Mining DG cool on DTIC’s forced mining beneficiation plan

In a revealing exchange at the Junior Mining Indaba on Tuesday, reflecting inter-departmental tension over the idea of forced mining beneficiation, Jacob Mbele, the director-general of the department of mineral and petroleum resources (DMPR), described the forced beneficiation policy of the department of trade, industry and competition (DTIC) as “a proposal”. 

Mbele was trying to be as diplomatic as possible, but his “kick for touch” answer reflects how far the DMPR has moved away from the forced mining beneficiation ideas it once quasi-endorsed, following sustained pressure from the industry.

The exchange came after conference chair Bernard Swanepoel read from the DTIC’s newly published industrial development strategy (IDS), approved by cabinet last week, which proposes a review of mining legislation so that the state can attach beneficiation conditions to the allocation of mineral rights.

The document says this shift would allow beneficiation objectives to be “embedded in mining licensing decisions”. It also places a chrome export tax and quota squarely back on the government’s industrial-policy agenda, despite previous indications from the mining department that such a tax, on its own, would be a “blunt instrument”.

Swanepoel, a former Harmony Gold CEO and one of the industry’s more direct interlocutors with government, said the wording gave him “that uncomfortable feeling” he had before the first leaked Mining Charter.

“This government document that I read at four o’clock this morning says: ‘A review of mining legislation on the allocation of mineral rights is critical to enable the government to attach conditions that must facilitate beneficiation,’” Swanepoel told the panel.

“How is this not policy uncertainty? Where are you in this conversation? This is the [DTIC’s] industrial policy document that got circulated yesterday. It goes on to talk about tax on chrome exports. I was reliably told that the conversation between you two guys was going away from that.”

The bluntness of the question cut through what had until then been a familiar mining-policy discussion about administrative failures, the slow rollout of the mining cadastre, regulatory bottlenecks and the difficulty of raising capital for junior miners.

Asked specifically whether attaching beneficiation conditions to mining licences is within the DTIC’s domain, and whether the mining department was aware of the proposal, Mbele replied: “No, it is not, but it’s a proposal that they’re putting forward.”

He added that “what is the law is what goes into the legislation” – a formulation that appeared designed to make two points at once: the DTIC may have policy ambitions, but mineral-rights allocation remains the legal terrain of the mining department; and the IDS does not, by itself, amend the mining-rights regime.

Taxing the symptom?

Minerals Council South Africa CEO Mzila Mthenjane, sitting on the same panel, said the industry has been involved in discussions with the DTIC around chrome tax in the course of resolving what has become, in practice, an electricity issue for ferrochrome producers.

Those discussions, he said, have been constructive, particularly because affordable and reliable electricity is the foundation of industrialisation and beneficiation.

For years, the government has wanted South Africa to process more of its minerals at home, rather than export raw or semi-processed material and allow the larger share of value-addition to take place elsewhere. Chrome has been the most obvious test case. South Africa has some of the world’s largest chrome resources, but its ferrochrome industry has been battered by high electricity prices, unreliable power supply and international competition, particularly from China.

The IDS now proposes a package of interventions for chrome: an export tax and quota, tariffs or negotiated pricing arrangements for the sector, and the designation of Bojanala and Fetakgomo-Tubatse special economic zones for chrome beneficiation.

The political appeal is obvious. The policy question is whether the state is solving the real problem or merely taxing the symptom.

The mining industry’s argument has long been that there is no shortage of chrome ore available to domestic smelters. The problem, it says, is that smelting has become uneconomic in South Africa because electricity prices have risen so sharply and supply has been so unreliable. On that reading, an export levy would not create beneficiation; it would simply penalise miners for the failure of power policy.

The government’s counterargument is that an export tax, if combined with cheaper power and industrial support, could help restore South Africa’s lost ferrochrome capacity. That is why the new preferential electricity tariff for ferrochrome producers is so important. It allows the state to say the chrome tax is no longer being proposed “in isolation”, but as part of a wider industrial package.

