Mineral Resource Based Growth Pole Industrialisation Growth Poles and Value Chains

Revamping the Regional Railway Systems in Eastern and Southern AfricaMark Pearson and Bo GiersingRegional Integration Research Network Discussion Paper (RIRN/DP/12/01)

Mineral Resource Based Growth Pole Industrialisation Growth Poles and Value Chains

Regional Integration Research NetworkOpen Dialogues for Regional Innovation

C.C. Callaghan

Mineral Resource Based Growth Pole Industrialisation – Value Chains Report

Page i

Preface

Since its establishment in 2009, Trade Mark Southern Africa (TMSA) has supported the

Tripartite of the Common Market of Eastern and Southern Africa (COMESA), the Southern

African Development Community (SADC) and the East African Community (EAC), in

developing and implementing its regional integration agenda. This involves supporting the

design and planned implementation of the Tripartite Free Trade Area (FTA), improving the

economic competitiveness of the region and reducing costs of cross-border transactions

through a transport corridor approach addressing both trade facilitation issues and

infrastructure constraints.

Focused industrial development is essential in the COMESA-EAC-SADC Tripartite region to

fundamentally change the economy and to promote high yield sectors. Such development

brings not only an improvement in the GDP and job provision, but promotes knowledge

accumulation and technological sophistication that have far reaching benefits for the

economy.

This research was conducted under the topic “Tripartite ‘Growth Pole’ Diagnostic Reports:

Analysis of Potentials and Prospects for Minerals-Based Industrialisation.” The research is

packaged in four (4) Sub-Sector Reports on hydrocarbons, ferrous metals, base metals and

phosphates and a Consolidated ‘Growth Poles’ Report. The reports profile and prioritise a

number of potential regional ‘growth poles’ throughout eastern and southern Africa. In the

‘first sort’ each known minerals deposit was analysed through three (3) filters as follows:

1. By size of deposit (size of known indicated resource);

2. By status of deposit (levels of investment in developing the deposit); and,

3. By ‘expert group’ assessment (market conditions and supporting infrastructure).

The research reviewed available information on mineral deposits and the status of their

development and analysed the extent to which realisable mining and mineral development

opportunities can contribute to and enhance regional development. Data constraints limited

the research to the Eastern and Southern Africa region and defined a limited number of

plausible ‘growth poles’, which could provide a platform to accelerate industrialisation in the

region.

The results from these three filters were then combined through a ‘second sort’, which

enhanced the analysis by clustering minerals within a defined locality into potential ‘growth-

pole’ value chains. In line with ‘growth pole’ theory the basis for any prioritisation was

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whether the initial ‘critical mass’ of investment had been achieved. The minimum critical level

of investment is considered to be achieved when five key pre-conditions have been met,

namely:

1. A recognised global multi-national corporation (MNC) has made a significant

investment in developing a mineral deposit or a cluster of mineral deposits;

2. Such an investment commitment reflects that the regulatory environment for trade

and investment in sufficiently robust to support large-scale projects;

3. Similarly, this size of investment in developing a world-class resource confirms that

the long term global market outlook for the target commodity is equally robust;

4. It also acknowledges that any supply-side infrastructure constraints can be overcome

by the projects cash-flows and that infrastructure development itself represents an

opportunity for the lead developer, in the transport and energy sectors for example;

and,

5. Finally, the participation of a strong ‘anchor’ investor substantially strengthens the

prospects for developing upstream linkages to local suppliers and new downstream

industries as a result of the presence of and initial investment by the global mining

company.

In addition to these pre-conditions the research also considers two additional criteria to

prioritize ‘growth-pole’ potential. The first was the extent to which the value-chain could be

developed given prevailing market conditions, and the second was whether value-chain

linkages straddle national borders to assume a regional posture.

Based on these considerations the following seven (7) regional growth poles were prioritised

in order of potential:

1. Tete, Mozambique – Southern Malawi (Hydrocarbons, Ferrous Metals and

Phosphates);

2. Copperbelt, Zambia – Copperbelt, DRC (Base Metals);

3. Cabinda, Angola – Bas Congo, DRC – Soyo, Angola (Hydrocarbons and

Phosphates);

4. Rovuma Basin, Mozambique – Ruvuma and Songo-Songo Basins, Tanzania

(Hydrocarbons);

5. Lephalale, South Africa – Morepule, Botswana (Hydrocarbons);

6. Kabanga, Tanzania – Musongati, Burundi (Base Metals); and,

7. Central Zimbabwe – Central Mozambique (Hydrocarbons and Ferrous Metals).

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An initial scoping study is currently being conducted to develop a fuller picture of the Tete,

Mozambique – Southern Malawi ‘Growth Pole’, which has been expanded to include

Eastern, Zambia, in collaboration with the World Bank and the governments of Malawi,

Mozambique and Zambia.

TMSA, under its Regional Integration Research Network initiative, commissioned Chris

Callaghan to conduct the research. Chris Callaghan is an independent consultant whose

career includes stints as a Mining Sector Specialist at the Development Bank of Southern

Africa (DBSA) and a Senior Manager at MINTEK South Africa, the state-run Mining

Technology Research Institute. The TMSA lead was Graham Smith, TMSA Programme

Manager - Corridors. The study benefited particularly from guidance and inputs by Dr.

Judith Fessehaie, TMSA Industrial Development Expert and Mr. Bo Giersing, TMSA Ports

and Railway Specialist, Mr. Jurgens Van Zyl, an independent Mining and Development

Finance Specialist, currently under contact to Business Leadership South Africa (BLSA) and

Dr. Paulo Fernandes, a Logistics Specialist at Mott MacDonald/PDNA South Africa. These

individuals ‘peer reviewed’ the prioritisation methodology, which underpinned the selection of

the Growth-Poles. Other TMSA colleagues provided some early inputs into the terms of

reference for the study.

More Information

The reports can be downloaded on the TMSA website at

www.trademarksa.org/publications/mineral-resource-based-growth-pole-industrialisation

Reports include the Consolidated Growth Poles and Value-Chains Report and four (4) Sub-

Sector Minerals Reports on Hydrocarbons (Coal, Oil and Gas), Ferrous Metals (Iron and

Steel), Base Metals (Chrome, Manganese, Nickel, Vanadium, Copper, Zinc and Lead) and

Phosphates report.

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Table of abbreviations

Billion cubic metres per annum bcmpa

Billions of tonnes bt

Billions of tonnes per annum btpa

Chrome Cr

Copper Cu

Direct shipping ore DSO

Empresa Nacional de Hidrocarbonetos ENH

Iron Fe

Ferrochrome FeCr

Gross domestic product GDP

Gigajoule GJ

Growth Pole based Programme GPBP

Global Value Chain GVC

Information and communications technology ICT

Liquefied natural gas LNG

Liquefied petroleum gases LPG

Million British Thermal Units MMbtu

Manganese Mn

Millions of tonnes Mt

Millions of tonnes per annum Mtpa

Manufacturing value add MVA

Normal cubic meters per hour NCMH

Natural gas liquids NGL

Nickel Ni

Phosphorous P

Lead Pb

Sulphur S

Special economic Zone SEZ

Tonnes t, ton

Terms of reference TOR

Tonnes per annum tpa

Wet High Intensity Magnetic Separator WHIMS

Zambia-China Cooperation zone ZCCZ

Zinc Zn

Page v

Table of Definitions

LNG Liquefied natural gas (largely methane cooled to -161°C for transport in specially designed tankers)

LPG Liquefied petroleum gases (propane, butane or mixtures of the two)

NCMH Normal cubic meters per hour is a measure of flow rate. It is equal to one cubic meter under "normal" conditions,

defined as 0°C and 1 atmosphere (101.3 kPa).

NGL Natural gas liquids (largely Ethane and heavier hydrocarbons, cooled to -101°C for transport to a tetrochemical

plant or refinery

MMbtu Million British Thermal units equal to the international ISO standard of 1.055056 GJ

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Table of Contents

1 Introduction .......................................................................................................... 1 1.1 Terminology ............................................................................................................... 8 1.2 The real ability to grow an economy on a minerals base .................................... 13

1.2.1 United States ....................................................................................................... 14 1.2.2 South Africa ......................................................................................................... 15

1.3 Linkages ................................................................................................................... 17 1.3.1 Monetary and Fiscal linkages .............................................................................. 17 1.3.2 Employee consumption linkages ......................................................................... 17 1.3.3 Production linkages ............................................................................................. 18

1.4 Basis for the focus areas ....................................................................................... 22

2 Methodology ...................................................................................................... 24 2.1 Screening and clustering to define growth poles around mineral potential ..... 24 2.2 Initial screening ....................................................................................................... 24 2.3 First sort ................................................................................................................... 26 2.4 Expert group rating ................................................................................................. 27 2.5 Infrastructure component ...................................................................................... 30 2.6 Challenges ............................................................................................................... 35 2.7 Value Chains ............................................................................................................ 35

2.7.1 First step in developing value chains .................................................................. 36 2.7.2 Policy Challenge ................................................................................................. 37 2.7.3 Mineral commodity value chains ......................................................................... 38 2.7.4 The importance of developing value chains ........................................................ 39 2.7.5 Global Value Chains ........................................................................................... 41

2.8 The JICA report ....................................................................................................... 44

3 Growth Poles ...................................................................................................... 47 3.1 Growth pole 1: Tete ................................................................................................. 47

3.1.1 Tete value Chain ................................................................................................. 48 3.1.2 Government revenue from coal mining ............................................................... 49 3.1.3 Linkages .............................................................................................................. 51

3.2 Growth Pole 2: Rovuma / Mtwara .......................................................................... 53 3.2.1 Government revenue .......................................................................................... 58

3.3 Growth Pole 3: Lephalale / Southern Botswana .................................................. 58

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3.3.1 Government revenue .......................................................................................... 63 3.4 Growth Pole 4: Copperbelt ..................................................................................... 64

3.4.1 Linkages .............................................................................................................. 69 3.5 Growth pole 5: Zimbabwe steel ............................................................................ 71 3.6 Growth Pole 6: Northern Cape iron/manganese .................................................. 74 3.7 Growth pole 7: Songo-Songo Central Tanzania ................................................... 76 3.8 Growth Pole 8: Cabinda / Bas Congo DRC Oil / Phosphate ................................ 81 3.9 Growth pole 9: Kabanga / Burundi nickel growth pole ....................................... 83

4 Conclusion ......................................................................................................... 85

Appendix A Energy content .................................................................................. 92

Appendix B Iron and steel value chain ................................................................ 93

Appendix C Chrome value chain ........................................................................ 107

Appendix D Manganese value chain ................................................................. 110

Appendix E Nickel value chain ........................................................................... 113

Appendix F Vanadium value chain .................................................................... 115

Appendix G Copper Value Chain ........................................................................ 117

Appendix H Zinc Value Chain ............................................................................. 121

Appendix I Lead Value Chain ............................................................................. 124

Appendix J Phosphate Value Chain ................................................................... 125

Appendix K Hydrocarbons ................................................................................. 127

Appendix L Direct opportunities ........................................................................ 139

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List of Figures

Figure 1: Relative Australian Wage levels ............................................................................... 3 Figure 2: Terms of trade for commodities versus manufactured goods .................................. 5 Figure 3: Primary commodity Prices and their piecewise linear trends, 1900-2010 ................ 5 Figure 4: Linkages in the wood and timber sector ................................................................... 9 Figure 5: Chamber of Mines four stage beneficiation process .............................................. 10 Figure 6: Resource related Gross Value Added (Australia) ................................................... 12 Figure 7: Mining industry expenditure (ZAR ‘M), *2011 ......................................................... 17 Figure 8: Monetary and fiscal linkages .................................................................................. 19 Figure 9: Proposed gas pipeline ............................................................................................ 33 Figure 10: Broad mineral commodities value chain ............................................................... 38 Figure 11: Generic mineral commodities value chain with broad inputs ................................ 39 Figure 12: Manufacturing contribution to GPD ...................................................................... 40 Figure 13: Economy wide impact of the South African mining sector in 2012 ....................... 40 Figure 14: Interlinkage of services with manufacturing in the global value chain .................. 43 Figure 15: Colour coding for growth pole diagrams ............................................................... 47 Figure 16: Tete Value Chain .................................................................................................. 50 Figure 17: Government revenue (in $ M) due to coal mining ................................................ 51 Figure 18: Rovuma Value Chain ............................................................................................ 57 Figure 19: Lephalale/ Southern Botswana Value Chain ........................................................ 61 Figure 20: Copperbelt Value Chain ....................................................................................... 67 Figure 21: Zimbabwe steel Value Chain ................................................................................ 73 Figure 22: Potential LNG site locations ................................................................................. 78 Figure 23: Possible direct, indirect and induced employment from LNG production ............. 79 Figure 24: Songo Songo Value Chain ................................................................................... 80 Figure 25: Cabinda Value Chain ............................................................................................ 82 Figure 26: Kabanga / Burundi Growth pole ........................................................................... 84 Figure 27: Locality of growth poles ........................................................................................ 85 Figure 28: Iron and steel value chain, Stage A – Exploration and Discovery ........................ 95 Figure 29: Iron and steel value chain, Stage B – Proving discovery and development ......... 97 Figure 30: Iron and steel value chain, Stage C – Mining ....................................................... 99 Figure 31: Iron and steel value chain, Stage D – On-site concentration and extraction ...... 100 Figure 32: Iron and steel value chain, Stage E – Off-site refining ....................................... 103 Figure 33: Iron and steel value chain, Stage F1 – Downstream cast iron ........................... 104 Figure 34: Iron and steel value chain, Stage F1 – Downstream steel ................................. 105

