In country beneficiation for economic growth – a southern African Mining context 

By Patrick Richards, Mineral Project analyst and Stewart Nupen, associate director – Deloitte Technical Mining Advisory

Beneficiation involves the transformation of extracted minerals and metals into higher value products that can be consumed locally or exported. This process plays a crucial role in maximising the economic potential of southern African countries, many of which are endowed with rich mineral resources.

Numerous countries around the world have implemented policies, legislation and taxation (hereafter collectively referred to as ‘restrictions’) that limit the export of unprocessed materials. These restrictions have primarily been introduced to extract revenue and drive socio- economic growth. This is expected to be achieved through industrialisation and sustainable job creation by promoting in-country beneficiation of unprocessed materials. South Africa, Namibia, Zimbabwe, Mozambique and Botswana, with established mining activity, are among the countries to have implemented such restrictions.

Since 2017, the total number of worldwide export-related restrictions has been growing steadily with new restrictions added annually (Figure 1), increasing in both quantity and severity. Countries with mineral assets are looking to diversify their domestic economy and reduce their overall import bill by developing a downstream beneficiation sector. By not developing a downstream beneficiation sector, possible value-add is being exported, only to be re-imported later. The logical maturation of developing countries is to move from a pit-to-port model to eventually manufacturing final products.

With the global transition to a low-carbon economy, there are certain materials that are required for success. Southern Africa is a top producer of a number of these key materials and will undoubtedly play an integral role in the green-energy transition. Southern Africa’s mineral resources include cobalt, copper, graphite, manganese, nickel, silicon, chromium, iron ore, lithium, platinum group metals, rare earth elements, tantalum, tin, tungsten, vanadium and phosphate, with most being exported as unprocessed materials (Mineral Council of South Africa, 2022 and Subban, 2023). To leverage the green-energy mineral-wealth within southern Africa, numerous restrictions are in place, namely: Southern African Customs Union (SACU), the Southern African Development Community (SADC), the Tripartite Free Trade Area (T-FTA) and the soon to be implemented African Continental Free Trade Area (AfCFTA). The intention of AfCFTA is to allow African governments to“address their infrastructure gaps, streamline their supply chains, boost their beneficiation capacity and overhaul regulation relating to trade, cross-border initiatives, investment-friendly policies and capital flows.”

Mineral export prohibitions are the most severe restrictions a country can implement. They may have far-reaching consequences, affecting industries and sectors far beyond the mining and beneficiation sectors (Korinek, 2018). Not all countries have access to the minerals and metals that are required to sustain the economy and losing imported material from countries with export prohibitions causes global supply chain issues, trade-related friction and inter-state disputes that can require the involvement of the World Trade Organisation (WTO) (Korinek, 2018). The implementation of the Critical Raw Materials Act (CRMA) by the EU attempts to manage and control minerals and metals trade, with specific attention on those that are crucial for the green energy transition.

Despite the legislative progression, numerous external factors restrict the success of mining and beneficiating sectors within southern African countries. Without prioritising and addressing these factors, governments’ implementation of export prohibitions will probably result in a further contribution to the ‘resource- curse’ which is held over African countries. It is imperative that governments, mining companies and the private sector collaborate to ensure socio-economic growth is achieved for the country and not just the dominant investors (Gbadamosi, 2023).

Dependencies for success and bottlenecks for mining and beneficiation

Mining and beneficiating material efficiently, effectively and consistently is dependent on numerous external factors such as power supply, water availability, labour, rail and road networks as well as capital investment. Without prior rectification of these issues, development of a beneficiation sector would be premature. In addition, a partial or complete ban of critical mineral and metal export (the latter a violation of the world trade law), is not possible without an established industry for beneficiation (Lane, et al., 2022).

By implementing an export prohibition prior to having adequately developed downstream beneficiation capabilities, a government’s intention may be counterproductive, such that foreign capital investment may be withdrawn, trade partners and investors could be lost as well as sanctions and embargos imposed (Harrisberg, Adebayo, & Gill, 2023). Furthermore, an underdeveloped downstream beneficiation sector may not be able to support the material quantities that are produced by the mining companies, which may ultimately lead to job losses in the mining sector due to decreased production requirements. Southern African countries have a comparative advantage for mining activity with significant mineral wealth and diversity, but the competitive advantage of the downstream sectors often remains limited. The success of the development of a beneficiation sector is reliant on significant governmental and private capital to construct, develop and maintain this sector.