Yet the indaba exchange showed that the package is not yet politically or administratively coherent. Mbele did not attack the DTIC document, but he did not embrace it either. His answer suggested that the mining department is wary of allowing industrial-policy ambitions to be smuggled into the mining licensing system without a proper legislative process.

That is significant because the DMPR has itself historically flirted with stronger beneficiation obligations. Previous iterations of mining policy often treated beneficiation as a developmental imperative, and the state has repeatedly argued that South Africa must extract more domestic value from its mineral endowment. But Mbele’s response suggests the department is now more focused on repairing the basics: licensing, cadastre, administrative competence and interdepartmental co-ordination.

Policy uncertainty

Earlier in the panel, Mbele pushed back against the phrase “policy uncertainty”, arguing that South Africa’s problem is not uncertainty at the high political level, but administrative shortcomings in the execution of policy.

“If we keep on saying policy uncertainty, we’re going to end up fiddling at the wrong place, with the laws, when it’s actually not the laws,” he said. “The laws are clear.”

He conceded, however, that the department has real administrative failures to fix. Applicants wait too long for permits or licences, and sometimes receive documents with errors that take months more to correct. That is “unacceptable”.

Mthenjane challenged the distinction, saying policy certainty is not the same thing as political risk. The problem, he said, is often experienced by companies in the day-to-day functioning of the system: an applicant goes to the mining department, then to water affairs, then to the environment department, while different offices interpret the rules differently. If regional offices exercise discretion differently from head office, he said, that is experienced by investors as policy uncertainty.

Rolling out the new cadastral system

Fred Arendse, founder and president of the Junior Mining Council, put the junior miners’ concerns more sharply: “Sometimes government doing nothing will help the industry.”

Arendse said juniors are fundamentally different from the major mining houses and cannot bear the same compliance and reporting burdens. He also said the sector has asked for less ministerial discretion in the new mining legislation, arguing that if applicants follow rules one to five, the outcome should be predictable.

That concern goes directly to the IDS proposal. If beneficiation conditions are attached to mineral rights, the discretion of the state in deciding who gets mining rights, and on what terms, could expand significantly. For junior miners trying to raise exploration capital, that is not a theoretical issue. It goes to whether investors can understand the rules before writing the cheque.

The discussion also touched on the long-delayed mining cadastre, another central source of frustration for the industry. Mbele said the Western Cape has fully migrated from the old Samrad system onto the new cadastral system, with three unassisted applications already submitted. The department now plans to move to the Free State, KwaZulu-Natal and the Eastern Cape, before tackling more complicated provinces such as Mpumalanga, Limpopo and North West.

Pressed by Swanepoel for a date, Mbele said the department has set itself a target of rolling the system out to all nine provinces by the end of the financial year – March 31 next year.

That promise will be closely watched. The department receives about 2,800 applications a year and processes about 2,500, Mbele said, creating a rolling backlog. A functioning cadastre is supposed to reduce that burden by automatically rejecting defective applications and giving investors a clearer picture of what ground is available.

Council for Geoscience CEO Mosa Mabuza tried to pull the discussion back to the positive story. He said public geoscience data is the starting point for a new generation of explorers and that the council has completed 20% of South Africa’s onshore mapping at a more detailed scale – about 260,000km². The council has also launched a data portal and a virtual core library, making geological information more accessible to explorers.

But the dramatic moment of the day remained Swanepoel’s question about the DTIC document. The IDS is supposed to be a co-ordinated, whole-of-government industrial strategy. Instead, its first mining-sector stress test exposed exactly the problem it says it is trying to solve: departments with overlapping ambitions, different legal mandates and uneven consultation with the industry affected by their plans.

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_{Top image: Department of mineral and petroleum resources director-general Jacob Mbele. Picture: Junior Mining Indaba.}