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Figure 35: Chromite value chain – All grades ...................................................................... 108 Figure 36: Chromite value chain – Chemical Grade ............................................................ 109 Figure 37: Manganese value chain ...................................................................................... 111 Figure 38: Manganese value chain - Chemicals .................................................................. 112 Figure 39: Nickel value chain ............................................................................................... 114 Figure 40: Vanadium value chain ........................................................................................ 116 Figure 41: Copper value chain – Generalised process to cast co ....................................... 118 Figure 42: Copper value chain – simplified Konkola process .............................................. 119 Figure 43: Copper value chain – Downstream .................................................................... 120 Figure 44: Zinc value chain – Mine to Special high grade zinc ............................................ 122 Figure 45: Zinc value chain – Downstream from Special high grade zinc ........................... 123 Figure 46: Zinc value chain – Downstream from Special high grade zinc ........................... 124 Figure 47: Phosphate Value Chain ...................................................................................... 126 Figure 48: Gas Value Chain ................................................................................................ 131 Figure 49: Oil Value Chain ................................................................................................... 136 Figure 50: Coal Value Chain ................................................................................................ 137 Figure 51: Sasol processes ................................................................................................. 138

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List of Tables

Table 1: Size Ratings ............................................................................................................. 25 Table 2: Status Ranking ........................................................................................................ 26 Table 3: First sort ................................................................................................................... 27 Table 4: Expert rating by likelihood of attracting new fixed investment ................................. 27 Table 5: Second sort .............................................................................................................. 28 Table 6: Deposits related to the Tete growth pole ................................................................. 47 Table 7: Deposits related to the Rovuma/ Mtwara growth pole ............................................. 54 Table 8: Potential Mozambique domestic projects ................................................................ 55 Table 9: Government revenues from shared profits .............................................................. 58 Table 10: Deposits related to the Lephalale / Southern Botswana growth pole .................... 59 Table 11: Unconstrained coal export and revenue projection for Botswana coalfields ......... 63 Table 12: Deposits related to the Copperbelt growth pole ..................................................... 64 Table 13: Deposits related to the Zimbabwe iron and steel growth pole ............................... 72 Table 14: Deposits related to the Northern Cape growth pole ............................................... 74 Table 15: Deposits related to the Songo Songo growth pole ................................................ 77 Table 16: Typical composition of Natural Gas ..................................................................... 127

Page 1 2 Growth Poles and value chains

1 INTRODUCTION

This introductory section reviews some of the topics that have led to the formulation of the

industrial growth pole project.

Over time there have been several attempts at understanding the development of diverse

industrialised economies, none of which appear to have been able to adequately explain all

development around the world. The need to understand and progress economic

diversification and industrial development in low to middle income economies is critical for

Africa, to assist the process of rapid development, to supply much needed jobs, and to

protect Africa from ongoing poverty and civil strife. A recent book by Morris, Kaplinsky and

Kaplan (2012), has taken an in-depth look at industrialisation and it proposes that the most

should be made of the commodity boom to promote industrialisation on the continent. The

thinking that is behind this book is seen to be largely in line with that of the author and it

represents a clear and concise summary of the discussion on African industrialisation.

Notwithstanding the results of the recently published work of Martinez and Mlachila (2013) in

which they showed that, broadly speaking, the quality of growth has “unambiguously”

improved in Sub Saharan Africa over the past 15 years, now being “stronger, less volatile,

accompanied by productivity improvements, more broad-based, and more export-oriented”;

Africa still has a long way to go especially in relation to the nature of its exports.

Morris and others (2012) also point out that Africa's situation with regard to industrial

potential and GDP has shown signs of real change since the turn of the century, with GDP

growth between 2000 and 2010 at 4.7%, outstripping the global growth rate which was only

2.5%. Referring to Farooki and Kaplinsky (2012), they indicate that regardless of price

volatility, they expect commodity prices to continue being robust in the future "for some

years to come".

In the long term, and notwithstanding price booms, commodities have shown a relative drop

in price relative to manufactured goods. Morris and others (2012) support this traditional

view and give a short history of its development. They also recognise the recent reversal in

the terms of trade. However, in reviewing papers written over the past couple of decades on

the Resource Curse and Dutch Disease, they come to the conclusion that the real problem

affecting commodity rich countries may be rather a "commodities specialisation in an

economy with little or no history of industrial development". In this argument the leading

thinking of Wright and Czelusta (2004) is important; they state that most of the papers


advocating a resource curse equate mineral exports with resource abundance. They also

indicate that resource intensity was a pervasive feature in the industrial and technological

development of the United States, and furthermore that the minerals sector remains linked

today to technological knowledge and advances.

“Resource abundance was a significant factor in shaping if not propelling the U.S. path to

world leadership in manufacturing.” Wright and Czelusta (2004)

The path the U.S. followed was one of large scale investment in exploration and

transportation built on geological knowledge, with the concomitant development of mineral

extraction, refining and manufacturing technology (Wright and Czelusta, 2004). America

industrialised from a minerals base. Regardless of how the problem is couched in theory, the

result for Africa in practical terms is similar; Africa must industrialise and must do so soon,

since it is unlikely that any other route will lead to long term, steady economic growth and, as

stated by the Commission on Growth and Development (2008), it is only economic growth

that

“…can spare people en masse from poverty and drudgery. Nothing else ever has.”

The declining trend in the commodities : manufactured goods terms of trade (the Prebisch-

Singer hypothesis) has become weaker since around 2000, as the relative prices of primary

commodities increased (Yamada and Yoon, 2013) and appears to have been arrested, and

possibly reversed, because of improvement in commodities pricing due to enhanced

demand (Morris et al 2012). Add to this the fact that in many cases the best and easiest-to-

access deposits of minerals are coming to an end, and the fact that there tends to be a long

period before new (especially large, low grade) deposits can come on stream, and the future

looks positive for demand-driven pricing to remain robust. As to the reasons for the

increasing costs of exported commodities, one must not ignore the huge cost pressure

(especially due to labour and energy costs) of the last few years on miners throughout the

world – but perhaps most clearly in southern Africa.

Bishop and others (2013) provide an excellent graphic summary of the wage increase in the

Australian mining sector relative to other sectors in the economy (see Figure 1). The higher

cost of mining now, relative to the 1990’s, indicates that it is unlikely that the price of

commodities will fall again to the levels seen pre 2000.

Morris and others (2012) discuss the contribution of Singer (1950) in which he hypothesised

the idea of enclave economies in which there was little scope for commodity driven linkages

in the low income, low technology, developing country in which the mining took place. The


nature of past (and to some extent current) development, where infrastructure has been

centred specifically on the extraction of mineral commodities at specific localities has

exacerbated the enclave nature of many mining projects. Morris and others (2012) challenge

this view and indicate that if correct policy and investment structures are in place the mineral

sector can be a significant contributor to the healthy growth of the economy through

knowledge advancement and industrial linkages.

Figure 1: Relative Australian Wage levels

Morris and others (2012) point out that it was concluded from a variety of comparative

studies that a "normal" growth path could be established based on the relationship of gross

domestic product (GDP) per capita and manufacturing value add (MVA). This relationship

shows that at low levels of per capita income there are correspondingly low levels of MVA,

as per capita income rises, so does MVA but, at some point the relationship is reversed, with

the relative value of MVA dropping as per capita income continues to increase. This is

thought to indicate a demand switch into services rather than further manufactured goods as

per capita GDP grows further.

Engels law (published in 1857) stated that “The poorer is a family, the greater is the

proportion of the total outgo which must be used for food." (Engel quoted in Zimmerman,

1932, requoted in Anker 2011). Morris and others (2012) take this a little further in the


explanation of the "normal" pattern of growth, indicating that as per capita income increases

consumers can add a greater amount of manufactured goods and ultimately services to their

spend. They also point out that the price elasticity of demand is an important part of the

equation, with substitutes often causing a drop in demand for primary commodities, if the

price becomes an incentive for such technological development. Furthermore, lack of skills

and technological barriers tend to slow down the progress of a nation from the production of

commodities to the production of industrialised goods. Following a similar path to other

economies that have made the transition (from commodity producer to manufactured goods

producer) in the past, may be difficult. There are a number of barriers, such as the cost of

transportation and the hurdle of trade liberalisation policies. Furthermore, the route of export

oriented industrial development becomes less and less attractive as each new nation comes

into competition, simply because the competition is too great especially when one competes

with a nation the size of China (Morris et al 2012).

In general, manufacturing and services are more labour intensive than mining and the first

stages of beneficiation (Morris and others (2012) call this "processing"). Furthermore, the

common occurrence of kleptocracy and violence indicates the urgency for resource rich

economies to build out their resource value chain and diversify outputs. The apparent terms

of trade reversal (see Figure 2) bodes well for low and middle income countries, since it

provides an opportunity to use the resource rents resulting from relatively good commodity

prices to fund diversification of the economies into new mineral commodities as well as the

production of industrial goods and the provision of services from the base of knowledge

developed in the minerals industry. It is important to note that the effect of this diversification

and movement into industrial commodities will lead to much more certainty in the economies

since it is well known that prices for value added goods tend to be much less volatile than

those for the raw materials. However, to use the opportunity requires quick and centred

reaction since it has no guarantee of lasting. As an example of this reversal, the Australian

terms of trade increased by 82% between 2003/4 and September 2011, from which time it

has again dropped by 17%. The improvement in Australia’s terms of trade has already given

rise to a surge of resource investment to meet demand and make best use of the opportunity

(Bishop et al, 2013).

In discussing the change in terms of trade between commodities and manufactured goods, it is important to understand that

this was possibly not just a gentle decline over time, but rather that the relationship may have changed historically in “structural

breaks” (Zanias, undated). Yamada and Yoon (2013) have had another look at the Prebisch-Singer hypothesis with the Grilli

and Yang (1988) dataset extended to 2010. They conclude that there is little evidence that the Prebisch-Singer hypothesis

holds all of the time, but that it does hold sometimes for primary commodities. Their primary commodity prices and piecewise

linear trends for mineral commodities are given in


Figure 2: Terms of trade for commodities versus manufactured goods

Source: Morris et al, 2012. Compiled from data from Pfaffenzeller et al. (2007)

Figure 3: Primary commodity Prices and their piecewise linear trends, 1900-2010

Source: Yamada and Yoon, 2013

It appears that possible downward movements in the overall terms of trade (Zanias,

undated), were centred on the years 1920 and 1984, by 41% and 36% respectively.

Determining the reason for these breaks is of interest and Zanias (undated) discusses the

possibility that they may have been related to a preceding commodities price boom (very


clear in Figure 2). However the graph in Figure 2 extends into the current commodities price

boom – something Zanias did not have – and, if Zanias’ thesis is correct the questions that

then arise are:

How long will the boom last? and,

Does this imply another structural break? and if so,

Will it necessarily indicate that commodities prices will once again fall significantly

relative to manufactured goods? or,

Does the reversal in the terms of trade indicate a fundamental change due to increasing

global scarcity of commodities to support the burgeoning world population?

Regardless of the answers to the above questions the advice of Zanias (undated) remains

that developing resource intensive economies must diversify exports to reduce risk and

increase revenue. The challenge, as indicated by Morris and others (2012), is to "determine

which industrial and service sectors provide the greatest possibilities for development." It is

this challenge that is at the core of the current study.

It is perhaps pertinent to note here that the advice to diversify the economy of commodity

based countries is not universal. Tilton (2012) adds a word of caution in that some

economists may not, in his opinion, be looking at the full picture. He argues that the reason

for the long term falling terms of trade may be that costs in the production of primary

commodities have dropped. At the same time the improvements in manufactured products

produced may not be sufficiently taken into account by economists. Since a movement away

from the production of primary commodities would be counterproductive where production

costs are falling fast enough to counter the price drop, he advises that the suggestion that

countries should diversify away from such production “may very well be counterproductive,

encouraging countries to abandon what is a promising path to faster economic

development.” Tilton (2012). Contrary to this thinking, Pascal Lamy said, at the Hague on the

7th March 2013 at the “Conference on International Cooperation in 2020”, that virtually all

development and poverty reduction has included a high average rate of sustained growth,

inclusive of participation in international trade. He added that the essential ingredient for

resilient growth is “diversified productive capacity” (WTO News, 2013).

The call to diversify should not be seen as a call to diversify away from the production of

primary commodities, but rather an opportunity to use the comparative advantage to support


investment to allow diversification of the total offering, and also to be in the best position to

take the opportunity of increasing demand in future from developing economies that move

naturally to demand more manufactured goods and later more services. To add to this,

Bishop (2013) following the case made by Gregory (2011) points to a clear three-phased

structure to the resources boom, which he indicates is already in its second phase. The

three phases (which may overlap) are:

The boom in the terms of trade and the appreciation of the exchange rate;

The surge in resource investment; and

The subsequent growth in the production and export of resources.