Developers of the downstream industries would need to: ensure they have incorporated inclusivity, collaboration and local labour and make the sector appealing to the new generation, as well as for investors (Deloitte Tracking the Trends, 2023). Botswana’s transparency and regulation of taxation and policies have been highlighted as one of the success stories where in-country beneficiation has been implemented. Downstream beneficiation will undoubtedly create jobs through increased labour requirements. However, beneficiation of high value-add products from unprocessed materials requires skilled labour, of which southern African countries have a shortage (Korinek, 2014). Thus, development of downstream sectors may not address the issue of excess unskilled labour. Furthermore, as the world transitions toward automated processes, machinery and production, there will be a decrease in the need for manual labour. Botswana have directed their efforts and export-related revenue into increasing the education and skills of the population (Korinek, 2014) to support their downstream industries.

Mining companies are obligated to consider their impact on the local community, as well as the environment. As a result, hydroelectric power generation, as well as the privatisation of ‘greener’ power generation has benefited both the company involved and the local community. Water consumption demands in mining and beneficiation in southern African countries are high. Increasing water supply constraints, coupled with climate-change based variations in water availability has the potential to lead to increased water cost, increased poverty and inequality, power generation reduction and other factors. The onset of the above seemingly neutralises the key advantages of the implementation of export prohibitions (SADC, 2022).

Power security is a major aspect considered by foreign investors where stable, consistent power generation would ideally precede the development of downstream beneficiation. Power generation in southern African countries remains one of the most prevalent issues faced by numerous sectors. The dependency of mining production on power availability was highlighted in a 2022 report by the Minerals Council of South Africa, where production figures mirrored Eskom’s power generation. Development of an energy-intensive downstream sector for beneficiation will result in increased pressure on the already strained power generating utilities in South Africa, and other countries. An over-stressed power generating utility could lead to decreased mining production with a consequential decreased export revenue, and result in insufficient material availability to support the beneficiation industries that have subsequently been developed.

In conjunction with power supply deficits, rail and road infrastructure also contributes to loss in revenue for the mining sector and poses a significant investor-related risk for the beneficiation sector. A 2022 report showed that South Africa lost approximately R50-billion in export opportunities due to the rail and port constraints (Mineral Council of South Africa, 2022). Furthermore, rail infrastructure has become dilapidated in South Africa (Transnet) and Zimbabwe (National Railway of Zimbabwe), due to the lack of maintenance and ongoing investment. Access to ports and harbours through rail and road networks is a crucial element for operating mines. Beneficiation industries will be required to utilise the existing rail and road infrastructure to move material from the mining site to the beneficiation site. In cases where there is no existing infrastructure between the mine and beneficiation locations, capital investment would be required, or government-approved incentives would have to be implemented to aid beneficiating entities.

Conclusion

It is in the mining sector’s best interest to aid in developing a local value chain that can support a beneficiation sector, maintaining relevance in the country and context in which it operates – as well as for the investor. Mining companies will need to look at inter-sector collaborations to make an impactful contribution to the success of value-add. Collaboration between different regions and sectors to develop value chains has the potential to attract investors. It is thus up to the governments and mining sectors to ensure they position themselves strategically – considering the wealth of deposits, infrastructure gaps, skill of labour and value chain strategies to leverage their position and secure investment. Collectively, collaboration would go on to improve the attractiveness of mining in Africa, prioritise infrastructure development, and augment internal and regional value-add business models.

Poor governance, lack of regulation of existing policies and ineffective taxation that have previously been implemented by African countries have contributed to the ‘resource-curse’, whereby mineral-rich countries have failed to capitalise on their mineral wealth to foster socio-economic growth. In addition, bottlenecks for current mining and future beneficiation activities in southern African countries remain a prevalent issue, with power generation, labour skill, transport infrastructure and capital investment being the main inhibiting factors.

