SA mining sector jolted by government chrome tax, beneficiation proposals

The South African mining sector has reacted with alarm to government proposals to impose an export tax and quotas for the chrome industry and to attach beneficiation measures to the issuance of mining rights.

The proposals surfaced in an industrial development strategy issued this week by the Department of Trade, Industry and Competition.

Beneficiation is the artless term that speaks to the processing of raw minerals and metals into finished, industrial products. And a tax on chrome exports is seen as one way of achieving this goal by supporting a domestic ferrechrome industry that has collapsed in the face of surging power prices and Chinese dominance.

“Institute export tax and quota for the chrome industry,” is one of the policy targets laid out in the document.

“A review of mining legislation on the allocation of mineral rights is critical to enable the government to attach conditions that must facilitate beneficiation. This shift is crucial because it will allow beneficiation objectives to be embedded in mining licensing decisions,” it says.

That would effectively boil down to: if you want a mining right, show how you plan to transform the minerals into a higher-value end product in South Africa.

Against the backdrop of mounting concerns in the South African mining industry about BEE and other clauses in a draft Minerals Development Bill and the endless delays in the launching of a transparent mining cadastre, the Minerals Council SA said these proposals would deliver another blow to investor sentiment in the sector.

“It is an unfortunate policy intention from the Department of Trade, Industry and Competition, which, while not yet a law, adds to the incessant policy uncertainty that is constraining investment and growth of the mining industry and the economy,” said the council’s CEO, Mzila Mthenjane, on the sidelines of the Junior Mining Indaba in Johannesburg on Tuesday.

“Mining and beneficiation are separate and distinct economic sectors in the mineral value chain. Beneficiation cannot, and must not, be imposed on mining because beneficiation forms part of manufacturing and overall industrialisation.”

In a statement, the council — whose members represent 90% of South Africa’s annual mineral production by value — said it would engage with the government on the proposed policies.

“The Minerals Council reiterates that the supply of chrome ore for South Africa’s ferrochrome industry is not the reason for the reduced level of smelting of the key ingredient for stainless steel production,” said the council.

“Electricity tariff increases of more than 900% since 2008 have made South Africa’s ferroalloys industry globally uncompetitive and shut unprofitable smelters.”

On that front, there has been some progress in reducing the power costs for producers.

“The reduction in electricity prices for Glencore Ferroalloys and Samancor to restart their smelters is a much-needed intervention and underscores the Minerals Council’s position that competitive electricity tariffs and not restrictions on chrome ore (or other mineral) exports will support the ferroalloys industry and future beneficiation and industrialisation,” said the council.

This is a broken record, and the tune is getting stale: the government floats policies to force industrialisation by the state — measures that are undermined by state failure in the first place and which are seen by business as deterring rather than encouraging investment.

The result is seemingly endless gridlock, policy uncertainty and constant contestation between the state and business at a time when they have worked together to produce positive results in other areas. DM