Slide1: Paul Jourdan (Mintek, Randburg) “Towards a Coherent Resource-Based Development Strategy” 27 October 2005 Resource-Based Development (“beneficiation”) RMG Breakfast Meeting


Section I: Section I Resource Clustering: RBSD (Resource-based SD)


Slide3: Resource-based exporter of minerals/metals such as gold, coal, PGMs, ferro-alloys, aluminium, copper, diamonds, chemicals. (>60% of exports) Exporter of agri-based commodities (fruit juices & wines, confectionary, wood/paper/pulp, wool, meat, etc.) Increasing manufactured exports, but off a very low base Very weak HR base except for a few niche competencies Step 1: SA: Start from where we are!


South Africa: Exports (’94-’04): South Africa: Exports (’94-’04)


SA Minerals Production: SA Minerals Production


“The curse of resources”: “The curse of resources” Cyclical & Volatile prices Dutch Disease: currency fluctuations Long term real price decline! Minerals: Wasting asset (ultimately a hole in the ground!) = a mug’s game….. Unless the window of opportunity is grasped! Plus: dangerous, dirty, eco-unfriendly, etc..


Resource Industry Linkages: Resource Industry Linkages 1. DOWNSTREAM Value-addition Beneficiation Export!of resource-based articles 2. SIDE-STREAM Inputs: Plant, machinery, equipment, consumables, services, (export) 3. Technological Linkages: “Nursery” for new tech clusters, adaptable to other sectors


1)Beneficiation: the “cluster” pipeline: Short to medium term potential lies in our natural comparative advantage, vis: resource-based industries, which will create a competitive platform for finished products in the longer term. Also, resource-based capital goods & services. Raw Mat. - Int. Product - Semi-Manufacture - Fabricated 1)Beneficiation: the “cluster” pipeline


Metals CSP - Measuring Progress 1: Metals CSP - Measuring Progress 1 Source: Rustomjee, Z. MEC 2005


Metals CSP - Measuring Progress 2: Metals CSP - Measuring Progress 2 Source: Rustomjee, Z. MEC 2005


Slide11: RESOURCE-BASED INDUSTRIALISATION PLATFORM OUTPUT PRICES LOWER THAN WORLD MARKET PRICE (WMP) ORIGINAL EQUIPMENT MANUFACTURERS (Auto, Consumer Durables, etc…)


Slide12: However, there is a major constraint to beneficiation: IPP: Import Parity Pricing Due to lack of competition in the sub-continent! Due to global scale economies (only 1 to 3 plants in SA)


Slide13: International comparisons: transaction prices for hot-rolled coil to domestic buyers


Slide14: EXPORTS? However, there are further obstacles to value-added exports to the Rich Countries…..


SA beneficiation opportunities for top 10 minerals (by value) : SA beneficiation opportunities for top 10 minerals (by value) Realistically attainable value lies in the lower value commodities rather than the precious metals (ex producer power)


Slide16: 2) Resource Inputs: Capital Goods & Services


Slide17: 2) Resource Inputs: Capital Goods & Services Mineral resources offer a unique opportunity, for the creation of a knowledge-based resource inputs sector, that other resources often don’t: Each mineral deposit tends to be unique necessitating the development of new tech-nologies or the adaptation of existing ones (off-the-shelf First World technologies are usually less directly applicable than for e.g. petrochemicals or agri-processing) However, if such adaptation/development takes place in the First World, the opportunity for the local development of technological expertise will be lost


Slide18: SA National R&D Strategy SA’s new R&D Policy – identifies 4 “technology missions” critical to the promotion of economic & social development in the country: Biotechnology & IT Advanced manufacturing Poverty reduction Strategies to develop & leverage off our resource technologies


Mineral resources are unique and require customised processing technology: Mineral resources are unique and require customised processing technology Mintek: Tech customisation e.g.s: U circuits for Au mines (50’s & 60’s) CIP for low grade Au (1st 1984- Pres Brand Mine) Mintek provided technical breakthrough for exploitation of the UG2 PGE resources (late 80’s) which 2X PGM resources DC Plasma for direct smelting of friable chromite ores (’80s) Enviro-friendly Conroast smelting of high Chromite PGM ores (current) Future challenges (sterilised resources) The Bushveld high titanium magnetites (“Level 21”) potentially represent the world’s largest Ti resource (plus a Fe resource = Sishen), if a similar technical breakthrough can be developed The Tvl dolomites represent the world’s largest Mg resource if an effective recovery tech can be developed (high Mn problem) Large Fe and coal fines “dumps” which coul be valorised into iron & steel with an effective tech (Hismelt, rotary hearth?)