Southern African governments, mining companies and private sectors should place emphasis on the extraction of materials and beneficiation of such material that are strategically beneficial to the country in terms of economic development and availability of inter- state value chain collaboration. Collaboration among these stakeholders and with the downstream sectors for beneficiation will ensure success, and ultimately drive socio-economic growth. Increasing and sustained engagement with multi-sector and inter-state collaboration, and an emphasis on the socio-economic environment, infrastructure gaps, and incorporation of mineral and technological development, will ensure that the implementation of trade restrictions is advantageous to the local environment.

About the Deloitte Technical Mining Advisory Team: The Deloitte Technical Mining Advisory team is Deloitte’s specialist team that provides techno-economic and techno- strategic services to the mining and metals sectors. The team is recognised for their technical abilities in the evaluation of acquisition and divestiture opportunities and preparation of corporate project disclosure. A combination of technical mining advisory skills with strong financial and commercial due diligence skills positions the team favourably within the industry. With significant and credible experience advising mining companies and investors on the techno-economic merits of mineral projects and extensive experience in mineral project transactions, the team is able to assist clients in accelerating their business to a better mining future with the professional expertise spanning the full mineral value chain.

References

1. D (2017). Beneficiation Economics. Retrieved 08 31, 2023, from Department of Mineral Resources: https://www.dmr.gov.za/mineral- policy-promotion/beneficiation-economics
2. Gbadamosi, N. (2023, 08 16). Zimbabwe’s ‘White Gold’. Retrieved 09 08, 2023, from Foreign Policy: https://foreignpolicy.com/2023/08/16/zimbabwe-china-lithium-exports-green-technology-africa/#cookie_ message_anchor
3. Harrisberg, , Adebayo, B., & Gill, J. (2023, 07 19). No more plundering: Can Africa take control in green mineral rush? Retrieved 08 23, 2023, from Context: https://www.context.news/just-transition/no-more-plundering-can-africa-take-control-in-green-mineral-rush
4. Korinek, J. (2014). Export Restrictions on Raw Materials: Experience with Alternative Policies in OECD Trade Policy Papers, 163, 50. doi:http://dx.doi.org/10.1787/5jzb6v86kz32-en
5. Korinek, J. (2018, 07 23). Trade restrictions on metals and minerals. Retrieved 08 27, 2023, from resource trade .earth: https://earth/publications/trade-restrictions-on-metals-and-minerals
6. Lane, , Guzek, J., Marais, H., McFarlane, J., Peters, L., & Nzimakwe, W. (2022). Africa’s role in a clean energy future. Deloitte Touche Tohmatsu,
7. Retrieved 08 2023, from https://www2.deloitte.com/za/en/pages/energy-and-resources/articles/africas-role-in-a-clean-energy-future.html
8. McGregor, , Emvula, C., & Brown, R. (2017). Beneficiation in Namibia: Impacts, Constraints and Options. Institute for Public Policy Research, 48.
9. Mineral Council of South (2022). Facts and Figures Pocketbook 2022. Johannesburg.
10. Rensburg, v. (2022, 05 04). South Africa Transnet Freight Rail. Retrieved 09 08, 2023, from International Trade Administration: https:// www.trade.gov/market-intelligence/south-africa-transnet-freight- rail#:~:text=South%20Africa%20has%20locally%20based,as%20 Traxtion%20(previously%20Sheltam).
11. (2022). Water. Retrieved 08 26, 2023, from Southern African Development Community: https://www.sadc.int/pillars/water-0
12. Subban, (2023, 01 27). Africa: The impact of the African Continental Free Trade Area on the continent’s mining sector. Retrieved 07 23, 2023, from Global Compliance News: https://www.globalcompliancenews. com/2023/01/27/https-insightplus-bakermckenzie-com-bm- international-commercial-trade-africa-the-impact-of-the-african-continental-free-trade-area-on-the-continents-mining- sector_01252023/(2022, 10 20).

Members welcome AfCFTA’s role in fostering economicgrowth and development in LDCs. Retrieved 07 25, 2023, from World Trade Organisation: https://www.wto.org/english/news_e/ news22_e/ldevc_21oct22_e.htm

---