Considering Bishop and others (2013) assessment of the phase of the boom and Zanias’

(undated) thesis on structural breaks, could lead to the view that it is likely that another

downward structural break is possible since the surge in resource investment may well lead

to a future oversupply as the Chinese market moves into a more evenly paced demand

scenario and eventually to a greater demand for services. This leads to further questions

regarding the vast numbers in China that would still aspire to move to cities. Kaplinsky and

Farooki (2010) estimate that the urbanised population in China will grow from 594 million in

2007 to 684 million in 2015 and 890 million in 2030, as well as the timing of a similar

developmental surge in India and later in Africa itself.

Notwithstanding any of these events, the movement in Africa into a more diversified offering,

especially one based on the beneficiation of its resources, still appears to make the best

case for future prosperity. Further supporting this conclusion is the work of Arezki and others

(undated) in which they find mixed support for the Prebish-Singer hypothesis, but with the

majority of piecewise regressions having a downward slope. In their work covering data

since 1650 they find a considerable number of structural breaks as well as clear volatility

especially in recent years. Amongst their remedies for the decline of relative primary

commodity prices is “to diversify into manufactures and services for which the country

concerned has comparative advantages” (Arezki et al, undated).

It is interesting to note that, notwithstanding Bishop and others (2013) description of what is

happening in the Australian environment, Ventyx (2012) indicates that the industry as a

whole is cautious in regard to the strength of the global economic recovery after the

Eurozone shock, and that investment in the mining sector is focussed more on expansion of

existing sites than on development of new sites. Furthermore, rather than finding qualified

workers at any cost, the industry is focussing on safety and training of the current workforce


thus also improving performance. At the same time industry is moving in the direction of a

greater reliance on information technology and automation to improve efficiency in the face

of declining grades and increasing cost.

1.1 Terminology

In their discussion of linkages Morris and others (2012), refer to the work of Hirschman

(1981). Hirschman considered three types of linkages: fiscal linkages, consumption linkages

and production linkages. These linkages are variously interpreted within the literature but

here they will be seen as follows:

Fiscal linkages will be seen to include royalties and licence fees on companies as well

as taxes on profits of companies and on wages and salaries to their employees,

Consumption linkages refer to the demand generated by employees, based on earned

incomes, for outputs of the commodities and other sectors,

Production linkages are inclusive of

Upstream or backwards linkages, referring to inputs to be used in the commodities

sector and,

Downstream or forwards linkages, referring to production of outputs of commodities

through various stages of value addition into semis, intermediate and finished products

for use in the industrial sector or final usage

Sidestream or horizontal linkages, referring to linkages developed directly from the core

business, or its upstream or downstream components, which develop the capability to

move into other value chains, inclusive of services, power and transport infrastructure

(rail, roads and ports)

This study will concentrate on production linkages.

Production linkages are well illustrated by the logging example given in Kaplinsky and

Farooki (undated), and shown here in Figure 4.

Morris and others (2012), try to draw a line between “processing” and “beneficiation” in a

way that may be confusing, since it does not accord with general understanding of these

terms. Generally in the Southern African minerals sector the term “beneficiation” applies to

any stage of value addition to an ore or mineral mined. Throughout much of the rest of the

world the term “beneficiation” applies only to that part of the value addition chain which takes

place on the mine. Morris and others (2012), however, use the concepts differently with


“processing” being used for the first stages of value addition and “beneficiation” only being

used when the product is used to produce something new, to quote:

“.. we distinguish the processing of commodities from the beneficiation of commodities.

Processing involves a deepening of value added, as a commodity is refined or processed

prior to being passed on to user industries. For example, iron ore is processed into steel,

copper is smelted, and cotton is carded before spinning can take place. In this sense, the

‘processing’ of raw materials occurs in a technologically related industry. By contrast,

beneficiation describes a process of transformation in which the processed commodity is

converted into an entirely different product, generally in an unrelated manufacturing activity.”

To add to the possible confusion with this concept, there is far more difference between for

example the well-known ore mineral malachite (CuCO3.Cu(OH)2) and the product of copper

(Cu), than there is between say, copper cathode and copper wire, both of which are the

same material, copper.

Figure 4: Linkages in the wood and timber sector

Source: Kaplinsky and Farooki (undated)

Even though this definition is now gaining some traction in South Africa and appears to be

supported also by Ben Turok in his open discussions with industry, I would argue that it will

confuse the issue further since the exact cut-off of where “processing” ends and

“beneficiation” begins would then require definition for each mineral commodity. It falls into

the same trap as the South African Chamber of Mines definition of a four stage process


(Figure 5), in that each mineral commodity is entirely different in its value addition process

and cannot simply be put into a broad staged definition. Furthermore, it is not at all what

beneficiation has been seen to mean in the international context in the past.

In the international context “beneficiation” has usually been seen to be equivalent of the

Morris et al (2012) concept of processing [“mineral extraction: crushing and separating ore

into valuable substances or waste by any of a variety of techniques” -

wordnetweb.princeton.edu/perl/webwn; “the treatment of raw material (as iron ore) to

improve physical or chemical properties especially in preparation for smelting” -

http://www.merriam-webster.com/dictionary/beneficiation; “Treatment of raw material (such

as pulverized ore) to improve physical or chemical properties in preparation for further

processing. Beneficiation techniques include washing, sizing of particulates, and

concentration (which involves the separation of valuable minerals from the other raw

materials received from a grinding mill). In large-scale operations, various distinguishing

properties of the minerals to be separated (e.g., magnetism, wettability, density) are

exploited to concentrate the desirable components.” - Concise Encyclopedia].

Figure 5: Chamber of Mines four stage beneficiation process

Source: Chamber of Mines, 2005.

The all-inclusive South African definition is clarified by the South African Department of

Mineral resources website as:


“Beneficiation, or value-added processing, involves the transformation of a primary material

(produced by mining and extraction processes) to a more finished product, which has a

higher export sales value. Beneficiation involves a range of different activities including:

Large-scale, capital-intensive activities, such as smelting;

Sophisticated refining plants; and

Labour-intensive processes, such as craft jewellery, metal fabrication and ceramic

pottery.

Each successive level of processing permits the product to be sold at a higher price than the

previous intermediate product or original raw material and adds value at each stage.”

For the purposes of this study the following definitions will apply:

Mineral processing: that stage of adding value to the mined mineral or ore that typically

takes place at the mine site to make it saleable to manufacturers. This may vary in type of

process and the level of purity achieved and is dependent on the market.

Beneficiation: any process of recovering, extracting, concentrating, refining or further

processing of a mineral or ore into a mineral product with a higher value and / or utility. This

is inclusive of mineral processing, smelting and refining as well as value addition to the point

that an entirely new product is formed which does not owe its value primarily from the

mineral commodity, and is ready for sale on the open market.

This definition can still be considered to be variable across mineral commodities, it is

perhaps more useful than some of the narrower versions given above.

The concept of depth and breadth of linkages as discussed by Morris et al (2012) is useful.

The depth of the linkage relates to the degree of value that is added through the linkage,

whilst the breadth of the linkage refers to the range of connected activities feeding into or

from the linkage.

In the discussion by Morris and other (2012) on staples theory, they conclude that resource

extraction inevitably does lead to the development of infrastructure and, as a result, to

horizontal linkages which can benefit from the infrastructural build. They also argue that the

“Staples trap” of being caught in commodity specialisation is not inevitable and that a degree

of industrial development with forward and backward linkages usually results from resource

exploitation. Interesting here is the recent paper by Bishop et al (2013) which clarifies the

resource related gross value addition (GVA) in Australia. It is clear from their data that


business services (e.g. engineering, legal and accounting services) account for a larger

share of resource related activity than do the more obvious connections of transport and

construction (see

Figure 6). If this also applies in Africa then above a basic level of infrastructural

development (but “basic” probably means much more than in some of the landlocked

countries of south and central Africa) there should perhaps be more concentration on

supplying top class services to ensure the greatest degree of value add.

Figure 6: Resource related Gross Value Added (Australia)

Source: Bishop et al (2013)

Morris and others (2012) indicate that their research has shown that, in time, miners will

evolve towards outsourcing of all but their core competencies. Whilst such outsourcing may

at first be only to largely international, low cost reliable suppliers, there is certainly a demand

for proximate suppliers that are efficient and can reduce response and inventory risk in the

longer term.

The three primary intrinsic factors of linkage development (lean production, specificity of

resource deposits and technological intensity) as recorded by Morris and others (2012), will

be of particular importance in stages 2 and 3 of this study where especially the consideration


of specificity of resource will be important. The other two factors of lean production and

technological intensity are more generic to the development of linkages within the sector.

In framing the overall concept for this study it is important to see infrastructural attributes of

linkage development in their broadest sense and to be aware of the advantages that may

flow through from centred investment to not only the physical infrastructure (road, rail, ports,

pipelines, telecommunication and electricity networks) but also to the softer social

infrastructure (regulatory regime, administrative networks, educational facilities, institutional

development).

1.2 The real ability to grow an economy on a minerals base

The resource curse is both real and imaginary. It is real because, where governments do not

put the correct policy in place, or become corrupt, resource riches exported in an

unbeneficiated form from insular development leads to the negative effects of the Dutch

disease. However, it is imaginary in the sense that the effect is not due to the natural

resource wealth in itself, but rather to the attitudes that develop around the wealth and the

resultant lack of appropriate measures to ward off the negative effects which can come from

an over-reliance on the natural resource to build the economy. The problem in essence

relates to the fact that any other project will use a resource that has a raw material input cost

as well as capital and production costs. The raw material costs of an industry are supportive

of other industry. In the case of the production of natural resources this is not so and

therefore industries based on natural resources pass less direct external benefits to other

industry (Gylfason, 2001). The Dutch disease therefore does not exist where the state,

through careful and sensible policy and control measures ensures that the economic benefit

of the raw materials mined are ploughed back into the economy through the development of

backward linkages to related industry, local beneficiation of raw materials and taxation

policies which promote knowledge development and industrial growth. In discussing the

failure of most resource rich low to middle income countries to benefit significantly from

resource based development, Barbier (undated) states:

“The conditions for ensuring successful development have simply not been met. That is, in

most of today’s developing economies, frontier expansion has been symptomatic of a

pattern of economy-wide resource exploitation that generates little additional economic

rents, and what rents are generated, have not been reinvested in more productive and


dynamic sectors, such as resource-based industries and manufacturing, or in education,

social overhead projects and other long-term investments.”

The question may remain in the minds of readers: “But has it ever been done?”, and the

answer is simply “Yes, many times.” Most modern economies have at some point in the past

used their natural resource wealth to boost economic growth and development. Barbier

(undated) states that:

“Exploiting or converting new sources of relative abundant resources for production

purposes can be a dynamic process that causes economies to “take off.”

Two of these, The United States and South Africa will be briefly described.

1.2.1 United States

Wright and Czelusta (2004) show that successful resource based development is not

primarily a matter of geological endowment. In the late 19th and early 20th century when the

US became the world’s leading manufacturer, it was already the leading mineral economy.

US technological and industrial development was based on its resource endowment.

Large scale investments in exploration, transportation, geological and metallurgical

knowledge allowed early development of the countries mineral potential and lead to the

development of an industrial economy based on the knowledge and technological expertise

built on the mineral sector.

Where resource based economies have performed poorly, it has not been due to an

overemphasis of mineral wealth but rather due to a failure to properly develop their mineral

potential through appropriate policy (Wright and Czelusta, 2004).

Wright and Czelusta (2004) quote Benjamin Franklin as having said that there are no mines

in North America in 1790, however by 1913 the US was the dominant producer in the world

of most industrial minerals used at the time. During the period 1879-1914 the resource

intensity of the US exports increased at the same time as it was becoming the leading

manufacturing hub of the world. During this time the U.S. share of mineral production was far

in excess of its relative reserve potential. Wright and Czelusta (2002) refer to the essence of

the US success with their mineral endowment as follows:

“The American economy may have been resource abundant, but Americans were not

rentiers living passively off of their mineral royalties. Clearly the American economy made

something of its abundant resources. Nearly all major US manufactured goods were closely


linked to the resource economy in one way or another: petroleum products, primary copper,

meat packing and poultry, steel works and rolling mills, coal mining, vegetable oils, grain mill

products, sawmill products, and so on. The only items not conspicuously resource-oriented

were various categories of machinery. Even here, however, some types of machinery

serviced the resource economy (such as farm equipment), while virtually all were

beneficiaries in that they were made of metal. These observations by no means diminish the

country’s industrial achievement, but they confirm that American industrialization was built

upon natural resources.”

Herein also lies the blueprint for Africa today and the motivation for a project of this nature

which will attempt to find just those links that can assist the growth of an industrialised

economy based on a mineral endowment.

Referring to the 1997 paper by David and Wright, Wright and Czelusta (2004) indicate that

the rise of the US economy can be ascribed to:

An accommodating legal environment

Investment in infrastructure and public knowledge

Education in mining, minerals and metallurgy.

