A different kind of mining problem looms

WHEN ANC policy conference delegates meet at Gallagher Estate in Midrand this week, one of the thorniest issues under discussion will be the nature of state intervention in the mining sector.

The discussion comes at a critical time for local mining as it battles to sustain its existence. For some mineral commodity sectors, if these difficulties continue for a few more months, the threat of mass retrenchments cannot be ruled out.

Last week we heard about Aquarius Platinum's decision to suspend operations at its Marikana joint venture mine in Rustenburg, North West, due to unfavourable international market conditions and high operating costs.

The market is currently oversupplied with platinum. This has pushed the price of the metal below where mines need to operate without suffering losses. Marikana is likely to be followed by other platinum mines if the situation continues as expected.

While the difficulties of the platinum sector have jolted the government, labour and platinum companies to urgently seek solutions, there is another sector that is facing imminent collapse and total deindustrialisation.

This is the local ferrochrome industry, home to 82% of the world's chrome reserves, including chrome tailings from platinum mines.

Despite holding so much of the metal in the ground, in the past five years South Africa has been sharply increasing chromite ore exports to China. This has enabled China to beneficiate this ore into ferrochrome, a key ingredient for its growing stainless steel industry.

Despite not having a single gram of chrome underground, the Chinese have increased their share of global ferrochrome production from 5% in 2002 to 30% currently.

China imports ore from various countries but most of it is from South Africa. Because of this, South Africa's share of global ferrochrome exports has fallen from 57% to 34%.

Discussions between ferrochrome companies and the government began more than five years ago when the trend started accelerating. While these talks are continuing, there is still no solution in place. The situation has now developed into a full-blown crisis, with 36% of smelting capacity lying unused.

While most ferrochrome companies have managed to stave off retrenchments, they now look likely in this sector that employs 200000 people.

Ever astute in its national interest, China has so far amassed 3-million tonnes of chromite ore stocks, more than half of it from South Africa.

It has also introduced taxes and regulations which prevent the export of ferrochrome from China to any other country, including South Africa.

Now the Chinese have an advantage because they might halt chromite ore and ferrochrome imports for a while, if they wanted, forcing the price of both to crash, which would shut down the local ferrochrome industry.

Meanwhile, Anglo Platinum says it will export a further 2.4million tonnes of chromite ore to China next year.

This despite the two countries having a bilateral agreement which states that China shall beneficiate South African minerals within our borders.

But such beneficiation has not happened. Instead, there is a South African company currently building a beneficiation smelter in China where it will use South African chromite ore!

The ferrochrome sector is critical to the South African economy, and its imminent destruction will present serious problems. The chrome sector's massive employment will immediately come under threat, as will the sector's current R42-billion contribution to the economy.

Obviously, the tax contribution from ferrochrome has already declined as chromite ore has less local economic contribution than ferrochrome.

There is a solution to this accelerating crisis - intervention by the South African government to regulate the export of chrome ore. It is currently a free for all.

This intervention would have two main purposes.

The first is to stop the oversupply of chrome ore as that will soon destroy the entire industry. The second is to support local beneficiation, sustain existing jobs and create new economic opportunities.

We have proposed to government that $100 per ton should be levied on the export of unbeneficiated chrome ore.

This "tax" is a short-term measure to allow government and the mining industry to work on a sustainable long term solution.

Formulating new legislation, which this may require, can take up to several years.

A levy, however, is an instrument of our industrial policy. According to our law, the finance minister can authorise such a levy after weighing up available evidence.

If nothing is done, ANC conference delegates in December and South Africans in general might be dealing with a completely different kind of mining problem: mass retrenchments followed by the shutdown of a technologically advanced, mature sector developed by South Africans.

• Zanele Matlala is chief executive of Merafe Resources, a JSE listed local ferrochrome company