Mineral Beneficiation:

The Mining Industry Viewpoint

Roger Baxter
Chief Economist, Chamber of Mines of South Africa

Good morning to you all. I am going to have to do very much like the front
cover of the Alchemist and be like a cheetah and run very quickly through my
presentation. In order to do that, instead of being a traditional economist with two
hands to give you two different opinions, I am going to tie one hand behind my
back, so you only get half the story. In running through the story, I have produced
an article which Susanne Capano kindly put into the Alchemist on the subject,
so a lot more of the detail is there.
In chatting to some of my colleagues from offshore, when I talked about this
concept of beneficiation, there was a question: What is beneficiation? What are
you talking about? A lot of people offshore tend to see it very much more as a
manufacturing-driven type area. The mining industry in South Africa is very much
of the view that if we could add greater value to our minerals, then we should as a
country certainly facilitate that over time. Of course, the questions that need to be
answered in this whole equation are how to define beneficiation, what does it
mean, who the lead agents are who should be driving the process, and how do we
encourage beneficiation as we go forward.

The term beneficiation in South Africa does
elicit a lot of emotive response. Much of it is
based on the view that most products from South
Africa, based on the countrys previous colonial
history and heritage, are exported to the previous
colonial powers, where they are fabricated, and
then re-imported back into South Africa, and
mineral products here we are talking about
chemicals from coal, stainless steel, etc. it
takes the export earnings of the minerals
complex up to a level of greater than 50% of our
merchandise exports.
Confidential

that all the jobs in the processing side are then The contribution of primary minerals and primary
exported outside the country. plus intermediate beneficiated mineral products to
South Africa's merchandise exports, 2004
Much of the attention has been focused in recent 60
51
months on the mining sector and why the mining 50
% of merchandise exports

sector was allowing this to happen. We believe 40

that a lot of work has been done. Paul has done a 30

29.5

huge amount of work at Mintek looking at the

20
sidestream and downstream areas, and I think we
fully agree that there are very few advantages 10

that exist from having the precious metals 0

Primary minerals Primary and beneficiated minerals
produced inside South Africa; what we need to
do is look at a number of issues related to the 4

manufacturing sector.
Beneficiation defined is really the process of
Beneficiation is taking place in South Africa,
adding value from mining right through to the
where commercial opportunities do exist. About
final fabrication of a consumer branded product;
30% of our exports are minerals-driven; gold
the definition in the Minerals Policy White Paper
and platinum alone account for 20 percentage
captured it quite nicely. As you go through the
points of total exports. If you add beneficiated
different processes of minerals beneficiation, the

The LBMA Precious Metals Conference 2005, Johannesburg Page 25

Mineral Beneficiation: the Mining Industry Viewpoint Roger Baxter

mining and refining sides tend to be Confidential

concentrated on mining. In other words, the Global share of diamond mine production by value
mining sector has the skills and aptitude to tackle versus global share of diamonds cut and polished
by value, 2004
issues in that particular area. As soon as you get 60
into stages three and four, which are much more

% of world total
50
at the fabrication level, that is very much where 40
30
the manufacturing sector comes into the 20
equation. 10
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Confidential

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THE FOUR STAGE BENEFICIATION PROCESS

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Mine production by value Cut diamonds by value
Stage
M ineral b eneficiation Process flow-chart Labour Capital Industry
process category intensity intensity C lu ster 10

The action of mining and

W ashed &
producing an ore or
1 concentrate (primary
Run-of-m ine
ores
siz ed
High High Mini ng
conce ntrat es
product)
The action of converting a Mining Confidential

concentrate into a bulk Ma ttes/slags/

2 tonnage intermediate bulk
Ferro a lloys /
Low High Mini ng
product (such as a metal chemi ca ls
pure m etals
Gold, share of world mine production by volume
or alloy)
The action of converting the versus share of jewellery fabrication by volume
intermedia te goods into a
re fined produc t suitable for
W orked
Low High
Re fining / 2004
3 St eel/ alloys sha pes &
Manufa cturi ng
purc hase by both small &
sophisticated industries (se mis)
form s
Manu-
facturing 25
The action of
4 manufacturing a final
W orked
shapes &
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shapes & Medium to Me dium to Manufa cturi ng 20

