Mineral Beneficiation
‘Resource Nationalism’ is on the rise globally! In-Country mineral beneficiation is currently a priority for governments of resource rich countries around the world. Essentially, they wish to utilise the potential of mineral beneficiation to create local employment and in turn drive economic growth. 'Resource Nationalism’ is on the rise.
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For example: South Africa is also finalising and adopting a beneficiation strategy as an official policy. In June 2011, the South African Government put in place a strategy that identified a number of different instruments such as policies, legislation and initiatives to incentivise beneficiation.
Developing Countries are playing a much bigger role in global economic growth. The ‘BRIC’s now account for 20% of world trade as opposed to less than 10% in 2001. In the BRIC countries alone, Goldman Sachs estimates that 500 million new middle class consumers (defined as $6,000 to $30,000 annual income) were added between 2000-2010 and that 800 million will be added between 2010 and 2020, which is as much as the entire global population grew from 2000-2010. Jim O’Neill (past Chairman of Goldman Sachs Asset Management), who coined the acronym ‘BRIC’ in 2001, believes the BRICs (along with some other rising stars such as Mexico, Indonesia, South Korea and Turkey) are the growth engines of the world economy today and in the future. |
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Background of Beneficiation
Historically, a large majority of the value extraction process has traditionally taken place outside of resource rich countries. For the most part, the main value is extracted once the ore has been developed into a highly concentrated product and sold to the consumer. This process is called mineral beneficiation.
Essentially, the value extraction of the ore and mineral being focused on by the Company can be broken down into the following stages or related aspects of these, being:
Essentially, the value extraction of the ore and mineral being focused on by the Company can be broken down into the following stages or related aspects of these, being:
- First: actual extraction of the ore, the concentration of the particular mineral into concentrates and the further beneficiation of the mineral into a commercial product which is classed by industry standards -for example 15-25% Run Of Mine (“ROM”) chrome ore upgraded to circa 25% to 35% chrome concentrate or 30%-50% ROM iron ore being upgraded to 62%-66% iron ore.
- Second: the mineral is enhanced by other metals and a carbon energy source to create a metal alloy. Generally this process is implemented to meet industry standards.
Source - Deloitte ‘Mineral Beneficiation – Creating More Value’
Market access has been the main reason why mineral beneficiation has occurred outside of resource rich countries. After the Second World War there was a rapid rebuilding programme in Europe and Japan, as well as urbanisation in the United States leading to increased market demand for the final product in industrialised countries using minerals sourced from resource rich countries. In addition, consumer demand was increased by considerable innovations in developed Countries this included; the development and extensive use of household appliances and electronics, use of automobiles and the development of the commercial airline industry.
Historically, the transportation of large quantities of un-beneficiated ores was relatively cheap due to lower oil prices. This resulted in lower logistics costs compared to today and also contributed considerably to the beneficiation of minerals outside of resource rich countries.
Global Economic Outlook
During the financial crisis of 2008, the growth of developing countries (with China and India leading the group with economic growth rates of 8.7% and 7.4% in 2009) confirmed that the globe is entering a new growth phase for natural resource goods and services.
China’s GDP has grown at a staggering annual average of 9.5% over the last 20 years. Contemporaneously, there has been intense industrialisation and urbanisation which drove China’s consumption of mineral commodities at an unprecedented rate. China consumed 30% of the world’s steel, higher than EU and USA combined.
Historically, countries in their early stages of development use long steel (i.e rail track & structural steel for rails and bridges) for construction and infrastructure purposes whereas developed countries use flat steel (white appliances, ships & cars). The USA, South Korea, Japan and Taiwan have seen a tapering off of steel consumption from a high saturation point between US$15,000 and $20,000 GDP per capita. China’s GDP in 2009 was just over US$ 4,952 per capita far lower than the US level. However, if China’s growth replicates that of the above 4 Countries above its demand for and consumption commodities will continue.
The aggregate GDP of BRICs (representing 33% of the world economy) has grown 4x over the 10 years to 2010 (twice the rate of the world economy). BRIC GDP growth in that period 10 years to 2010 added the equivalent of a new Japan plus a new Germany (or 5x new United Kingdoms) to the world economy. Source: Jim O’Neill (Chairman of Goldman Sachs Asset Management), Viewpoints from the Office of the Chairman.
Despite the economic crisis, most BRICs continue to grow at rates of circa 6-10% annually, much of which is now driven by domestic consumption.
