Zimbabwe: Beneficiation - Intervention More Effective Than Threats

After facing increased pressure from government to beneficiate and add value to the country's minerals, especially platinum, miners will meet for a beneficiation symposium next month to be hosted by the Chamber of Mines.

Platinum producers are also said to have submitted plans for the building of a refinery. Government proposed a 15% tax on raw platinum exports effective this month and a total ban by the end of the year. This threat, if not carefully used, has the possibility of crippling platinum producers' operations, depriving the country of the much-needed export revenue.

The idea of building a platinum refinery to enable the beneficiation of the mineral has been the subject of much debate for a number of years. Although the idea of setting up a platinum refinery is worth pursuing in the long-term, producers argue that it is not economically viable at this point.

For instance, total production per annum currently stands at approximately 400 000 tonnes. A minimum annual throughput of at least 500 000 tonnes is said to be needed for the refinery to at least break even. This minimum output will justify the capital costs needed for a refinery to be financially viable. It will not make economic sense to invest money in a project that will not generate a positive return.

An estimated US$2,8 billion is needed for production to increase by approximately 100 000 tonnes to reach the breakeven output. This amount is required to be invested in the mines while the building of the refinery itself requires an estimated US$2 billion. With the current liquidity situation and the burden of indigenisation laws, it will be difficult to raise the required amount at least in the short-term.

While government could assist, it is financially constrained with limited borrowing options. Producers will have to fund the project themselves or bring in a technical partner with know-how and deep pockets. Platinum companies like Zimplats, through its major shareholders, could raise the required amount in international markets if the project is bankable. Nevertheless, investors may not be willing to put that kind of money into Zimbabwe because of the risk factor and the indigenisation laws. In addition, Zimplats was pressured into signing the community share ownership trust, hence could be unwilling to invest more after that.

Huge investments in power generation are also required if the project is to operate successfully. Early stages of beneficiation require a large and dependable supply of energy and currently there are limited investments in energy sources coupled with inefficient energy utilisation. National production is 1 200 megawatts against a demand of 2 200 megawatts. Producers at one point indicated that between US$200-US$500 million was required to increase power supply which is a huge investment. Lack of adequate investment in power could cripple operations similar to the situation at Sable Chemicals where production has been halted by substantial electricity demands which cannot currently be met.

In addition to electricity, there is need to invest in infrastructure in terms of access, costs and logistics. Currently, the country is lagging behind in terms of infrastructure development due to lack of funds. It is also a pre-requisite to invest in skills and education.

The highly specialised skills needed to build and run a refinery will not come cheap. Presently, the country has a shortage of skills due to the brain drain. Convincing skills from abroad to come and work in Zimbabwe will be a daunting task. Research and development requires critical skills and the supply pipeline for scientists and engineers requires specific attention. Necessary investments will be needed in technology and training institutions to advance skills and technology development as there is currently limited innovation.

On the flip side of the coin, if the project is planned and executed properly, it could provide immense benefits for both producers and the economy. This requires considering all critical factors and the formulation of viable solutions on how the various aspects should be addressed. Using threats and setting unrealistic deadlines is unlikely to work.

Zimbabwe is the second richest country in the world in terms of platinum reserves and the eventual need for a refinery cannot be overemphasised. Raw platinum exports contribute about 31% to total mineral output, which is substantial. With the huge reserves, beneficiation has the potential to increase export revenue and counter fluctuating prices of raw platinum on the international market.

Beneficiation allows control of the value chain and as the second biggest producer, we may be able to influence prices on the international market. Manufacturers will be encouraged to make increased use of platinum while developing markets and enhancing the quantity and quality of exports.

However, there is need to establish access to international markets for beneficiated products. Trade barriers and embargoes might hinder access to lucrative markets. Again, emerging international trends are worrying where end users of processed platinum, mainly in the motor industry, are already exploring alternatives to the metal owing to its prohibitive price. One such discovery has been palladium which is much cheaper. Discovery of such alternatives might impact on pricing and hence might not be a helpful development going forward. All this has to be taken into consideration.

Beneficiation can also create opportunities for new industries through the diversification of the economy as the country moves away from primary producer status toward manufacturing-based industrialisation. This can open opportunities for increased foreign direct investments turning the comparative advantage we have of being resource-rich into a competitive advantage. There are also other metals to be gained from the refining process which could be sold locally or exported, examples of which are nickel and rhodium.

As the industry grows and the economy diversifies, jobs are created.

Small and medium-sized industries can emerge. The current arrangement where platinum is refined mainly in South Africa is tantamount to exporting jobs at a time when domestic unemployment levels are high. There are also benefits to be gained from technology advancement, skills transfer and research and development. This will lead to the strengthening of the knowledge economy leading to further economic growth.

As mentioned before, critical factors need to be addressed and intervention is required from all stakeholders, particularly government, to mitigate the constraints and not solely put the burden on producers. Government has an active role to play to enable an orderly development of beneficiation that benefits the entire population.

The project costs money and there is need to work out a plan on who is going to provide the funding and what returns they can expect to result.

Government has to improve infrastructure, support and develop competitive technologies through the national ICT plan. Furthermore, government can offer incentives to producers to motivate them towards the project. These might include tax reductions, the development of transport corridors and special economic zones as well as training allowances. Policies and legislation should also be flexible.

The current laws on indigenisation are not healthy. In essence, the government's function is to create an enabling environment which allows all the nation's minerals, not just platinum, to be developed in an orderly manner while promoting sustainable social and economic development.

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