
  Ore and Steel adopted by Cabinet, mandating the
  DMR, DTI and EDD to secure a developmental steel
  price amending the Competition Act, measures to
  restrict exports of scrap metals and create
  competition in steel production
• The National Tooling Initiative created to
  increase and strengthen the human capacity and
  competitiveness of the tooling industry. R200
  million provided by the NSF
• DTI instrumental in the opening of R1 bn Safal
  Steel metal coating plant
• National Foundry Technology Network established
  to facilitate the development of the foundry
  industry through appropriate skills training,
  technology transfer and diffusion of
  state-of-the-art technologies
• DTI facilitated an iron ore interim supply
  agreement in December 2012 between Sishen Iron
  Ore Company and Arcelor Mittal South Africa

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Putative strategies to grow the upstream (inputs)
MVCs

• Amend the MPRDA to include upstream value
  addition (backward linkages local content) as an
  objective of the Act and strengthen the
  Ministers power to include such conditions in
  the mining concession/license.
• Make local content commitments a bid variable
  with significant weighting (30?) for all new
  competitive mineral concessions (auctions)
• Base the B-B BEE purchase requirements in the
  Mining Charter on the BEE proportion of local
  value added in the goods or services supplied,
  rather than the total value of the goods or
  services, to eliminate destructive BEE fronting
  for foreign suppliers and to increase the
  upstream developmental impact
• DTI, DMR, EDD and DST to jointly comprehensive
  industrial sub-sectoral strategies to grow the
  mineral upstream sectors (capital goods,
  services, consumables) including the use of
  instruments such as import tariffs, investment
  incentives, innovation stimuli, market access,
  access to finance, competitive inputs, tech
  development, etc.
• Task the nascent SMC and IDC with developing
  appropriate capital goods, with the private
  sector and technology institutions,.
• Establish Beneficiation SEZs e.g. The mooted
  PGM SEZ
• Develop Regional Trade Strategies for growing
  inputs markets