% of world
form s form s high high
product for sale
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It is very important to split the mining

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beneficiation equation with the mining Share of mine production volume Share of jewellery production

companies that have skills and competency away 11

from the manufacturing beneficiation area,

If you compare where the majority of production
which is where the manufacturing sector has the
happens with where the majority of cutting takes
skills and competency to deal with the issues.
place, for both diamonds and gold, most of the
The separation is very important because the miners are not necessarily into fabrication; the
debate has focused on why the mining fabrication is generally done in many other
companies have led to this lack of beneficiation countries India, Italy, Turkey, etc.
in the country. We are saying that beneficiation Confidential

is taking place where it is commercially feasible,

but the separation is quite important. Given the Platinum, global share of mine production by volume
versus global share of fabrication production by volume,
specialisation model that exists the Anglo- 80
2004
Saxon profit maximisation model companies 70

find it very difficult to go into areas where they 60

% of world total

do not have the competence and skills. 50

40

For precious metals and diamonds, the 30

20
availability of the product does not really 10

constitute an advantage. I think Paul has 0

South Russia Scrap North Others China and Japan Europe
answered the question in their view; from the Africa recovery America ROW

sides of Mintek and the government, maybe it Mine production by volume Beneficiation production by volume

does not. The vast majority of beneficiation 12

actually takes place in countries that do not mine

the product at all or do not mine much of the
product. What they have done is focused their The same thing is true for the platinum side. In
skill sets on the manufacturing sector. Here we South Africa, we produce about 15% of the
are talking about the Indias, the Chinas, the worlds catalytic converters. That is because of
Dubais, and even the Turkeys. They are focused the Motor Industry Development Plan (MIDP)
on the manufacturing side, because you can that was put into place by government, and
basically access the product at roughly the same where government and industry focused on what
price anywhere in the world. they needed to do to make the manufacturing
sector competitive in this particular area.

The LBMA Precious Metals Conference 2005, Johannesburg Page 26

Mineral Beneficiation: the Mining Industry Viewpoint Roger Baxter

Having established that the actual minerals
themselves do not constitute much of an
advantage because you can get them basically
at the same price anywhere in the world, I think
the focus has shifted away from comparative
2.8% per year. In terms of manufacturing value
added as a percentage of GDP, South Africas
manufacturing value added has actually dropped
in the period between 1992 and 2002.
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advantage having good natural beauty in your

Manufacturing value added as % of GDP at constant
landscape, natural tourist attractions, having the prices
minerals in the ground and being able to produce 35
them to having competitive advantage. Issues 30
such as competitive production, skills, etc., are

MVA as % of GDP
25
now the crucial drivers and determinants of 20
1992
where fabrication takes place. 15 2002

Competitive advantage issues in the 10

manufacturing sector are related to competitive 5

production, craftsmanship and the specific skills

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that are required for jewellery fabrication, the

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production of catalytic converters, or access to 17

markets. Invariably, the countries that have done

well on the fabrication side have had fairly large
domestic markets to start with. Other advantages
include good market intelligence, knowing what
products you need to sell into which markets,
having a low cost of doing business, and having
low materials funding costs. In essence, there are
a lot of competitive advantage issues that need to
be looked at.
How competitive is our manufacturing sector in
South Africa? We have done a lot of work
through a number of different agencies looking
at how we have been doing in this particular
area.
Confidential
A lot of work is being done; in fact, a new
industrial policy is currently being crafted by the
Department of Trade and Industry. There are
pockets of success, like the motor industry,
which has grown quite nicely, but there also are
pockets of failure. Overall, our manufacturing
sector has not been performing to the extent that
it possibly could have. The reason I am
highlighting this is because the manufacturing
sector is where we should be focusing our
attention when it relates to the beneficiation
question. We are talking about manufacturing
beneficiation here.