1.2.2 South Africa

South Africa changed in the late 19th Century from an essentially agricultural society to an

industrial society. This change took place at the same time (and as a result of) as the

discovery of diamonds and more significantly the discovery in 1886 of gold on the

Witwatersrand. Within 10 years of the discovery of gold, Johannesburg existed, 20 years

later it was already South Africa’s largest city and today it is the largest city and industrial

hub in Africa. The mining sector’s contribution to continued industrialisation of South Africa

has led to it being the most industrialised country in Africa at present.

This contribution by mining to the structural transformation of South Africa has been and can

still be significant. However, it requires constant attention to the regulatory and institutional

environment. Of particular importance is the removal of barriers (real and perceived) to the

development of new mines and especially to the expansion of a full value chain industry

based on mining in South Africa.

Mining in South Africa today is a well organised and highly regulated industry which makes a

significant contribution to national and regional development. In terms of job creation, mining

provided more than 513,211 direct jobs as well as an estimated 160,000 jobs directly linked


to the beneficiation of mineral commodities in 2011. This does not account for the number of

indirect jobs created. Generally indirect job development related to mining exceeds direct

employment (World Bank, 2002).

Economic growth already achieved due to mining in South Africa is best understood by

considering the size and overall vibrancy of the Gauteng region which is the largest inland

hub in the world built on the foundations of the mining industry.

The South African mining sector accounted for about 20% of private sector investment and

12.3% of total investment in 2011. Furthermore it made up some 29% of the allshare index

on the JSE (which itself has its roots in the mining sector). Since South Africa has had a

healthy growth of secondary and tertiary industry - largely based on mining - the overall

relative contribution to the GDP has contracted over the past two decades to 8.8% in 2011,

although it is close to 18% if services and associated industries are included (COM, 2012).

Total primary mineral exports accounted for 38% of South Africa’s total merchandise exports

(COM, 2012). If secondary beneficiated minerals are added then the minerals complex

accounted for about 50% of South Africa’s total merchandise exports (COM 2011).

Although much more can and should be done it is important to note that South Africa does

beneficiate a good deal of its mining output. A good example is the cement industry which

supplies more than 95% of local demand from locally mined limestone, gypsum and coal. In

the same way the steel industry which supplies about 80% of local demand from locally

mined iron, manganese, chromite, coal and coke, albeit at prices that could see

improvement. The furnaces involved in the steel making process are 95% powered by

electricity from coal fired power stations using locally mined coal. More than 30% of South

Africa’s liquid fuel requirements are produced from locally mined coal and more than 95% of

electricity is generated in coal fired power plants using locally mined coal. Furthermore, the

majority of domestic chemicals, fertilisers, waxes, polymers and plastics are fabricated using

locally mined mineral commodities and 13% of the world’s platinum catalytic converters are

produced locally (COM, 2012). In the case of gold and silver, South Africa has capacity to

produce pure gold and silver products both from local and imported concentrates. However,

although the COM estimated that, in 2010, some R200 b of value was added to South

African mineral products (COM, 2011), there is no doubt that there is still significant loss of

value by exporting mineral commodities too high up the value chain.

The value of mining in building an industrial society with backwards and horizontal linkages

as well as direct fiscal linkages is clarified in Figure 7.


1.3 Linkages

In each of the top chosen growth poles there will be a discussion of any particular linkage

opportunities that exist for the growth pole itself and which need directed attention. However

many linkages are generic to mining and these will not be generally repeated, rather they are

mentioned here as an overview of the type of linkage to consider. In the second stage of the

greater project specific project linkages should be unravelled in much more detail.

1.3.1 Monetary and Fiscal linkages

Exploration licence fees, mining licence fees, royalties, taxes on profits of companies, taxes

and on wages and salaries of mining company employees, VAT on employee purchases,

taxes on company profits and employees of linked business.

The monetary and fiscal linkages will vary somewhat from country to country dependent on the local taxation systems. An overview of possible linkages is shown in Figure 8.


Figure 7: Mining industry expenditure (ZAR ‘M), *2011

Source: COM, 2012

1.3.2 Employee consumption linkages

Employee consumption may lead to lead to significant support to new business, especially

companies that offer food and clothing, building services for housing, restaurants and

various service sectors. These businesses themselves will have employees with similar

demands and will enhance the effect.

1.3.3 Production linkages

1.3.3.1 Upstream or backwards linkages

Although downstream linkages (read beneficiation, or value addition) have received a huge

amount of coverage in the press and export to distant locations has been one way to ensure

income in the past, there is perhaps much more opportunity upstream of mining than meets

the eye. Furthermore there is growing evidence that it is the upstream and sidestream

linkages that will in future (and perhaps especially in Africa) need to be tapped as the

engines of growth.

A United Nations Conference on Trade and Development (Unctad) study suggests that, the

global economy remains in a structural crisis and it may not be possible for countries to

continue to pursue an export led development growth strategy (Creamer 2013). The report


argues that export led strategies are no longer viable. Instead a strategy, geared towards

generating a greater role for domestic and regional demand, should be pursued.

It is therefore essential to plan regional trade but especially to ensure that the upstream and

sidestream linkages related to the Tripartite’s comparative strength in mineral commodities is

captured wherever possible within the region. The increased regional wealth that will result

from a lower leakage into world markets will also increase the regional buying power and

thus improve the odds of growth led by trade within the region.


Figure 8: Monetary and fiscal linkages

Strong upstream linkages will include the demand for Land and capital equipment; the

requirements will depend very much on mining conditions and methodology and may

include:

Land for mining, offices and waste dumps

Drilling equipment,

Core sheds,

“Yellow vehicles” - excavators, dozers, shovels, dump trucks, graders,

Longwall miners/continuous miners,

Survey equipment,

Conveyor systems [inclusive of engineering, design and installation, belts, belt cleaners, safety equipment, skirting and dust control etc.],

Draglines,

Winders and hoists,

Cement spraying systems,

Roof drilling and bolting systems,


Refrigeration and ventilation systems,

Compressors,

Fans,

Explosive drilling and packing systems,

Backfill technology and equipment,

Communication systems,

Personnel transport [underground and surface],

Pulleys,

Pumps,

Battery packs and lighting systems for personnel,

Loading equipment,

Cranes,

Comminution and screening systems,

Tanks,

Piping,

Mine scheduling software,

Hydraulic valves,

Stockyard handling systems and equipment,

Tailings dam systems and equipment,

Rail siding equipment,

Railway coaches,

Laboratory analysis equipment,

Automated scanners (to monitor production quality),

Scales ,

Employee time management systems (clocking-in devices).

Mining is also an important purchaser of consumables such as:

Cables,

Cement,

Clay bricks (building),

Copper wire,

Electricity,

Explosives,

Fuel (mainly diesel),

First aid and emergency supplies and equipment,


Miners clothing and safety equipment supply, gloves, safety shoes, hard hats, reflective gear, earplugs, safety goggles etc.),

Oxygen,

Refractory Bricks (furnaces),

Roof supports and roof bolts,

Tyres,

Steel (various forms),

Vehicle spares,

Water.

1.3.3.2 Downstream or forwards linkages

Downstream linkages will depend mainly on the particular mineral commodities being

developed. See section 2.7 Value Chains as well the Appendices for a generic view of the

downstream linkages.

1.3.3.3 Sidestream or horizontal l inkages

Sidestream and horizontal linkages are likely to be reasonably specific for each growth pole

even at this concept level. In general these linkages will include rail, roads, ports, electrical

and water supply networks, information and communications technology (ICT) networks. A

strong banking sector and international trade sector will develop to directly serve the mining

companies; these will be available for the wider community. Hospitals and clinics may be

directly built by the mining sector or developed to serve them and these are likely to be

available to the wider community. This is also true of good schools and even possibly

technical colleges and universities, which although primarily developed to serve the families

of miners will be available for widespread use.

Besides being a major employer, the mining sector is also an important user of contracted

expertise in the services sector. Many of these services can be used across different

business types and therefore are seen as sidestream linkages. This may include services

such as:

Administrative services,

Builders,

Computer engineers, computer programmers, data typists,

Electricians and electrical engineers,

Environmental services,

Geological consultants,


Human resources consultants,

Insurance experts,

Laundry and repair services,

Lawyers,

Logistics systems and services,

Mechanical engineers, mechanics,

Plumbers,

Refrigeration engineers and artisans,

Security services.

1.4 Basis for the focus areas

The focus areas considered in this project relate to hydrocarbons (coal, oil and gas), ferrous

metals (iron, chrome, nickel and vanadium) and base metals (copper, lead and zinc) as well

as phosphates.

Hydrocarbons will still in the foreseeable future supply the majority of energy in the tripartite

and are known to have excellent backwards and forwards linkages if linked to industrial

development. Likely world demand for the raw materials from the east is also projected to

remain strong for many years to come from China and especially from India.

Ferrous metals make the backbone of any economy with iron being the most important metal

traded in the world today. Rapid development of the tripartite will require large quantities of

steel and the benefits of producing the steel locally are huge. Furthermore, the tripartite has

all the required raw materials for basic steel and stainless steel manufacture as well as the

manufacture of a host of special grades of stainless steel.

Base metals and in particular copper are also highly in demand in countries moving strongly

up the development curve since it is used in water and electrical installations in housing

developments. Again the demand in the east is strong, and in the case of copper this is

particularly the case in China and Japan.

Iron ore and coal in particular are high bulk materials and where these are to be exported

they will demand a considerable infrastructure build. The feedback loop of this infrastructural

development will greatly increase the demand for the chosen minerals commodities.

Phosphates may seem to be outside of the general grouping, but due to the expected rapid

growth of the African population the requirement for food and hence fertilisers in the future

will be considerable. Since the hydrocarbons can be used to develop ammonia and related


nitrogenous fertilisers the consideration of phosphates, in which Africa is particularly rich and

which forms an essential part of complete fertilisers becomes straightforward.


2 METHODOLOGY

2.1 Screening and clustering to define growth poles around mineral potential

In order to identify those deposits most likely to display economic potential, the most up to

date mineral deposit data that could be accessed was captured into a database and

subjected to an iterative screening process. This entailed searching for deposits in which

there has been some interest by companies in the literature and on the internet as well as

following up leads based on older databases that are available from various sources, prior

knowledge as well as personal communication with contacts in the field. In this process,

deposits were ranked by major commodity, deposit size and deposit status. The purpose of

the screening was to select deposits that could act as growth centres for the growth poles

and which are significant enough in themselves or together with others in the area to act as

growth poles. From these would then be chosen three projects to study at a more detailed

level in a second phase of the greater project.

2.2 Initial screening

In putting the database together there was an attempt to consider mainly those projects

where there is current private sector attention. This is not always a straightforward process,

since it is common practice to put projects “on hold”, especially in difficult economic times

such as we are currently experiencing. As a result projects in which the private sector has

lost interest or those which have not yet attracted real investment may also be included, but

certainly the majority of deposits in the database are currently producing mines or being

pursued by companies or have been actively pursued within the last five years. As a basis

for the synthesis and ranking of the mineral occurrences and deposits in the compiled

database, the following decisions were made:

Due to the size and time frame allowed for this project in certain cases areas of

mineralisation where recorded in the database rather than individual “deposits”. This is

especially true of the hydrocarbons, which are, to some extent, continuous over large

areas. However where only a few economic zones were known in such areas at this

stage the individual deposits were recorded, especially where information could be

gleaned on the project. This is also true where, for example, coal is known to be


preserved in localized graben structures rather than being widespread over an entire

coalfield.

Although the majority of the projects that made it onto the database are large, once on

the database projects of any size would be considered provided they had the promise of

being turned to account, as a part of a cluster of developments.

In the second stage of the growth pole study the greater project areas chosen as growth

pole possibilities should be scoured for other mineral opportunities which although

perhaps smaller or further from development will make a significant contribution to the

industrial development of the area.

The purpose of the exercise was not to generate high-risk exploration targets but to

identify prospects that are already being developed or have a good chance of being

developed within a relatively short space of time. Consequently, prospects for which

there were very little exploration information and did not hold much promise were given

a low ranking.

The initial screening of data looked at two factors to determine viability of projects:

The size of the deposit (because bigger deposits have more chance to evolve into

centres for industrialisation) - see Table 1.

The deposit/area status – see Table 2

Here it should be understood that where absolute data was lacking, but enough was

available to make a reasonable assessment, then the project was given the benefit of the

doubt.

Table 1: Size Ratings

Size Description No. in Database

6-7 Giant deposits (these were recorded as “5” in the final assessment

since most commodities only recorded deposits to 4 or 5)

7

5 Very Large deposits 49

4 Large deposits 79

3 Medium deposits 77

2 Small-medium deposits 39

1 Small deposits 23

0 Occurrences or deposits without specific size knowledge 26


The table below summarises the classification based on deposit status.

