BRIEFING ON UPSTREAM AND DOWNSTREAM MINING …

1 BRIEFING ON UPSTREAM AND DOWNSTREAM MINING LINKAGESP ortfolio Committee on Trade and Industry20 August PROBLEM ISSUES AND SUMMARY POLICY INPUTSRESOURCE 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 ( 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.

2 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 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.

3 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 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.

4 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 exportsTRADE BALANCE-400-300-200-10001002002000200220 042006200820102012R Billion AgricultureMiningManufacturingTrade balance '13* DMR MINING CharterDTI 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 promotionDPE/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 CommissionKEY POLICY AND PROJECT LEVERS MINERAL VALUE CHAIN STUDY DTI initiated Mineral Value Chain Study in Jan 2013 to develop key interventions to advance beneficiation in SA.

5 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 and group metals MINING inputs6.(Work also underway on Oil and Gas)Quantec HS - 4 digit, 2013 Export Value, RandsDownstream PotentialDownstream JobsH7110: Platinum, unwrought, semi-manufactured or powder formR 81 319 519 856 High to mediumMedium (catalysts)H2601: Iron ores and concentrates, roasted iron pyritesR 73 998 564 487 Very HighVery high (manufacturing-autos, construction)H7108: Gold, unwrought, semi-manufactured, powder formR 63 571 314 217 Medium to lowLow (jewellery)H2701: Coal, briquettes, ovoids etc, made from coalR 55 855 559 400 High to mediumMedium (polymers)H7202: Ferro-alloysR 34 821 623 292 Medium to lowLow (SS)H2602: Manganese ores, concentrates, iron ores >20% ManganeseR 15 029 874 497 Medium to lowLow (Fe-alloys & Stainless steel)H2610: Chromium ores and concentratesR 13 131 271 379 Medium to lowLow (Fe-alloys & Stainless steel)H7102: Diamonds, not mounted or setR 12 162 947 876 Medium to lowMedium (jewellery)H7601: Unwrought aluminiumR 11 064 742 022 High to mediumMedium (parts)H2614.

6 Titanium ores and concentratesR 5 999 252 818 High to mediumLow (pigment, metal)H7204: Ferrous waste or scrap, ingots or iron or steelR 4 802 413 299 Very HighVery high (manufacturing)H7606: Aluminium plates, sheets and strip, thickness > mmR 4 584 915 868 High to mediumMediumH2603: Copper ores and concentratesR 4 541 138 458 High to mediumMedium (wire, brass)H7404: Copper, copper alloy, waste or scrapR 4 439 989 630 High to mediumMedium (wire, brass)H2615: Niobium, tantalum, vanadium zirconium ores, concentratesR 4 331 548 972 LowLowH2618: Granulated slag (slag sand) from iron & steel industryR 3 420 317 958 High HighFERROUS VALUE CHAINA ction PlanStatusTimelineLeadSupport1. State utility tariffs to support value additionTNPA and the dti working on framework for Beneficiation Promotion Programme (reduced tariffs for beneficiated goods). Engagement with TFR in progress2014/15Q1-Q4the dti, TNPA, TFRDPE, DOT2. Industry analysis, opportunities in the DOWNSTREAM steel sector (wire, tube, )Study to develop key action programmes in progress2014/15 Q1-Q3the dti, IDC, SAISID espite coal feedstock advantage, IPP has severely constrained the DOWNSTREAM industry, Sasol s vertical integration reinforces market powerPOLYMERS VALUE CHAINA ction PlanStatusTimelineLeadSupport1.

7 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 Q1the dti, DOE, DMRDST, PASA, CEF 2. Plastics sector strategy completed key interventions:-Cluster development (skills, training, testing)-Assess current incentivesthe dti will facilitate the development of the cluster with Plastics SA and deploy policy instruments to support DOWNSTREAM manufacturers2015/16the dtiEDD, IDC3. Leverage state procurement of plastic products plastic pipes for constructionDesignation study on 20 construction material inputs into infrastructure program DWA strategic sourcing program 100% localisation of plastic pipes2014/15 Q1 - Q3ongoingthe dti, EDD (PICC), IDC, DWANT4. New player:Eco-industrial project Musina SEZ Feasibility project for the development of coking coal, polymer, ammonia and urea plant2014/15 Q1 Q4the dtiIDCL everage SA producer power status to stabilise PGM prices, supply and facilitate local beneficiationPLATINUM GROUP METALSA ction PlanStatusTimelineLeadSupport1.

8 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 frameworkUnder 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 Q3the dti (Autos and Primary Minerals)DMR, NT, DST2. Fuel cells PGM SEZ programmes in support of commercial fuel cell opportunities HySA HRD and technology development initiative-Feasibility project to demonstrate stationary fuel cell for collaboration with Japan and/or Germany-Dev of prototypes , demonstrators and commercialisation2014/15Q1-Q42014-2018th e dti (SEZ and Primary Minerals, ITED), DSTDOE3. PGM Loans - Engage PGM miners, SA banks, the IDC to provide low cost PGM loans to local fabricatorsMining companies to be approached to extend this to other fabrication industries2014/15Q3-Q4the dti, DMR, IDC>90% is used in production of Ti pigment (SA market is small), Limited job creation potential in the primary industry but more significant potential downstreamTITANIUM Action PlanStatusTimelineLeadSupport1.

9 Investigate the viability of unlocking the vast magnetite resources in the Bushveld complex to produce iron-ore/steel and titaniumScoping study on Bushveld complex2014/15 Q4 2015/16 Q2the dti, IDCDMR, DST2. Incentives to stimulate energy efficient processing and beneficiationSA plants conversion to efficient technologies (including cogeneration from off-gases) to reduce electricity costsCurrent incentives in support of energy efficiency 12i (green and brownfield) and 12L tax incentives, MCEPO ngoingDOE, the dtiDST3. Ti metal powder industry developmentDST Ti initiative based on novel process for production of Ti metal powder and DOWNSTREAM aerospace and medical componentsProof of primary production and additive manufacturing technology at pilot scaletba2014/15 2015/16 DST, CSIR, IDCthe dtiMINING INPUTSM ining 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 localAction PlanStatusTimelineLeadSupport1.

10 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 developmenttba2014/15 DMRthe dti2. 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 Q22014/15Q2 2015/16 Q2the dtiDMR, DST, IDC3. Development of supplier clusters to collectively address challenges and opportunities Competitiveness Export Promotion Development of capabilities -SACEEC (Export council) and dti are strengthening clusters ( minerals processing equipment)-TIPS study on linkages , lateral migration and regional integrationongoingthe dti, DST DMR4. R&D and skills development critical for technology intensive sector R&D requirements will be identified through clusterstbaDST, the dti, CSIRCONCLUSION 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/agencies16 THANK YOU17