Confidential

South Africa: Manufacturing as % of GDP

Real growth rate in manufacturing value added for the
22 period 1997 to 2002 (source UNIDO)
21.1 11
21 20.6 20.6 9.2
9 8.4 8.3
20
US$ value added

19.2 7
5.8
% of GDP

19 5.0
5 4.1 4.0 3.9 3.8
18 17.6 3 2.5 2.3 2.2
1.4
1.0
17 1

-1 -0.2
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1960's 1970's 1980's 1990's 2000's

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It is interesting to note that manufacturing has

Let us have a look at one issue related to
actually been declining as a percent of GDP.
productivity of labour as an issue that we have
The growth rates in productivity in South
been working on. There are a lot of legacies that
African manufacturing are not yet at the rates we
we are dealing with in South Africa, such as a
want. There has certainly been an improvement,
lack of attention to education and skills
but not quite at the level that we would want
development, and we have seen the LBMA
them to be. The growth rate in the manufacturing
supporting the Wits departments dealing with the
sector in South Africa has been fairly slow.
mining side in particular. In looking at our skills
Manufacturing has fallen off a bit. Services, side, it is interesting to note that a country like
tourism and financial services have grown at a New Zealand has a relative output of labour per
much faster pace, sitting at about 5% per year for dollar purchased less than ours; that is probably
the last decade. Manufacturing has grown at

The LBMA Precious Metals Conference 2005, Johannesburg Page 27

Mineral Beneficiation: the Mining Industry Viewpoint Roger Baxter

why they should stick to their sheep farming and This includes improving access to foreign
playing rugby. markets. I think our government has already
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done a fabulous job there through trade deals
with the European Union; there is a trade deal
Relative labour productivity as measured by value added
per US$1 labour purchased, 1999/2000 (source UNIDO)
being negotiated with the United States, and
6
certain trade deals are being discussed with
5
5.4 5.3
5.0
4.8 4.7
China and others.
Quantum leaping productivity is a big focus
US$ value added

4 3.7
3.3

3 2.5 2.4
amongst business, along with lowering the cost
2
2.0
1.7 of capital in the country in other words,
1 lowering tax rates over time. Access to inputs
0 at world competitive prices is a critical area.
Providing the right types of skills for such

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projects is important, signalled by this whole
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skills development drive. We must provide the
right logistical infrastructure, the right sort of
19

incentives for research and development, and we

In South Africas case, our relative output per must develop specific zones which are VAT free
unit of labour is such that we basically get about and duty free, as we have seen in a number of
$2 worth of value added for every dollar of other countries, which have been successful. I
labour that we purchase, but we are competing certainly believe that progress has been made.
against countries like India, where you are
Mining companies are trying their best to try to
getting about $3.70 of value added per dollar of
facilitate the process. On the materials funding
labour purchased; China, where you are getting
side, mining companies have been involved in
$4.70; and Ireland, although we are not really
gold loan schemes, and from a design and
competing with them in relation to jewellery
craftsmanship perspective, the platinum
fabrication. The point is that we do need to
company AngloPlats has funding the PlatAfrica
quantum leap our relative productivity levels,
competition and AngloGold Ashanti has funded
and a lot of emphasis is being placed on that
the Riches of Africa competition. We have seen
area.
the African gold zone being developed as a
We have been engaging with government, concept. The mining companies are trying their
Mintek and other role players on this matter. best to facilitate, but they do not guarantee the
Minerals beneficiation at the manufacturing ultimate outcome of whether beneficiation will
level is a pretty complex area, but we think that be successful. It is really about whether we can
rather than trying to force mining companies, or get the manufacturing sector to be quantum
trying to place pressure on mining companies to leaped on the productivity side and provide the
do something about this and we have seen two right enabling environment, which will
recent pieces of legislation, the Diamond determine whether South Africa can or cannot
Amendment Bill and the Precious Metals make inroads on the beneficiation side.
Amendment Bill that lean a little more towards
Thank you.
pressure on the mining companies we as a
country, including government, labour, and
business, should be focusing on providing that
environment which allows our manufacturing
sector to be massively competitive.

The LBMA Precious Metals Conference 2005, Johannesburg Page 28