Table 2: Status Ranking

Status Category Code Rank No. Comment

Producing CPR 1 124 Economic

Mine extension EPR 1 2 Brownfields development, most likely to be economical

About to produce APR 2 11 Potentially economic. Production could start within the 0-2 years

dependent on a variety of factors

Prospect PRO 3 86 Potentially economic

Dormant DRM 3 0 Potentially economic

Intermittent

Producer

IPR 3 9 Potentially economic

Deposit: Never

Exploited

DNE 4 59 Possibly uneconomic on the grounds that there is no substantial

prospecting information or the grade does not appear promising at the

present level of information

Abandoned ABD 5 7 Probably uneconomic on the grounds that the resource has been

depleted or proven to be uneconomic

Occurrence OCC 6 2 Probably not of sufficient size or grade to mine

In many instances, it was found that very little information was available on some of the

targets. For example, a mine that was abandoned may have been abandoned for various

economic or geologic factors. Where complementary data was lacking, this was taken as a

negative sign, unless there were other promising indicators, such as geological setting or

proximity to other known deposits or infrastructure.

The presence of potential co-products was not considered at this stage although where the

co-product was so valuable that it represented primary value in itself it was listed if that co-

product was also one of the projects within this study. There are cases especially with some

of the phosphate deposits that the phosphate is a co-product to a more valuable primary

product not covered in the study.

2.3 First sort

For the first sort, the size and status were equally weighted in order to cut out deposits that

were unlikely to be significant in the formation of an industrial growth pole. The formula used

for the sort was:

“6-size+status rank”


The result of the first sort is shown in Table 3.

Table 3: First sort

Rank No. Comment

2 24 These were all very large or giant deposits and either continuously producing mines

or extensions to mines

3 48 The majority of these are large deposits which are continuously producing; some

are very large deposits about to produce.

4 53 Deposit that have made this rank range from medium to very large. The status is

generally that of an active mine or prospect.

5 36 The majority of these are medium to large prospects

6 50 Mainly small to large prospects and deposits

7 45 Occurrences to medium deposits of varying status from continuously producing

abandoned and deposits that have not been exploited.

8-12 44 Probably of no further interest, although in some cases these deposits may be

significant but information obtained at this stage is insufficient to give them a higher

rating.

2.4 Expert group rating

Rating the deposits further in an attempt to establish where growth poles were likely to

develop was challenging, and to assist in the process a group of experts in fields related to

mineral development economics were brought together to assist in rating the deposits in an

interactive, consensus-based, modified Delphi technique. This group rated the deposits by

likely new fixed investment from 0 (best chance of significant new fixed investment) to 3

(little chance of significant new fixed investment being attracted). The results of the fixed

investment rating are shown in Table 4, whilst the overall rating after taking this aspect into

cognizance is given in Table 5.

Table 4: Expert rating by likelihood of attracting new fixed investment

Rank No. Comment

0 30 Projects which the expert group assessed to have an excellent chance of attracting

significant new fixed investment in the short to medium term

1 41 Projects which the expert group assessed to have a good chance of attracting


2 46 Projects which the expert group assessed to have a poor chance of attracting


Rank No. Comment


3 183 Projects which the expert group assessed to have a little or no chance of attracting


Some clear groupings were now evident and it was decided that projects would be grouped

based on spatial proximity and possible synergies in development either direct project to

project synergy or possibly synergistic development of related fixed investment (especially in

regard to infrastructural investment). These deposits/projects were allocated to a “potential

growth pole’’ specific to a grouping of possible projects that could have enhanced value

through synergistic development, which would lower the costs of infrastructure supply to the

area.

Table 5: Second sort

Rank No. Comment

2 3 These were all very large deposits which were continuously producing and which

the expert group gave a top rating for likelihood of significant new fixed investment.

3 14 These were all very large or large deposits and either continuously producing

mines or extensions to mines and which the expert group gave a high or top rating

for likelihood of significant new fixed investment.

4 11 Medium to very large deposits, either continuously producing (or about to

produce) mines with a low to top rating for the likelihood of new fixed investment

5 42 The majority of these are medium to large prospects or producing mines with a top

to very low rating for new fixed investment

6 50 The majority of these are medium to large prospects or producing mines with a top

to very low rating for new fixed investment

7 39 The majority of these are small to large prospects or producing mines with a top to

very low rating for new fixed investment

8-15 141 Probably of no further interest, although in some cases these deposits may be

significant but information obtained at this stage is insufficient to give them a higher

rating. None of these projects attracted a top rating for new fixed investment and

only one (Glenover) attracted a high rating.


Before grouping the database was sorted by the second sort total, then by the fixed

investment likelihood, followed by deposit size, deposit status and finally deposit name so

that a set position could be recorded at this point for each project. The deposits were then

grouped by relationship to the highest ranked projects.

Top groupings based on ratings are:

1. Moatize Coal received the overall top position and the Tete coal and iron projects were

grouped with it to make up a grouping of 14 projects.

2. The Rovuma Basin Gas came up in second place overall and grouped with it were the

Mamba complex as well as the four Mtwara gas deposits for a total of 6 projects.

3. The Lephalale (Waterberg) Coalfield at position three was grouped together with cross

border deposits in Botswana as well as with a phosphate deposit and iron deposits to

the south, for a grouping of 9 projects.

4. The Kabanga nickel deposit was positioned in the fourth place and was grouped with

the Musungati project as the most likely deposit in Burundi to begin within the medium

term 4 projects (due to both having nickel and copper of note).

5. The Zimbabwe Ripple Creek and Buchwa iron deposits were ranked in positions 10

and 19 and although they occur quite far apart and also at some distance from the

Zimbabwean coal deposits, they are grouped together as a possible growth pole

including two major coal deposits nearest to Ripple Creek, for a total of 4 Projects

6. Copperbelt deposits in the Kamoto area achieved 11th place and were grouped

together with all DRC and Zambian Copperbelt deposits as well as manganese and one

coal deposit for a total of 19 projects.

7. The Morupule Coal deposit in Botswana was ranked in 16th position overall. North-

Central Botswana coal was grouped together with copper, nickel and CBM for a total of

17 projects.

8. The Boseto copper mine in northwest province in Botswana was ranked at number 21

and it was grouped with three other project to form a possibly weak pole of short term

activity but one with a promising future (4 projects)

9. Block 0 Cabinda Oilfield was ranked 25th and grouped with it is a set of very

prospective phosphate deposits in Cabinda and the DRC as well as the rest of the

oilfield for a total of 15 projects.


10. The Northern Cape (South Africa) iron field was placed next with the Khumani and

Sishen deposits being ranked at 26 and 27. Added to this group were further iron

deposits and the Northern Cape Manganese projects for a total group of 16 Projects.

11. The Songo Songo gas field was ranked 21 and was grouped with the Mkuranga and

Kiliwani gas for a total of 3 projects

These 11 groupings accounted for the 50 top ranked projects and a total of 119 of the

projects recorded on the database. Although it was clear that the most important possible

project groupings were contained in the top groupings given above, all groupings with a

prime deposit in the second-sort having a rating of 1-5 are listed, these include:

12. Southern Tanzania phosphate (Panda hill ranked 51) grouped with coal and iron for 9 projects.

13. South Sudan and Sudan oil (9 projects).

14. Palabora magnetite (ranked 60) together with phosphate, copper and vanadium (4 projects).

15. Ambatovy Nickel in Madagascar (ranked 61), together with iron and chromium (4 projects).

This list now covers the top 61 projects and a total of 138 of the projects included in the

database. Other projects included but not selected in the top deposits may well still be major

industrial opportunities in the future, but based on the knowledge levels at this point there is

little likelihood of these developing in the near to medium term.

2.5 Infrastructure component

A final criterion was used to assist in ranking the groups. This was the relative availability

within the near to medium term of the infrastructure that would be required for mining, and

either beneficiation, or export. The rating given was: 0 (excellent chance of sufficient

infrastructure to be in place within 5 years); 1 (good chance of sufficient infrastructure to be

in place within 5 years); 2 good chance of sufficient infrastructure to be in place within 5-10

years; 3 (little chance of sufficient infrastructure to be in place within 5-10 years). This

tended to give coastal localities a decided advantage over deep inland localities, largely

because many of the proposed railways have not yet been shown to be commercially viable,

and may (like the Mozambiquan situation) suffer from the situation that the motivation to

build the rail may only be there once mining is underway, but mining is unlikely to begin

without the rail being in place.


The methodology was one in which the author applied knowledge gleaned from various

sources on the internet as well as documents such as the SADC regional infrastructure

master plan (SADC, 2012) and personal knowledge gained from discussions with peers to

form a “Best Guess” approach. Foretelling the future is always a difficult process which is

guaranteed to be at least partially incorrect, but this approach has worked well in the past

and has shown a considerable degree of success. A short discussion of some of the thinking

is given below.

Where there is an urgent regional need for rail/road development, it is seen as more likely to

be accomplished in the short term. In some cases the planning of required infrastructure is

already underway or at an advanced stage of planning. Thus highest (0) or high (1) rankings

would be accorded to:

Tete for the rail to Nacala in support of the Sena rail – and the Nacala port upgrade.

Although this appears at first to be directed only at export, it is critical to the coal mining

operations to export either coking coal or preferably coke (from the point of view of

industrialising Mozambique) in order to allow for the mines to be profitable. The rest of

the coal mined should be seen as an opportunity for local industrialisation, electricity

generation and a stepping stone to a petrochemicals industry and steel and fertiliser

production. SADC (2012) gives the tonnage available for export as 10 Mtpa on the Sena

rail and 20 Mtpa on the still-to-be-built Nacala rail. It also points out that the Moatize-‐

Nacala rail is likely to be built in the near future. Vale appointed Worley Parsons’ to

project manage the Nacala rail construction. The rail could be ready within 18 months.

The Rovuma Basin, Mamba complex and Mtwara gas: Andarko is currently tying up

offtake agreements for Rovuma basin LNG. It has already completed 90% of offshore

feed work and 60% of onshore work (Sheldrick, 2013). First LNG export is scheduled for

2018 in a project set to cost between $25 and $30b by completion (arcticgas, 2013). In a

separate development a feasibility study is being undertaken for a 2 600 km ($5 b)

natural gas pipeline (see Figure 9) to link northern Mozambique discoveries southern

Mozambique and possibly northern Natal. If approved construction will begin in 2016 for

delivery in 2018. A 100 MW gas-fired power station at Ressano Garcia, which is

scheduled for commissioning in 2015 will provide local and export power. The industrial

park at Palma is already under construction with the first warehouse due for completion

in November 2013.

Waterberg/Botswana coal: SADC (2012) indicates that the line from Lephalale to

Botswana will “eventually” be built, but it is nevertheless on the short to medium term


listing. Transnet Freight Rail CEO, Siyabonga Gama, is on record as saying that a link

between the Waterberg coalfield and related Botswana coalfield would be built by 2020

(Creamer, M. 2013). Botswana has a tender out for a greenfield 300 MW coal-fired

power station to deliver power as soon as possible to the National grid – the deadline for

submissions is November 2013.

Copperbelt: Rail and road transport out of Zambia needs significant improvement as

does electricity availability in order to promote further industrialisation of the area based

on the mineral commodity endowment. According to SADC (2012) the additional

tonnage from Zambia will be 400 ktpa and from the DRC also 400 ktpa. The publication

also has the Chingola – Solwezi – Lumwana line on its list of links likely to be built in the

short to medium term.

Northern Cape: The R2.3 b upgrade to the rail from the manganese fields (from

Hotazel) to Port Elizabeth (Ngqura port) has been approved as a first phase of a R27 b

rail and harbour programme (Creamer, T. 2013a), the IDC is working on growing a

development corridor from the northern Cape to Saldanha and the significant solar

energy projects (e.g. the Kathu 74 MW project) in the Northern Cape will require access

growth point.

Songo Songo: New infrastructure planned includes processing plants at Mtwara

(6 Mcmpd) and at Songo Songo (4 Mcmpd), Songo Songo-Mtwara pipeline 532 km 36’

diameter with a 22 Mcmpd capacity) (Msuya, 2013)

Cabinda oil/phosphate: The Company developing the phosphates (Minbos) has

announced that it will be going ahead with the Cacata project (production by late 2015),

but also that it is divesting from the DRC deposits (even though it had recently

announced that a small project at Kanzi would be operational by early 2015). Minbos

may consider investment into port facilities. The relationship of the phosphate to the

production of nitrogenous fertilisers from oil or possibly the Soyo gas project opens the

door to complete fertiliser production dependent on Potash sources.


Figure 9: Proposed gas pipeline

Source: Moolman, 2013

Lower rankings (2, 3) were accorded to projects mainly due to either the projects in the

proposed growth poles at the current stage of development or knowledge being unlikely to

be able to support the cost for new infrastructure or doubt regarding offtake or political

issues / political will being such that it was unlikely that funding would be found in the short

term:

Zimbabwe Steel: to be viable this project will probably require the Beira Machipanda

line to be fully upgraded. Although SADC (2012) has this on the list of short to medium

term rail projects, financing would be an issue. Muronzi (2013) however indicates that

the government of Zimbabwe and ESSAR have concluded a further deal in which

ESSAR will also invest “several million dollars” into a railway from Mwanesi to

Savannem in Mozambique. Based on the on-off relationship between the government of


Zimbabwe and Essar over the past couple of years, it is difficult to foresee the path of

this project, however it does have huge industrial potential.