China’s GDP has grown at a staggering annual average of 9.5% over the last 20 years. Contemporaneously, there has been intense industrialisation and urbanisation which drove China’s consumption of mineral commodities at an unprecedented rate. China consumed 30% of the world’s steel, higher than EU and USA combined.
Historically, countries in their early stages of development use long steel (i.e rail track & structural steel for rails and bridges) for construction and infrastructure purposes whereas developed countries use flat steel (white appliances, ships & cars). The USA, South Korea, Japan and Taiwan have seen a tapering off of steel consumption from a high saturation point between US$15,000 and $20,000 GDP per capita. China’s GDP in 2009 was just over US$ 4,952 per capita far lower than the US level. However, if China’s growth replicates that of the above 4 Countries above its demand for and consumption commodities will continue.
The aggregate GDP of BRICs (representing 33% of the world economy) has grown 4x over the 10 years to 2010 (twice the rate of the world economy). BRIC GDP growth in that period 10 years to 2010 added the equivalent of a new Japan plus a new Germany (or 5x new United Kingdoms) to the world economy. Source: Jim O’Neill (Chairman of Goldman Sachs Asset Management), Viewpoints from the Office of the Chairman.
Despite the economic crisis, most BRICs continue to grow at rates of circa 6-10% annually, much of which is now driven by domestic consumption.
The New Climate of Beneficiation
The emergence of new regions of economic growth, in particular Asia, together with higher logistics costs and resource nationalism has changed the mineral commodity economy.
The drivers for increased future beneficiation in resource rich countries include:
Source - Deloitte – ‘Positioning for mineral beneficiation – Opportunity Knocks’
As stated in point 1 above, Governments of resource rich countries are legislating towards ‘In Country Beneficiation’. In July 2011, the Indonesian Minister of the Economy announced their intention to ban the export of unprocessed and unrefined products as of 2014. Similarly, the Indonesian Minister of Energy & Resources has circulated draft Regulations for “Value Added Upgrading of Minerals and Coal through processing and Refining Activities” commencing in January 2014. India’s Steel Minister has called for a complete ban on Chrome ore exports.
In June 2011, South Africa’s President Jacob Zuma stated that mineral beneficiation is a priority for his government and policies and legislation will be put in place. South Africa is a good example of why ‘in-Country beneficiation’ will enhance the value of exports, increase sources and provide opportunities for sustainable employment. The gross revenue from sales of all minerals in South Africa for 2010 amounted to R227 billion. However, of that figure just R86 billion was generated from processing metals equating to 11% of the total minerals produced. Further, South African non-energy in-stitu mineral wealth is estimated at US $2.5 trillion (Citi Bank report May 2010) making the country the one of the wealthiest mining jurisdictions. However, like most resource rich countries its mineral resources are exported as raw materials or partially processed. The South African Government is calling for a ‘paradigm shift in mineral beneficiation’.
The drivers for increased future beneficiation in resource rich countries include:
- Government pressure to beneficiate minerals to create jobs and increase tax revenue.
- Increased logistics costs, which make the transportation of raw materials more costly.
- Increased global industrialisation, including; resource rich countries enabling access to skills, expertise and technology.
- Carbon reduction initiatives; the transportation of finished products could potentially lead to lower carbon emissions.
Source - Deloitte – ‘Positioning for mineral beneficiation – Opportunity Knocks’
As stated in point 1 above, Governments of resource rich countries are legislating towards ‘In Country Beneficiation’. In July 2011, the Indonesian Minister of the Economy announced their intention to ban the export of unprocessed and unrefined products as of 2014. Similarly, the Indonesian Minister of Energy & Resources has circulated draft Regulations for “Value Added Upgrading of Minerals and Coal through processing and Refining Activities” commencing in January 2014. India’s Steel Minister has called for a complete ban on Chrome ore exports.
In June 2011, South Africa’s President Jacob Zuma stated that mineral beneficiation is a priority for his government and policies and legislation will be put in place. South Africa is a good example of why ‘in-Country beneficiation’ will enhance the value of exports, increase sources and provide opportunities for sustainable employment. The gross revenue from sales of all minerals in South Africa for 2010 amounted to R227 billion. However, of that figure just R86 billion was generated from processing metals equating to 11% of the total minerals produced. Further, South African non-energy in-stitu mineral wealth is estimated at US $2.5 trillion (Citi Bank report May 2010) making the country the one of the wealthiest mining jurisdictions. However, like most resource rich countries its mineral resources are exported as raw materials or partially processed. The South African Government is calling for a ‘paradigm shift in mineral beneficiation’.