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Backward (upstream) Value Addition (Inputs)
Economies of Scale (exports) are critical to
growing mineral inputs
Share of diversified manufacturing exports, by
region
Source Roberts 2012
Mining Capital Equipment Exports to Africa (mn)
Source Kaplan 2011
Note that this excludes mining based services.
The export of mining-based services is extensive
and growing very rapidly.
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Markets Sub-Saharan Africa World GDP Growth
Source IMF, World Economic Outlook (WEO)
Database, October 2012
Regional Trade Strategies are Critical to Growing
the Backward MVCs
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(No Transcript)
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Downstream Beneficiation Linkages
The Principal Mineral-Based Feedstocks for rapid
JOB CREATION
Critical feedstocks in the economy- Critical feedstocks in the economy-
Manufacturing Steel/alloys, polymers (from coal, HCs), base metals (Cu, Zn, et al)
Energy (electricity) Coal, natural gas (and CBM, shale gas), radioactive minerals, limestone (emissions)
Infrastructure Steel, copper, cement (from limestone, gypsum, coal)
Agriculture Nitrogen (from coal, gas), phosphate, potassium and conditioners (e.g. limestone, sulphides)
Plus - Plus -
Producer power Finally, where SA has potential producer power, there could be increased downstream (beneficiation) potential e.g. PGMs
SA has ample resources for the cost-effective
production of almost all of these critical
feedstocks for downstream job creation!
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Estimates of further downstream beneficiation in
South Africa, (2007 data) Source Adapted from
Migdett 2010 and ANC SIMS 2012
MINERAL Mine production (2007), sales jobs Local beneficiation (sources JM, DMR, SASOL, Rand Refinery, GFMS, PPC, Lafarge, Mittal Steel, Further Beneficiation Jobs (SIMS)
PGMs 304 tons (R78 billion sales, 186 000 employees, etc.) Manufacture export of 16.2 million platinum catalytic converters (15 of world share), 4000-5000 jobs and R22 billion in export value Producer Power 7-14k jobs
Coal 248 mt (R44.2 billion sales, 60 439 workers) Final product 201 929 GWh of electricity (86 of SAs electricity supply), value created R40 billion, 30000 jobs (in Eskom). Final products Synfuels 7.3 mt valued at R29 billion Gas sales 112.9MGJ at R2.7 billion Polymers 1.73 mt at R9.4 billion Solvents 1.72 mt at R13.8 billion Olefins surfectants 2.2mt at R22.6 billion Other (waxes, fertilisers, etc) R13 billion 31 860 jobs, R98 billion in sales, R17 billion in taxes (link to iron ore below) Cost coal to Eskom 10-20k jobs EPP polymers 50-80k jobs
Gold 254 tons (R38 billion in sales, 169 057 employees) 400 tons refined at Rand Refinery (490 jobs), 7.4 tons of jewellery fabricated employing 2800 people , 8.4 tons of coins fabricated employing 100 people 4300 jobs in wholesale retail of gold jewellery. minimal
Iron ore 42.1 mt (R13.4 billion in sales, 13 858 employees) 6.4 mt of local steel production (4.2 mt flats 2.1 mt long products). 4.4 mt local sales 1.4 mt exported with total revenue of R29 billion and 10 000 employees. EPP steel 60-90k jobs
Diamonds 15.25 mc (R10 billion, 20 000 workers) 1.2 mc imported (cost R14.9 billion), 13.9 mc exported (value R13.2 billion), local sales valued at R4.9 billion (value of cut diamonds valued at R6.3 billion), 2000 cutters. minimal
Nickel 37.9kt (valued at R9 billion) Stainless steel production, 650 kt stainless produced worth R12 billion. About 150kt used locally. (jobs?) EPP Ni (included in base metals) 10-20k jobs
Copper 117.1kt (valued at R5.8 billion) Tubing and wire industry (jobs?) EPP Ni (included in base metals) 10-20k jobs
Manganese 6 mt (valued at R3.6 billion) Manganese alloys- 1mt produced. 0.2mt sold locally 0.8mt exported, total sales value R6.5 billion.(jobs2000). Chemical products (jobs?) gtMn alloys 200 series SS 10k jobs
Industrial minerals Total sales value of R7.5 billion Cement industry, 14.2 million tons of local production of cement/- R20 billion industry Fertiliser industry (600kt of fertiliser consumed locally - potash, phosphates, limestone) (jobs) EPP cement 10-20k jobs EPP NPK 10-30k jobs
Chromite 9.7mt (valued at R3 billion) Chrome alloys 3.5mt produced, 0.4mt sold locally, 3mt exported, total sales R17.5 billion (jobs?) Chemicals and refractories gtCr alloys gtFerritic SS gt200 Series SS 5-10k jobs
TOTALS About R213 billion about 450 000 workers Rough sales value created of about R157 billion (conservative) 200-500k jobs (incl. removal of infra constraints)
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Ferrous MVCs
Iron, chromium, manganese into steels specialty
steels
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SA Steel Production and Location
Source Kumba 2011, The South African iron and
steel value chain, Joburg, March 2011
Plus stainless steel (Columbus 600ktpa) in
Middleburg
34
Steel flows in South Africa in 2008
Source Kumba 2011, The South African iron and
steel value chain, Joburg, March 2011
35
SA Steel Demand Sectors
36
However, the monopoly pricing (IPP) of steel
severely curtails manufacturing jobs
Value received on local sales (IPP)
Hot rolled coil steel prices, US/t
Amount that local customers pay above exports
World export price
Value received on exports (EPP)

• Transport costs might be as high as 47
• of the cost of importing flat steel!

