BRIEFING ON UPSTREAM AND
DOWNSTREAM MINING LINKAGES
Portfolio Committee on Trade and Industry
20 August 2014
1
CONTENTS
1.
INTRODUCTION – PROBLEM STATEMENT
2.
BACKGROUND ISSUES AND SUMMARY CHALLENGES
3.
KEY POLICY LEVERS
4.
PLANS FOR:
1.
FERROUS
2.
POLYMERS
3.
TITANIUM
4.
PGM’S
5.
MINING INPUTS
RESOURCE DRIVEN INDUSTRIALISATION – WHAT DOES IT
MEAN?
Problem statement: how to leverage the comparative advantage from a national
resource endowment to build a dynamic industrial economy which secures sustainable
development, radical economic transformation and job creation.
•There are, inter-alia, five key areas which can be considered in the policy space:
– Providing cost plus output from the mines to local mineral processing / beneficiation
enterprises.
– Ensuring that processing enterprises (e.g. steel, petro-chemicals) pass down the
benefits of any cost plus inputs to downstream national industry.
– Requirements (usually through licensing) that the mining industry directly invests (or a
tax is imposed) to ensure adequate investment in capital goods and related
component manufacturing enterprises.
– Requiring that the mining industry procures in a manner that develops their direct
local capital goods suppliers.
– Requiring that the mining industry to also invests in resource processing or
beneficiation enterprises.
•The SA term ‘beneficiation’ is used to describe some/all these possible measures.
BACKGROUND ISSUES
• SA faces challenge of diversifying away from resource extraction and reliance on
commodity exports towards a manufacturing, value adding and more labour
intensive growth. Manufacturing sector has highest economic and employment
multipliers with significant spill-over effects.
• Recent economic data again underlines view that the current import intensive
growth trajectory is unsustainable. GDP contraction evidence of importance of
mining but critical need to move up the value chain.
• Upstream mining and downstream beneficiation and linkages to the manufacturing
sectors is critical (which should not be equated with further mega capital and
energy intensive investment projects.).
BACKGROUND ISSUES
•
Deep structural problems in the economy. Minerals-energy complex characterised by
capital/energy intensive beneficiation with strategic manufacturing inputs (steel, plastics,
etc) not passed through to manufacturing despite the fact that SA enjoys comparative
advantage in the form of enormous mineral resources.
•
Abuse of market power; import parity pricing, intermediation: contribute to domestic
steel prices in highest global quartile in world. Wide range of SA manufacturers
increasingly import steel – autos; medium, heavy, commercial and defence vehicles;
mining equipment etc.
•
Offshore listings and the unbundling that followed has led to loss of capacity and
capabilities in horizontally integrated mining companies divesting of ‘non-core’ assets.
•
The decline of SA’s public and private sector mining technology development (RDI) is a
very significant problem.
BACKGROUND ISSUES
• SA has a globally competitive upstream mining (Mining Capital and Transport
Goods) Sector. Exports especially to Sub-Saharan Africa demonstrate steady
increases over recent period. Mining capital equipment sector increasingly
relying on exports with increasing import intensity to domestic mining
companies.
• Policy is not sufficiently supportive. Mining Charter contains no provisions for
localisation of mining capital equipment and limited provisions for local RDI
spend. Evidence points to globally competitive manufacturers moving off-shore.
•
Infrastructure and logistics costs and inefficiencies: examples
– cost of export of value-added goods is higher than cost for primary
commodities. Rebate for manufacturers yielding questionable results
– Transnet and TNPA infrastructure and operations prioritise commodity
exports
TRADE BALANCE
200
R Billion
100
0
-100
-200
-300
Agriculture
Mining
Manufacturing
Trade balance
-400
2000
2002
2004
2006
2008
2010
2012 '13*
KEY POLICY AND PROJECT LEVERS
DMR
» Mining Charter
DTI
» IPAP – Ustream (Mining, Transport Capital Goods sector) and downstream
beneficiation action plans
» B-BBEE (aligned with localisation provisions)
» SEZ’s and other incentives; investment and export promotion
DPE/DOT
» SOE shareholder compacts – ports/rail access and expansion conditional on
developmental objectives
» Rail and port tariffs
EDD
» IDC led projects and investment/investment facilitation
» Competition Commission
MINERAL VALUE CHAIN STUDY
– DTI initiated Mineral Value Chain Study in Jan 2013 to develop key interventions
to advance beneficiation in SA.