Kabanga / Musongati nickel: The Dar Es-Salam Isaka-Kigali/ Keza-Musongati railway,

which has been planned for some years is still in an early phase and a request for

expression of interest for advisory services closed in August 2013. It is considered

unlikely that the rail will be completed and operational within 5 years.

North / Central Botswana coal: The 600 MW Morepule B power station was due at the

end of 2012 but was delayed; it should be fully operational by October 2013. Botswana

issued a request for pre-qualification for a 300 MW brownfield independent power

project at Morepule A in July 2013. It is unlikely that Botswana will have sufficient offtake

of power to develop large scale power generation or cogeneration plants in the near

future. Offtake of coal to South Africa or for export from these coalfields may take more

than 10 years to reach significant proportions, since the southern coalfield is likely to be

first in line for export to South Africa.

Boseto Copper: It is unlikely that production of copper in the area could support rail,

even with new projects in the pipeline. However a Botswana-Namibia rail line could still

be seen as a possibility in the future if coal and possible iron mining opportunities are

taken into account.

Only growth poles where the top project had received a ranking of 4 or better in the second

sort were considered for the infrastructure ranking. In all of this it is essential that the reader

keeps in mind that the proposals are in regard to significant new industrial development –

not simply mine and export.

The top groups after applying this criterion are:

Top groupings and clear leaders based on all ratings are:

1. Tete coal, iron and phosphate (14 projects).

2. The Rovuma Basin, Mamba complex and Mtwara gas deposits (6 projects).

3. The Waterberg coal and cross border deposits in Botswana as well as with a phosphate

deposit and iron deposits to the south (9 projects).

4. Copperbelt deposits (19 projects).

Projects that also achieved a relatively high rating were:

1. Zimbabwe Iron and coal (4 Projects)


2. Northern Cape Iron and Manganese (16 Projects)

3. The Songo Songo and nearby gas fields for (3 projects).

4. Cabinda/Bas Congo oil and phosphate (15 projects).

5. The Kabanga / Musungati projects (4 projects).

2.6 Challenges

There were some significant challenges with the process. In some cases deposits or fields

are known to be large but specific data has not been found. These may then have been

accorded a low rating for size. Others through recent prospecting activity are known to be

uneconomic, but are nevertheless very large.

It is suggested that for the second stage of the greater project, further information is

gathered (where possible) for the chosen groupings and that the data is viewed especially in

regard to:

Mineral resource estimates

Economic and social impact of development

Infrastructure available or planned

Clustering potential

Sustainability

Marketability and strategic value of proposed products

2.7 Value Chains

Value chains in mining describe, often visually, the entire range of activities, inputs and

outputs required to bring a mineral commodity from the ground through various stages of

concentration and production to its end use, and even to possible discard and re-use. Ideally

connections to sidestream activities are also included.

Value chains are often tightly integrated and any change, inefficiency or breakdown in the

chain can have significant negative results throughout the value chain, in upstream,

downstream and even sidestream activities. Understanding the value chain can allow scope

for promoting the spreading of gains to low income producers through policy development as

described in Kaplinsky (undated) and Kaplinsky 2000. Certainly the lack of diversification

both upstream and downstream in value chains in Africa is a lost opportunity and one that


leads to an overdependence on the export of primary mineral ores and an increase in

inequality even in periods of growth as we have seen recently (Lopes, 2013).

The study of value chains has become a science in itself and various forms of value chain

can be described. Due to the scoping nature of the current exercise the level of description

will be largely that of simple market focussed value chains. Value chains can be seen from

various viewpoints (materials handling, business, society, policy, government, regulation,

rents, labour markets, etc.) and each may deliver a variation of the truth.

2.7.1 First step in developing value chains

Perhaps one of the most important points to make before beginning to look the value chains

related to this report is that the chain can be shown to continue long beyond the levels

actually given and that some aspects of the value chain take years – perhaps even decades

of planning to be able to be made best use of. For example the expertise that may be

needed (perhaps a metallurgist, geologist, chemist or skilled technologist or operator) can be

imported (usually at great cost) as a “quick fix” but this does not really add the level of value

to local society that is being sought. However, to train many engineers, scientists and

technologists is a process that really begins pre-school with the correct attitude towards

technical professions and goes on through junior and senior schooling where excellence in

teaching and learning especially in areas of science and mathematics is required – to tertiary

education where well-funded and equipped universities and technical colleges with excellent

teachers will be necessary. The process does not stop even there since excellence in the

fields of technology, science and engineering also requires expert mentoring in the

workplace in order for the young men and women coming through the education process to

learn practical on-the-job skills, and to develop the level of professionalism required for

success of the processes in which they are involved. Although this report speaks to the short

to medium term development of a growth pole it is imperative in Africa that there is urgent

attention paid to ensuring the great number of skilled personnel that will be required in the

future are trained now. Since education is a 15-20 year process it is the area of development

that should be getting immediate and intense attention of policy makers.

To clarify the size of the education problem, South Africa makes a good example of a failed

education system currently leading to huge labour and socioeconomic problems. Currently

37% of South Africans are without work, and yet economic growth is stifled because skilled

workers are not available! Some 47% of responding business leaders in the recent Grant

Thornton (2013) International Business Report pointed to the lack of skilled workers being

the key growth constraint in South Africa.


2.7.2 Policy Challenge

African countries find themselves in a position where they remain at the bottom of the value

chain and still need to find ways to move up according to Lionel October Director General of

the South African Department of Trade and Industry, speaking at the launch of the OECD

report titled ‘Perspectives on Global Development 2013: Industrial Policies in a Changing

World’, (Kolver, 2013). At the same conference Analisa Primi OECD senior economist said

that the role of the State in the economy was currently a topic of global conversation, and

that there are four main challenges that emerging countries want to address through

industrial policy (Kolver, 2013). It is the thesis of this author that there are more than four

challenges in the development of policy, and that the major challenges include:

1. Lack of skills (discussed above) which is also a factor in the difficulty currently being

experienced with labour demanding higher salaries but not providing greater productivity.

The skills problem is enhanced by government and business not being in agreement on

where the responsibility lies for specific levels of skills development. What needs to be

accepted is that government supplies excellent basic, secondary and tertiary education

and then business maintains first-rate programmes for skills development of staff to

enhance productivity.

2. Lack of innovation capability, and capacity to create new products and services to

compete effectively in global markets (to some extent related to 1 above)

a. To address this, developing countries must target specific technological and scientific

areas for development and attract more knowledge intensive FDI.

3. Lack of financing - although Analisa Primi indicated that development banks were

becoming more active (Kolver, 2013), this is not necessarily the case in all areas of

endeavour and certainly there is still a great need for more to be done.

4. Lack of infrastructure – this remains a major bottleneck to increasing competitiveness,

with about 60% of the world’s infrastructure located in high-income countries (Kolver,

2013).

5. Being open to hear new voices in the economy and to be careful not to let policies be

dominated only by established voices in the country’s economy (Kolver, 2013).

6. Lack of real communication between the private sector and government.

7. Resource nationalism focussing on the incorrect issues – looking at the benefit to be

attained from the resource as being from “developmental pricing” which is generally


unrealistic instead of focussing on the policy issue of ensuring supply at export parity

pricing on which to safeguard long term industrial development.

8. Policy focus on beneficiation without sufficient focus on upstream and sidestream

benefits that are available and which if not nurtured and used can lead to severe value

leakage out of the economy if not captured.

9. Inconsistency of government policy and retroactive policy changes leading to an

uncertain business climate, especially in the areas of taxes, royalties and labour.

10. Although at first market size may not appear to be policy related, it certainly is with trade

between most African countries with Europe, America or China, being easier than

interregional trade due to all of the policy and border restrictions as well as infrastructural

problems.

2.7.3 Mineral commodity value chains

A simple value chain showing the full cycle of products related to the mining industry (based

on ICMM, 2006) is shown in Figure 10. Each step of this process requires inputs and often

delivers a variety of products which again may move into separate cyclical value chains.

Figure 10: Broad mineral commodities value chain

Source: modified from ICMM, 2006


At each step of the value chain there are inputs required from the state and from private

enterprise in order to allow an efficient flow through the chain where inputs of basic capital,

services etc. are missing then the value chain can be disrupted or broken leading to a loss of

value, that may be taken up elsewhere, or in some cases cause a total collapse of the value

chain. Figure 11 gives a generic overview of the mineral commodities value chain. Clearly

the real picture is a lot more complex, but this does give some indication of the relative roles

of state and the private sector.

Figure 11: Generic mineral commodities value chain with broad inputs

Note: Letters refer to more detailed value chains produced below

2.7.4 The importance of developing value chains

The importance of industrialisation and associated business based on the mining sector can

be well described from the South African situation, which has a far from ideal level of

downstream beneficiation but which has benefitted greatly from the upstream and

sidestream linkages associated with mining.

South Africa could do much more to develop its manufacturing industry based on its

considerable mineral resources, in fact since 1990 South Africa’s manufacturing industry has

seen its share of the GPD shrinking rapidly, far more than in middle income countries and

very much more than in east Asia and the pacific as can be seen in Figure 12.

Mining in South Africa, although making up only 9.3% of the GDP in 2012 (Maia, 2013), contributes nearly 60% to export

incomes with the top 7 export categories in the country being Gold mining, PGMs, Iron ore mining, Coal mining, motor vehicles

and basic iron and steel in that order (Maia, 2013). A simple and straightforward depiction of the economic impact of mining can

be seen in the diagram from South Africa’s Industrial Development Corporation (IDC) shown here in

Figure 13.


Figure 12: Manufacturing contribution to GPD

Source: Maia, 2013

Figure 13: Economy wide impact of the South African mining sector in 2012

Source: Maia, 2013


2.7.5 Global Value Chains

A global value chain (GVC) can be defined as a complete value chain, without regard as to

where any particular link in the chain is carried out. A global value chain is one in which the

goods and services input or produced by the value chain seek out niches throughout the

world which lead to lower costs and or greater productivity in the process of moving from

primary materials to finished goods. One of the great advantages of the expansion of global

market chains is that they allow scalability far above the requirement to feed end products to

a local market – and that enhanced scalability runs all the way through the value chain. In

the process links within the value chains may be spread across multiple firms, countries and

regions. Because of this value chains tend to be highly dynamic and should be carefully and

constantly monitored to ensure that the trends within the value chain are understood and so

that planning can be put into action to ensure the maintenance of portions of the value chain

that are currently captured within the country or region.

Where a country or region would like to “own” a greater portion of the global value chain, it

needs to carefully consider the reasons for some steps in the chain making better business

sense elsewhere, and, ideally, meet the challenge of enhancing local conditions to equal or

better the conditions in the country or region that would naturally attract that link of the chain.

Bhatia (2013) argues that governments have an important role in the participation of firms in

the value chain and that proactive policy measures can improve the outcomes for

developing countries.

Where an attempt to meet or better the conditions for business development at a particular

point of the value chain does not make practical or economic sense, it may be worthwhile for

the country/region concerned to accept the loss of a particular portion of the value chain, and

try to link in again at a later point. Bhatia (2013) points out that such policy instruments as

Special Economic Zones (SEZ’s) can only be a partial and suboptimal answer to the

challenge of seizing a larger portion of the value chain, and that rather the focus should be

on the development of efficient and well integrated domestic (and regional) markets.

Building regional value chains is an important step to locking into the global value chain, and

as pointed out by Bhatia (2013), regional value chain development has the additional

advantage of building strategic and political relationships. Growth of regional value chains

within the Tripartite will certainly enhance cooperation and can best be advanced by

lowering trade barriers and improving the speed and efficiency of inter-country trade through

improved regional infrastructure and fast efficient (one stop) border posts. Lopes (2013),

urges governments to create an enabling environment through good industrial policy and


especially through regulatory frameworks for tackling market failures. He provides an

example of the phosphate industry in Morrocco, which now produces a series of phosphate

based products inclusive of phosphoric acid and other products derived from it:

“The Office Chérifien des Phosphates has grown from several hundred people at its creation

and revenues of three million USD to revenues of 43.5 billion MAD (2010), and nearly 20,000

employees.”

2.7.5.1 Role of services in value chains

This section does not pretend to be anything more than a brief glimpse into the complex

area of the role of services in value chains. It has become quite clear to Letlapa that services

are to value chains what oil is to a machine. Services “lubricate” value chains and allow the

value add to happen where and when the services are available. The clear policy response

to this phenomenon in the tripartite should be to embrace it and to ensure that we can

compete favourably by ensuring enhanced education, and excellent infrastructure, and

making sure that there are minimal restrictions to hamper the free movement of trade and

services across borders within the tripartite so that the path to adding value through services

is smoothed. Bogdan (2013) makes the interesting point that:

“the focus of research is shifting from trade in goods to trade in tasks, through which value is

added along the production chain, by means of capital and labor mobilization, moving to the so-

called trade in value added”

In the context of this report it is important to understand that because of this phenomenon it

is difficult for a country to claim any type of comparative advantage when it does not have an

equal or better status in regards to the required capital and skills to ensure that, that

comparative advantage (no matter how great it appears to be) cannot be converted to a

clear competitive advantage by the application of the required capital and skills.