Source Iscor 2004 in DTI presentation to the
Portfolio Committee of Trade Industry, 24 Aug
2010
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IPAP Iron and Steel Value Chain (Ferrous MVCs)

• Cabinet signed off on proposals of the
  Inter-Departmental Task Team (IDTT) on iron and
  steel. Work in progress includes
• Finalisation of the Regulations, after public
  consultation, under the provision of the
  International Trade Administration Act and Second
  Hand Goods Act, to limit the unencumbered export
  of scrap metal and to support domestic producers.
  Export of scrap closely associated with highly
  deleterious cable and metal theft and masking of
  illegal export of precious metals. Work led by
  EDD
• Amendments to the Competition Act, to limit the
  abuse of dominant market position in key value
  chains especially iron and steel and plastics and
  polymers and to lower the cost of strategic
  inputs into manufacturing. Work led by EDD.
• Build competition in the iron and steel sector by
  the introduction of at least one more steel
  producer. Work led by the IDC is advanced to
  include a foreign investor new technology and
  strong conditionality's to ensure developmental
  ore prices are passed through as a competitive
  advantage to manufacturing sector

38
Putative Steel Strategies

• Use state ownership of mineral rights to apply
  cost-plus ore pricing conditions to local
  customers and on local customers (for their
  domestic on-sales) for select strategic mineral
  feedstocks, particularly iron/steel. This will
  require amendment of the MPRDA.
• Strengthen the Competition Act to allow for the
  effective imposition of competitive pricing in
  the domestic market Regulate steel prices
  against a basket of international prices.
• Introduce competition through state facilitation
  of new players-
• Progress the IDC Masorini/Scaw projects
• Assess the viability of the NMM and Cascades
  projects
• Reserve resources for tender against the
  establishment of a steel plant to supply the
  domestic market at competitive prices
• Ban all exports of base ferrous scrap, to lower
  domestic scrap prices
• Use state infrastructure tariffs (energy,
  transport) to leverage competitive prices,
  through applying a surcharge to companies that
  monopoly price (IPP) in the domestic market.
• Trade a user-concession (BOT) on the Saldanha
  ore line, with establishing a new steel plant
  (NMM?) and local ore sales at cost-plus with an
  on-obligation to the customer (steel plants).
• Invest in technology development to configure a
  large scale process to economically exploit the
  appropriate BC magnetite seams to produce
  titanium dioxide and pig iron, which could form
  the basis of a new steel competitor.

39
Coal/gas Polymers
Most plastics are derived from petrochemical
feedstock (naphtha) which in turn originates from
oil, natural gas and coal. In SA the gas comes
from coal
40
South African Plastics Converting Sector
41
Coal/gas Nitrogenous Fertilisers
Fertiliser Raw Materials Producers
Taken over by Meridian/Farmers World. Plant
mothballed Source Grain SA Fertiliser Report,
2011
42
International and local urea prices IPP pricing
Zerihun Gudeta Alemu 2010
43
Grain production Costs in SA
Source Corné Louw 2011,
Fertilisers constitute 30-50 of grain/oil seeds
input costs, and the IPP-EPP differential is 30
to 50 Competitive fertiliser prices could
have a significant impact on both job retention
and expansion in the agricultural sector
44
Total employment in agriculture in South Africa,
1968-2010
Around 1 million jobs have been lost since 1970,
aggravated by monopoly fertiliser pricing!
Source Sandrey, R. et al. (2011),
45
Putative Coal/Gas MVC Strategies

• Use state ownership of coal mineral rights to
  apply cost-plus domestic polymer/fertiliser
  pricing conditions on Sasol
• Regulate polymer/fertiliser prices against a
  basket of international prices (ICISLOR, Platts,
  Harriman)
• Strengthen the Competition Act to allow for the
  effective imposition of competitive pricing in
  the domestic market (amend the Competition Act)
• Introduce competition through state facilitation
  of new players by the reservation of suitable
  coal/gas resources for tender against new
  capacity at EPP or cost plus into domestic
  market
• Increase state control of Sasol (currently 26
  owned by the IDC PIC) to gt50, through a
  strategic alliance with the Union pension funds
• Use state infrastructure tariffs (energy,
  transport) to leverage competitive prices from
  Sasol.