– Project steering committee - the dti, DMR, DST, IDC, TNPA
– Develop strategies and proposals to advance Upstream (Mining and transport
and capital equipment) and forward beneficiation across 5 priority value chains:
1. iron-ore and steel
2. polymers
3. titanium
4. platinum group metals
5. Upstream mining inputs
6. (Work also underway on Oil and Gas)
Quantec HS - 4 digit, 2013
H7110: Platinum, unwrought, semi-manufactured
or powder form
H2601: Iron ores and concentrates, roasted iron
pyrites
H7108: Gold, unwrought, semi-manufactured,
powder form
H2701: Coal, briquettes, ovoids etc, made from
coal
H7202: Ferro-alloys
H2602: Manganese ores, concentrates, iron ores
>20% Manganese
H2610: Chromium ores and concentrates
H7102: Diamonds, not mounted or set
H7601: Unwrought aluminium
H2614: Titanium ores and concentrates
H7204: Ferrous waste or scrap, ingots or iron or
steel
H7606: Aluminium plates, sheets and strip,
thickness > 0.2 mm
H2603: Copper ores and concentrates
H7404: Copper, copper alloy, waste or scrap
H2615: Niobium, tantalum, vanadium zirconium
ores, concentrates
H2618: Granulated slag (slag sand) from iron &
steel industry
Export Value,
Rands
Downstream
Potential
R 81 319 519 856 High to medium
Downstream Jobs
R 73 998 564 487 Very High
Medium (catalysts)
Very high
(manufacturing-autos,
construction)
R 63 571 314 217 Medium to low
Low (jewellery)
R 55 855 559 400 High to medium
R 34 821 623 292 Medium to low
R 4 802 413 299 Very High
Medium (polymers)
Low (SS)
Low (Fe-alloys & Stainless
steel)
Low (Fe-alloys & Stainless
steel)
Medium (jewellery)
Medium (parts)
Low (pigment, metal)
Very high
(manufacturing)
R 4 584 915 868 High to medium
R 4 541 138 458 High to medium
R 4 439 989 630 High to medium
Medium
Medium (wire, brass)
Medium (wire, brass)
R 4 331 548 972 Low
Low
R 3 420 317 958 High
High
R 15 029 874 497 Medium to low
R 13 131 271 379
R 12 162 947 876
R 11 064 742 022
R 5 999 252 818
Medium to low
Medium to low
High to medium
High to medium
FERROUS VALUE CHAIN
Action Plan
Status
Timeline
Lead
Support
1. State utility tariffs to support value
addition
TNPA and the dti working on
framework for Beneficiation
Promotion Programme (reduced
tariffs for beneficiated goods).
Engagement with TFR in progress
2014/15
Q1-Q4
the dti,
TNPA, TFR
DPE,
DOT
2. Industry analysis, opportunities in the
downstream steel sector (wire, tube,
pipes..)
Study to develop key action
programmes in progress
2014/15
Q1-Q3
the dti,
IDC, SAISI
POLYMERS VALUE CHAIN
Despite coal feedstock advantage, IPP has severely constrained the downstream industry, Sasol’s vertical
integration reinforces market power
Action Plan
Status
Timeline
Lead
Support
1. LNG and Shale Gas:
the dti undertaking a study to
investigate opportunities and
develop a strategy (up and
downstream localisation, low cost
energy, infrastructure requirements)
2014/15 2015/16
Q1
the dti,
DOE, DMR
DST, PASA,
CEF
2. Plastics sector strategy completed
key interventions:
-Cluster development (skills, training,
testing)
-Assess current incentives
the dti will facilitate the
development of the cluster with
Plastics SA and deploy policy
instruments to support downstream
manufacturers
2015/16
the dti
EDD, IDC
3. Leverage state procurement of
plastic products e.g. plastic pipes for
construction
Designation study on 20
construction material inputs into
infrastructure program
DWA strategic sourcing program –
100% localisation of plastic pipes
2014/15
Q1 - Q3
the dti, EDD
(PICC), IDC,
DWA
NT
4. New player:
Eco-industrial project – Musina SEZ
Feasibility project for the
development of coking coal,
polymer, ammonia and urea plant
the dti
IDC
ongoing
2014/15
Q1 – Q4
PLATINUM GROUP METALS
Leverage SA producer power status to stabilise PGM prices, supply and facilitate local beneficiation
Action Plan
Status
Timeline
Lead
Support
1. SA Autocatalyst sector
assessment:
−Sector exports R16 bn/year, and
underpins 5,000 direct , 20,000
indirect jobs
−Industry is in decline (15 10%
global production)
−Low growth prospects in current
support framework
Under APDP Review, the dti will
prepare a position paper on the
industry assessing current status,
providing recommendations on high
impact growth strategy:
2014/15
Q2 – Q3
the dti
(Autos and
Primary
Minerals)
DMR, NT,
DST
2. Fuel cells
−PGM SEZ programmes in support of
commercial fuel cell opportunities
−HySA HRD and technology
development initiative
-
2014/15
Q1-Q4
the dti (SEZ
and
Primary
Minerals,
ITED), DST
DOE
3. PGM Loans - Engage PGM miners,
SA banks, the IDC to provide low cost
PGM loans to local fabricators
Mining companies to be approached to
extend this to other fabrication
industries
-
Feasibility project to demonstrate
stationary fuel cell technology.