Referring to the work of De Backer (2013), Bogdan (2013) reproduced a diagram (see

Figure 14) which shows how service related aspects of the industrial value chain have

become more important relative to the production phase itself in recent years. Bogdan

concludes that the contribution of services to export totals is higher than that of

manufacturing in seven countries out of the ten emerging European countries analysed,

confirming results elsewhere in the literature.


Figure 14: Interlinkage of services with manufacturing in the global value chain

Source: Bogdan (2013)

It is clear that in the modern world services forming a part of the overall global value chain

may be traded as tasks. In general the required services in the value chain are highly

mobile. Referring to Figure 14 one realises that a product designer can be anywhere in the

world where the conditions are pleasant and conducive to the work that she (or he) does –

also the designer can very easily move to another location if desired. The manufacturing

centre however requires significant fixed capital and long term commitments from the

company and government in regard to taxation, and cost of essential local services. To

capture more of the value chain may require taking a careful look at the way entrepreneurs

in the service field are treated as well as simply improving general living conditions to attract

talent.

It is clear that in the future the role of services in the global value chain are likely to become

more and more important and that the analysis of how best to include services in the overall

growth pole scenario development in Phase two of this project should be clearly dealt with.


2.8 The JICA report

The recently published JICA report is the culmination of a series of reports over four years of

studies by international specialists with the purpose to selecting likely infrastructure

development projects for future financial and technical assistance by JICA. The final study

was conducted over southern Africa by a team of 11 consultants over a period of 9 months

in a joint venture between PADECO Co., Ltd. and Nippon Koei Co.,Ltd., with the objectives

of:

Determining potential assistance required for the development of infrastructure (in the

transport, energy, and water sectors) along major economic corridors in Southern Africa,

and

Proposing financial and technical assistance to be provided by JICA for this purpose.

An interesting aspect of the Jica report is that several countries with iron ore that is less than

favourable were included as envisioned to develop iron ore mining and steel industries.

Although the team cannot be faulted in this being an ideal situation large scale steel

production in most Southern African countries would quickly lead to a situation of a steel glut

and this would most likely cause the failure of the businesses. An advantage of the growth

pole approach is that, assuming the project continues through phases 2 and 3, only one

growth pole (which may or may not include steel manufacture) will be seen as the most likely

growth pole to succeed. If this growth pole then gets the concerted efforts of development by

the tripartite countries and financiers it will soon be able to be in the position of supplying to

the entire area. Later other growth poles can get the same treatment leading to serial

development in which demand can be re-assessed at each point. This should allow much

greater certainty of success in the long run.

In the findings of the JICA study the only direct reference to mining in their “long list” reads

as follows:

“Technical assistance to meet global requirements for the mining industry to adopt clean and

efficient mining practices, e.g., use of “clean coal technology”, various mine security and

mine pollution control technologies, and smelting, refining and recycling technologies for the

metals industry available in Japan”

This is a very broad brush comment and covers many bases, but essentially is understood to

say that some Japanese technology especially in regard to “clean” mining practices may be


used in the region. Whilst this may be true it is unlikely to assist in meeting any of the

envisioned outcomes of the project. Perhaps more pertinent to those outcomes are the

objectives recorded for the related and downstream activities from mining where required

assistance included:

Human resource development (skills and knowledge to carry out productive activities

that lead to employment or entrepreneurship

“pre-service” training for middle-level technicians

Training to improve business and management skills

value-chain management, quality control, marketing, financial management, and

staff training.

These point to the greatest problem that Southern Africa has, in a lack of appropriate skills

and therefore talk directly to their envisioned outcome.

Can the concept of networked growth poles be integrated with the findings and

recommendations of a recent JICA study?

The two studies were conducted at entirely different levels with different primary objectives.

The Jica study was on overview of southern African investment/technical assistance

opportunities that could be met by Jica, conducted over a 9 month period with 11

consultants. In the Growth Pole study the much broader area of the Tripartite was

considered in a five man-month study concentrating on industrialisation opportunities based

on mining. Nevertheless there is a certain degree of integration that can be pointed to in the

two studies.

Both studies have clarified that education and training are critical to development; both have

seen that the best mineral based opportunities in Africa for industrial and agricultural

development are based around hydrocarbons, steel and phosphates. Both studies are clear

that it is political will that will make the difference between success and failure, both see that

regional development and cooperation is a necessary prerequisite for future developmental

success, and both see a role for government in the success of any major developmental

plans for Africa.

The current study has rated many growth poles, and as a requirement of the study has had

to attempt to choose those most likely to be successful in the medium to long term. This

should in no way be seen as negative for those that did not make the top positions, since

political will to develop will have a huge effect on what actually happens in the future.


However, the growth poles chosen could be seen as a starting point for JICA to begin its

rollout of technical and financial assistance and once the second round of the study is

completed there will be a shorter list to assess.


3 GROWTH POLES

Based on the work done in the first 5 reports and the process outlined in section 2 above, a

number of growth poles have been identified and are discussed below. Note that in the

growth pole diagrams a colour coding has been used to allow the reader to see at a glance

the level of value addition that is likely to occur on a large scale in the growth pole. As in all

of the work on growth poles the most important factor in exactly how far downstream a

particular value chain is followed will depend on a series of factors not the least of which are

the availability of capital and the political will to follow the value chain. The colour coding is

explained in Figure 15.

Figure 15: Colour coding for growth pole diagrams

3.1 Growth pole 1: Tete

There can be little doubt that Tete represents the premier growth pole in Africa today with

huge resources (largely untapped) of coal together with significant iron ore deposits to

source a steel industry in the heart of east Africa, as well as a large phosphate deposit lying

close to the Nacala rail which could easily find its way on return trains into the area to source

a fertiliser industry (see Table 6). The iron ore from the Honda deposit may also find a use

here once the production of steel has commenced to add to the life of a steel industry.

Table 6: Deposits related to the Tete growth pole

Name Rank Commodity Size Status Fixed invest. Rank

Moatize 1 Coal 5 CPR 0

Ncondezi 5 Coal 5 APR 0

Revobué 6 Coal 5 APR 0

Zambeze 7 Coal 5 APR 0

Benga 8 Coal 4 CPR 0

Jindal (Chirodzi) 9 Coal 4 CPR 0



Tete prospect 30 Fe 4 PRO 0

Minas Moatize 32 Coal 2 CPR 0

Muturara 43 Coal 5 PRO 1

Songo 47 Coal 5 PRO 1

Tete West 71 Coal 4 DNE 0

Evate 74 P 3 PRO 0

Midwest Africa 75 Coal 3 PRO 0

Mont Muande 78 Fe, P 3 PRO 0

Honda 233 Fe 3 DNE 3

Mining in the Tete area is expected to grow rapidly due mainly to the coal mines but also due

to mining of industrial mineral commodities (limestone, gravel, clay etc.) to support the rapid

growth in the area. Mining Resources Minister, Esperança Bias is reported to have indicated

in September 2013 that four new coal mining projects are due to begin between 2014 and

2019 in Tete with a total investment of $5.1 b. These projects are:

Minas do Revobué (2014)

Midwest Africa projects (2014)

Zambeze with expected production of 258 Mtpa of thermal and coking coal (2019)

Ncondezi project.

The Chitongue (Boabab Tete Prospect) magnetite is also due for mining to start in 2016.

(Macuahub, 2013).

Mozambique plans to connect its power grid to Malawi which will entail building an 800 kV,

1000 km power line from Tete to Phombeya in Malawi. This will allow Malawi to import

some 50 MW from Mozambique (Rennies, 2013).

3.1.1 Tete value Chain

Figure 16 shows a schematic value chain for Tete colour coded in view of the likelihood of

that level of value add being developed in the next 10-15 years. In the next phase of the

study this will be spelled out more clearly. Perhaps more important than the downstream

beneficiation opportunities are the upstream and sidestream linkages that will be available


immediately as mining begins and which will grow rapidly as more mines start producing and

every step of downstream beneficiation will also bring a raft of possibilities.

Mining at Mont Muande will supply apatite concentrate which could be exported or used to

produce fertiliser locally. The amount of apatite produced may not be enough to make the

production of value added products viable, however if the Evate deposit is also mined then

the phosphate from the two deposits will certainly support beneficiation. It is likely that if

there is beneficiation of the coal locally then sulphur for sulphuric acid will be produced

which is an essential input into the process to produce phosphoric acid.

The Evate apatite is a flour-apatite which means that there will be a possible byproduct of

hydrofluoric acid. This is a valuable input into other processes and in the second stage of the

growth pole project a theoretical mass balance should be calculated to establish if quantities

produced at Evate (assuming the mining and production proceeds) will be significant enough

to feed into the refining industry where it is used in the alkylation of isobutene.

3.1.2 Government revenue from coal mining

Resenfeld (2012) presented a model for predicting government revenue from the coal mining

sector in Mozambique. Resenfeld looks at various constraints and risks in making

predictions of this sort and considers only two sources of government revenue (royalties at

3% and corporate tax at 32%). Four constrained scenarios and an unconstrained scenario

are considered; the resulting graphed incomes are shown in Figure 17. The scenarios are

summarised below:

Scenario 1: Baseline scenario, only the Sena line at 6 Mpta by 2013,

Scenario 2: Baseline scenario plus a 25 Mtpa Nacala line in 2015, bringing maximum

transport capacity to 31 Mtpa.

Scenario 3: Scenario 2 plus upgrade of the Sena line to 19 Mtpa in 2016, bringing

maximum transport capacity to 50 Mtpa.

Scenario 4: Scenario 3 plus a 35 Mtpa rail line by 2020 linking Tete to a port North of

Quelimane, bringing maximum transport capacity to 85 Mtpa.


Figure 16: Tete Value Chain

Note: The colour coding works

from red (most likely to take place)

through orange, yellow, green, blue

and violet (least likely to take place)


Figure 17: Government revenue (in $ M) due to coal mining

Source: Resenfeld (2012)

Clearly, government revenues would be even greater if considerable value was added at

source (production of coke, petrochemicals, electricity), and this would also require lower rail

volumes since the value added products would generally have less volume and higher

value.

3.1.3 Linkages

Fiscal linkages: Exploration licence fees, mining licence fees, royalties, taxes on profits of

companies, taxes and on wages and salaries of mining company employees, VAT on

employee purchases, taxes on company profits and employees of linked business.

Employee consumption linkages: Due to size of this growth pole it is expected that the direct

employment by the mining companies listed as well as other associated mines in the area

providing industrial minerals for use in the linked development may reach 40,000 persons.

This will lead to significant consumption linkages as new business offering food and clothing,

building services for housing, laundry services, medical services and restaurants and

various other service sector businesses will open to the meet the demand from the mining

employees, these too will have employees with similar demands and will enhance the effect.

Production linkages: This growth pole is large and concentrated. It will have strong

upstream and sidestream linkages. Downstream linkages may be less effective dependent

on the progression of development in the area:


Upstream or backwards linkages: Strong upstream linkages will include the demand

for capital equipment; the requirements will depend very much on mining conditions and

methodology (drilling equipment; core sheds; “yellow vehicles” [excavators, dozers,

shovels, dump trucks, graders]; land; cement, clay, bricks; steel sheet; longwall

miners/continuous miners; survey equipment; conveyor systems [inclusive of

engineering, design and installation, belts, belt cleaners, safety equipment, skirting and

dust control etc.]; draglines; winders and hoists; cables; copper wire; cement spraying

systems, roof drilling and bolting systems; refrigeration and ventilation systems;

compressors; fans; explosives; explosive drilling and packing systems; backfill

technology and equipment; communication systems; person transport [underground and

surface]; battery packs and lighting systems for personnel; electrical services,

mechanical services; pulleys; pumps, cabling; environmental services; logistics systems;

loading equipment; cranes; comminution and screening systems; mine scheduling

software; roof supports; hydraulic valves, coal stock handling systems and equipment;

tailings dam systems; rail siding equipment; laboratory analysis equipment; automated

scanners to monitor production quality); miners clothing and shoe supply;

Downstream or forwards linkages: see section 2.7 Value Chains and the Appendices

for the particular mineral commodities. It should also be noted that each step of the

value chain that is reached will bring its own set of linked business into the pool.

Sidestream or horizontal linkages: The Sena rail has already proved grossly

insufficient for delivery of coking coal to the coast and Vale is building a line through

Malawi to the port at Nacala. This line may allow for other goods to be transported and

will itself have a strong multiplier effect both at its endpoints as well as along the line

and especially in Malawi where there has been an agreement for Malawian business to

get some usage of the line. In Tete access to imported goods will become much easier

as rail traffic between the coast and Tete becomes more frequent making it a clear

trading hub into the region. It is likely that an important dry port will be developed here.