46
PGM MVCs
Platinum and palladium resources in other
countries, compared to South Africa
Source Cawthorn R.G. 1999
Pt 75 Pd 50 Case for producer power to effect
price stability and greater value addition?
47
Platinum Supply 2001-2012
SA dominates supply, but most PGM intensive
manufacturing is done in OECD countries
Source JM 2012
Platinum Industrial Demand
Source JM 2012
48
Putative PGM MVC Strategies

• Assert states right to market PGMs by amending
  the Exchange Control Regulations to require
  authorisation to market PGMs, as per gold.
• Task the PGM miners with establishing a single
  export channel to stabilise prices and establish
  a stockpile which could be partly held by the
  Reserve Bank (portion of national reserves in the
  form of platinum)
• Engage Russia Zimbabwe on joining a single
  channel export mechanism.
• Task the single channel mechanism with developing
  a 5-8 year plan for the value chain to be
  progressively relocated to the producer states.
• Include value-addition milestones in PGM
  licenses
• Dramatically increase state private PGM RD
  activities

49
Titanium MVCs

• South Africa is the 2nd largest producer of Ti
  feedstocks globally (mainly slag) and has the 2nd
  larges resources (excluding the BC magnetites)
• Over 90 of Ti is used to make pigments (paper,
  plastics, paint, etc. industries)
• A small quantity goes into Ti metal (aerospace,
  medical, sports)
• SA has a tiny share of the downstream industry

50
Titanium Mineral Concentrates World Mine
Production Reserves 2012
Mine production 2011 2012 Reserves Reserves
Ilmenite      
Australia 960 940 100000 15.4
Brazil 45 45 43000 6.6
Canada 750 700 31000 4.8
China 660 700 200000 30.8
India 330 550 85000 13.1
Madagascar 280 280 40000 6.2
Mozambique 380 380 16000 2.5
Norway 360 350 37000 5.7
South Africa 1110 1030 63000 9.7
Sri Lanka 31 60 NA NA
Ukraine 300 300 5900 0.9
Vietnam 550 500 1600 0.2
Other countries 40 40 26000 4.0
World (ilmenite) 6100 6200 650000 100.0
Rutile      
Australia 440 480 18000 42.9
Brazil 3 5 1200 2.9
India 24 25 7400 17.6
Mozambique 6 8 480 1.1
Sierra Leone 64 100 3800 9.0
South Africa 122 131 8300 19.8
Ukraine 56 60 2500 6.0
Other countries 18 17 400 1.0
World (rutile) 8730 8830 42000 100.0
World (ilmenite rutile) 6700 7000 700000
However, SA potentially has 70 of global
reserves in the Bushveld magnetites!
51
Putative Ti tanium MVC s Strategies

• Use state ownership of mineral rights to apply
  beneficiation milestones on titanium miners
• Encourage/facilitate Exarro to locate a
  world-scale pigment plant (gt300ktpa) in SA, using
  chloride technology (Tronox)
• Fund RD into technologies to realise the huge Ti
  potential in the BC magnetites (Fe Ti)
  resources (level 21 70 of world)
• Continue to support the Ti powder and forming
  technology development initiatives

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Conclusions

• MVCs should encompass all the SA value in the
  final consumed or exported product, i.e. both
  local content and beneficiation
• Little MVC headway has been made, principally due
  to widespread monopoly pricing (IPP) of mineral
  feedstocks and the decline in upstream industries
  and RD due to exit of the old Mining Houses
• Nevertheless there appears to be strong case for
  MVCs, particularly the critical feedstocks in
  job-creating sectors manufacturing, energy,
  agriculture and infrastructure, as well as
  minerals where SA has potential producer power,
  and in inputs industries (capital goods)
• Regional markets (economic integration) could
  facilitate beneficiation (economies of scale),
  particularly in inputs industries (local
  content)
• MVCs could gradually transform SAs comparative
  resources advantage into a competitive advantage,
  especially the local content (capital goods
  services) dimension
• Wide-ranging instruments could be available to
  the state to facilitate beneficiation, including
  conditions on mining licences, anti-trust
  legislation, incentives, HRD and RD, but many
  will require amendments to current legislation
• There appears to be substantial potential for
  downstream beneficiation in the ferrous,
  coal/gas, PGM and titanium job-creating
  value-chains (MVCs).

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Thank Youpaulj1952_at_gmail.com