Opportunities for collaboration
with Japan and/or Germany
Dev of prototypes , demonstrators
and commercialisation
20142018
2014/15
Q3-Q4
the dti,
DMR, IDC
TITANIUM
>90% is used in production of Ti pigment (SA market is small), Limited job creation potential in the
primary industry but more significant potential downstream
Action Plan
Status
Timeline
Lead
Support
1. Investigate the viability of
unlocking the vast magnetite
resources in the Bushveld complex to
produce iron-ore/steel and titanium
Scoping study on Bushveld complex
2014/15 Q4
– 2015/16
Q2
the dti, IDC
DMR, DST
2. Incentives to stimulate energy
efficient processing and beneficiation
SA plants conversion to efficient
technologies (including cogeneration
from off-gases) to reduce electricity
costs
Current incentives in support of
energy efficiency – 12i (green and
brownfield) and 12L tax incentives,
MCEP
Ongoing
DOE, the
dti
DST
3. Ti metal powder industry
development
DST Ti initiative based on novel
process for production of Ti metal
powder and downstream aerospace
and medical components
Proof of primary production and
additive manufacturing technology
at pilot scale
tba
2014/15 –
2015/16
DST, CSIR,
IDC
the dti
MINING INPUTS
Mining provides an important market to a wide variety of supplier industries, very large local and
growing regional market for mining capital equipment. Growing favour of imports vs local
Action Plan
Status
Timeline
Lead
Support
1. Revision of Mining Charter
procurement provisions:
−Key policy tool for mining procurement
−Current criteria only includes a
requirement for purchases from BEE
entity
-Engagement with DMR for revision
of Charter:
-Local content targets for capital
equipment, consumables and services
-Supplier development
tba
2014/15
DMR
the dti
2. Resource Capital Goods
Development Programme – develop a
mechanism of support for the supplier
industry (skills, R&D, capex, opex,
exports)
Study on viability , interventions and
mechanism of support to commence
in Q2
2014/15
Q2 –
2015/16
Q2
the dti
DMR, DST,
IDC
3. Development of supplier clusters to
collectively address challenges and
opportunities
−Competitiveness
−Export Promotion
−Development of capabilities
-
ongoing
the dti,
DST
DMR
4. R&D and skills development –critical
for technology intensive sector
R&D requirements will be identified
through clusters
tba
DST, the
dti, CSIR
-
SACEEC (Export council) and dti
are strengthening clusters (i.e.
minerals processing equipment)
TIPS study on linkages, lateral
migration and regional
integration
CONCLUSION AND WAY FORWARD
– Significant opportunities in unlocking SA’s comparative advantage to drive
industrial development and create jobs
– In order to achieve and sustain this we need a strong primary mining industry
that can support new upstream (input) and downstream (output) industries
– Concerted combined public-private sector effort to develop competitive
industries and harness the collective industrial capabilities
– Enabling, aligned government policies and support measures
– Beneficiation Action Plans to be integrated into next IPAP
– Implementation requires a co-ordinated effort from lead and supporting
departments/agencies
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THANK YOU
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