Slide20: SA Market Size Based on total sales of R140 bn and approximating 15% spent on capital expenditure, the capital equipment market for mining in SA is R21 bn The current mechanisation programme under consideration by the PGM industry will be the largest in the world for ultra-low-profile mining! SA must ensure that not only the manufacturing takes place locally, but also the product development (IP).


The Mining Charter and RBTS : Need to explore how the procurement component of the Mining Charter can be configured to support RBTS (local manufacture of mining inputs) & BEE and combat “fronting” “Buy BEE South Africa” - assess the BEE in value-added by individual companies in the (local) manufacture and assembly of capital goods/inputs Assess VAT returns of companies to determine the degree of empowerment & local value-added The Mining Charter and RBTS OEM Input Input Input Input Input Input Input Input Input Input User User


Slide23: Minerals Capital Goods Cluster: Case Studies Mixture of small local firms and large multinationals Local successful niche operators High degree of tradability - firms export!20-50% of output Net trade ratio - negative but improving: 1994: -0.61 2003: -0.32 Growth, especially export, handicapped by: Feedstock prices (IPP: esp steel) Strong currency capital constraints (low re-investment in equipment) cost of overseas marketing limited resources for R & D shortage of appropriate skills


Slide24: Resource Capital Goods & Services The Key to Lateral Migration Fabri- cation Resource Capital Goods & Services (generic tech) Lateral Migration into Unrelated Hitech Industries eg: process control construction equipment, atmospheric control, pumping, materials handling, etc, etc….


Section II: Section II Spatial Clustering: SDIs (development corridors)


Spatial Configuration:Southern African SDIs: Spatial Configuration: Southern African SDIs Development of resource-based investment projects together with requisite infrastructure rehab/investvents


Slide27: EXPORTS? Minority World subsidies (CAP) and NTBs lower potential rents from agriculture and agri-processing. This results in mining and mineral processing generally being the only sector with the requisite rents to cover the provision of infrastructure (transport!& energy) for the development of other potential (agriculture, tourism, etc.) For this reason the “anchor” projects for many SDIs are mineral-based, but the provision of infrastructure then underpins the viability of numerous projects in other sectors (densification).


Slide28: Mature SDI: The Maputo Development Corridor


Slide29: MDC Projects 2001 Total investment to date: >$5bn New MDC Mega-Projects Mozal II & III (Al: >$1bn) √ MMC: Maputo Metallurgical Complex (Fe & Steel: >$1bn) Corridor Sands (Ti & Fe: >$0.3bn) Tourism Investments (Cluster: >$0.3bn) GKG Trans-frontier Park


Slide31: SDIs Currently Under Consideration with Nepad Fe ore Cu, Co, Mn Au, Ni, Co Fe ore Energy (HEP, oil, gas) diamonds


Slide32: Way forward? Downstream Beneficiation Project development, incl. tech customisation Feedstock pricing Tighten up competition law Review state levers (DFIs, finance, licensing, utility prices) Precious metal loans Fiscal incentives/disincentives Tax breaks, export taxes (cf diamonds) R&D and HRD: Specialised (PPP) fund? Sidestream Beneficiation (Inputs Cluster) Strong currency: ameliorate effects Feedstock pricing (as above) State support to new product development Develop BEE entrants (procurement “pillar” of Charter) R&D and HRD: focused R&D support, develop critical skills Lateral Migration into other Sectors Research into critical state interventions in other countries Analysis of SA successes (case studies) Spatial Configuration (infra + industrial investment) Develop continental SDI strategy with Nepad: synchronous development of infrastructure and resource-based investment projects


Slide33: www.mintek.co.za Mintek: Supporting Growth & Development