Power stations being developed as downstream opportunities for the low quality coal will

also see important sidestream offsets as electricity needed for the mining and

beneficiation operation will only use a portion of the electricity that will become available

and the rest will be available for other industrial development, both in Tete as well as in

the region as a whole as the energy reticulation systems are built out. Similarly as the

importance of Tete as a major mining and industrial hub grows it is likely that the airport,

access roads and information and communications technology (ICT) will be upgraded

giving benefits to a wide variety of business. Banking, legal and administrative services


will develop to directly serve the mining companies, these will be available for the wider

community. Since agriculture is important in the area, and since it is likely that fertiliser

production will take place downstream from the mining it is expected that Tete will

become a major trading centre in the area for fertilisers and that farmers co-ops will

thrive. Building, mechanical and other services developed or enhanced to meet the

needs of the mining sector will be available for the broader community. Many skills will

be learned in building the necessary infrastructure for the mines and these skills will

become available as building services. It is also likely that laundry, repair services and

landscaping services will thrive based largely on work for the mines. Hotels will be built

to accommodate the many technical teams that will come in during early development

and will support other business and tourist visits as well.

3.2 Growth Pole 2: Rovuma / Mtwara

The very significant deposits of gas already proven in northern Mozambique and southern

Tanzania stand in their own right as a clear opportunity for industrialisation. The supply of

natural gas in the area is likely to open the door to a variety of industrial development

through the supply of electricity, the supply of the gas itself, the production of LNG for export

and the ancillary industry and services feeding into this opportunity. Furthermore, once an

industrial presence is established in the area (as well as the supply of energy) a number of

other primary and secondary industries are likely to blossom in the area.

Note that the separation of this growth pole from the more northern gas field at Songo

Songo as well as the potential between them and deeper deposits has been somewhat

arbitrary. If the Gas fields are selected for further study in the second phase of the greater

project this separation should be reconsidered with the possibility of seeing all the gas from

Rovuma and up to Mkuranga as a single growth pole.

The domestic market for gas in Mozambique and Tanzania remains small, and is restricted

largely to Maputo, Beira and Dar es Salaam, although it is expected to grow. The 2011 gas

consumption in Mozambique was about 0.51 bcmpa in 2011 (EIA, 2013). In Tanzania the

domestic market consumed 0.8 bcmpa in 2011. The production of the gas itself will not lead

to a great number of jobs, however, dependent on the amount of downstream beneficiation

that is carried out and the ancillary industry that is likely to grow in the area, the number of

jobs provided may indeed be considerable.

It is important that development of gas based industry requires high levels of technology and

technical expertise. Compared to crude oil it also needs considerable capital investment in


the area of the discovery to build the required infrastructure. Typically there will be long lead

times between the initial investment and cash flow.

Table 7: Deposits related to the Rovuma/ Mtwara growth pole


Rovuma Basin 2 Gas 5 CPR 0

Mzia 18 Gas 5 PRO 0

Jodari 29 Gas 4 PRO 0

Mnazi Bay 33 Gas 2 CPR 0

Msimbati 124 Gas 0 CPR 0

Mamba Complex 126 Gas 3 PRO 0

It is expected that there will be an offtake of gas for the production of electricity in the near

term and in the short to medium term for the production of LNG for export. Producing

methanol, ammonia/urea and other products will be very beneficial to the area in that they

could replace costly fuel and fertiliser imports. Furthermore petrochemical projects are job

rich with some 3,000 construction jobs and over 600 permanent full time jobs from a single

project (Oilcouncil, 2013). The skills learned by construction workers will benefit the region

beyond construction of the plant.

The Mozambique draft Natural gas Master Plan indicates that by 2026 Mozambique could

be earning as much as $5.2 b from LNG and that the gas sector could create over 70,000

jobs. The gas master plan (as described in Ledesma, 2013) shows a number of applications

in the Mozambique domestic market (see Table 8), but equally still uses only a relatively

modest portion of the total gas available and the rest will probably be exported as LNG.

Government is seen to be supporting the idea of developing LNG plants at Palma. Since

Palma is remote a good deal of infrastructural work will be required to make this work.


Table 8: Potential Mozambique domestic projects

Project No. of

applications

Total Gas volume

required (Mcmpd)

Average gas price

required ($/MMbtu)

Power Generation 1 4.75 4.00

GTL 1 8.11 5.00

Methanol Production 5 46.44 2.35

Fertiliser production 3 5.70 1.90

LPG 1 n/a 3.5

Pipeline 1 3.68 2

Totals 12 68.69 Weighted Ave: 2.72

Source: Modified from Ledesma, 2013 after ICF 2012

Dependent of gas quality an LPG fractionation plant may be constructed to produce

additional revenue, however, Ledesma (2013), points out that the gas is dry and therefore

likely to be without liquid credits and he estimates that a reasonable base selling price would

be ~$3/MMBtu (~$3 per GJ) on average. This price is more than the weighted average price

in Table 8, and if the gas needed to be piped to Maputo it could be expected to cost around

$4.50-$5.00/MMBtu.

Some projects already planned are:

ENI has agreed to build a $130 m power station in the Palma district, of Cabo Delgado

province

Andarko intends to be shipping Liquid Natural Gas (LNG) from Mozambique by 2018

Eventual production is planned to be some 50 Mtpa of LNG

Initial development will be of 2 LNG trains each with a capacity of 5 Mtpa, with a

further 8 being developed later

Total investment to 2018 is expected to be ~$15 b

Nvunga (2013) points out that a decision to invest in LNG plants may only take

place in 2014, and that it may take 6-7 years after that to first LNG exports – i.e.

2021 for first exports, furthermore that the cost to get to that point may be $25 b

Later Andarko may consider power and fertiliser production

Tanzania has ten projects planned with a total capacity of 2000 MW which may be

sufficient to consume all of the Mnazi bay gas (Oilcouncil, 2013)


Tanzania has made it clear that they require methanol and urea production in the

future

A 532 km long, $1.2 b, natural gas pipe from Mtwara to Dar es Salaam is expected to

transport 22 Mcmpa

A 760 km² appraisal licence was issued by the Tanzanian Government for the Ntorya

gas discovery.

By November 2013 ENH is planning to have a distribution grid in place to provide gas to

industry, hospitals and hotels as well as residential users in Maputo (Ledesma, 2013) –

whilst far from the growth pole itself, projects of this nature highlight the importance of

the source area.

The likelihood taking into account the current state of knowledge for movement down the

value chain in the Rovuma area can be seen in Figure 18.


Figure 18: Rovuma Value Chain

Note: The colour coding works from red (most likely to take place) through orange, yellow, green, blue and violet (least likely to take place)


3.2.1 Government revenue

In the case of Mozambique government is due to receive a royalty of 2% of the value of gas

produced (paid first), as well as corporate tax of 24% for the first 8 years and then the

normal tax rate of 32% beyond that. Thereafter, although the government has a % share of

the gas, the company will first be allowed to recover its costs from exploration. This is

however limited by a 25% per annum depreciation of capital and a limit of cost recovery to

65% (Andarko) and 75% (ENI). The proportion of gas remaining after these deductions – so

called “profit gas” is split between the company and government dependent on an “r-factor”

were r is the ratio of overall project income to overall project expenses. Table 9 shows the

relative company and government percentage income at different r-factors.

Nvunga (2013) points out that the contracts are complex and it is uncertain what the deal will

be after the first 2 LNG plants.

Table 9: Government revenues from shared profits

r-factor Andarko Government ENI Government

r less than 1 90% 10% 85% 15%

r =1 to 2 80% 20% 75% 25%

r = 2 to 3 70% 30% 65% 35%

r = 3 to 4 50% 50% 55% 45%

r ≥ 4 40% 60% 45% 55%

Source: Nvunga (2013)

Note: r is the ratio of overall project income to overall project expenses

3.3 Growth Pole 3: Lephalale / Southern Botswana

The very large resources of coal in the Waterberg coalfield and stretching across the border

into Botswana offers an excellent opportunity not only for further generation of electricity in

order to supply the ever growing need in southern Africa, but it also opens the opportunity

for a large petrochemical/fertiliser/coal-to-liquids industrial complex. There needs to be a

mindset change about the large coal deposits that are distant from the sea to consider the

huge value add that can come about through the production of electricity and petrochemicals

and hopefully also adding further value towards finished products, rather thinking only about

how to get the coal to the coast. The higher value of the semi-finished and perhaps finished

products from the petrochemical industry can add considerably to the value of material on


transport routes in the future. Not only will this fundamentally change the well-being of the

area, but in doing so it will also open the door to a range of ancillary industry. The deposits

considered in this growth pole are listed in Table 10.

There is a degree of complexity which comes into the development of projects in this area

and that relates to the lack of water for development. This restricts the number and type of

project that can take place. Furthermore SASOL announced in June 2013 that it had taken

the decision not to continue with their previously planned Project Mafutha (coal to liquids) in

the Limpopo Province in South Africa. The reasons for this relate apparently to the findings

of the prefeasibility study, the global environmental risks and especially to the absence of a

commercially viable carbon capture and storage policy in South Africa.

Table 10: Deposits related to the Lephalale / Southern Botswana growth pole

Name Country Rank Commodity Size Status Fixed invest. Rank

Waterberg South Africa 3 Coal 5 CPR 0

Kweneng PL341/2008 Botswana 36 Coal 5 PRO 1

Mmamabula Botswana 40 Coal 5 PRO 1

Mmamantswe Botswana 41 Coal 5 PRO 1

Mmamabula central and south Botswana 81 Coal 4 PRO 1

Thabazimbi South Africa 114 Iron 4 CPR 3

Meletse Iron South Africa 131 Iron 4 PRO 2

Moonlight South Africa 132 Iron 4 PRO 2

Glenover South Africa 160 Phosphate 2 PRO 1

Although superficially this growth pole appears similar to Tete, there are significant

differences. While the business environment in South Africa, which houses the highest

ranked project, is more developed, government tends to have an adversarial relationship

with the mining sector rather than one of joint agreement. Furthermore, there appears to be

a degree of disagreement between South Africa and Botswana regarding the development

of the Botswana coal deposits. Thirdly the coal quality is entirely different from that at Tete,

which has a large percentage of high quality hard coking coal – the Waterberg coal is largely

poor to medium quality steam coal, although soft coking coal does exist in the area. The iron

deposits differ in that the South African deposits are haematite and magnetite whereas those

in Tete are only magnetite and South Africa already has a large steel industry which is set to


grow in the near future with proposed developments at Palabora. Finally the phosphate

deposit at Glenover is smaller than that at Evate and as a result less likely to be able to

support a plant to produce phosphoric acid. It is currently being pursued more as a rare

earth deposit, since the rare earths present probably have a higher value than the

phosphate.

Based on the current understanding on the government and business attitudes towards this

area the likely downstream value addition is shown in Figure 19. It can be seen from this

that although there is a good deal of potential in the area, there is little likelihood of the

industrialisation potential being developed.


Figure 19: Lephalale/ Southern Botswana Value Chain

Note: The

colour coding works

from red (most

likely to take place)

through orange,

yellow, green, blue

and violet (least



Some projects already planned are:

Medupi coal fired power plant in Lephalale will consist of six 800 MW units. Construction

activities commenced in May 2007. When complete, the power station will be the fourth

largest coal fired plant in the world, and the biggest dry-cooled plant. The planned

operational life of the station is 50 years.

Construction jobs peaked at 17,000 direct jobs

State-owned Transnet Freight Rail (TFR) plans to expand capacity on the existing rail

network out of the Waterberg coal region (Odendaal, 2013)

By year-end 2013, it plans to add 2.4 Mtpa of coal export rail capacity to bring the

total capacity to about 7 Mtpa.

By June 2014 the rail should be able to move about 13 Mtpa

Exxaro is planning to open its Thabametsi coal mine (adjacent to Grootegeluk) which

will deliver 3.8 Mtpa to an on-site independent power producer (IPP) (Odendaal, 2013)

Exxaro’s R10.2 b Grootegeluk Mine Expansion project, will supply the Medupi power

station with 14.6 Mtpa is progressing on time and within budget, and is 96% complete

(Odendaal, 2013)

Vedanta is planning a 600 MW coal-fired power station in the Waterberg District. The

power station will obtain coal from the adjacent Dalyshope Coal Mine that is still in its

feasibility development phase

Botswana and Namibia have signed a $11 b agreement for a transnational rail line to

connect Botswana with the Port of Walvis Bay which will open the way for Botswana to

export coal via Namibia (Rennies, 2013)

Transnet has earmarked R5.8 b for railway development in the Waterberg region from

the Botswana coal fields to Limpopo and to Thabazimbi; the line to Ermelo will be

upgraded. The Botswana link will be completed by 2020.

The Glenover project which is now being seen as a rare earth play published its

preliminary economic assessment (PEA) this year, which indicated a net present value

of some $783 M at a discount rate of 5%,

The Ferrum Crescent moonlight magnetite project is in bankable feasibility stage

African energy (Mmamantswe colliery) has submitted a proposal to supply 300 MW of

power from a coal-fired power station to the South African government; it has also

submitted a proposal to build a 600 MW coal-fired power station near Lephalale.


The importance of the Lephalale/ Botswana coalfield cannot be overemphasised. Eskom

has reported that it expects a shortfall of as much as 40 Mtpa from 2018. This could easily

be met either with coal or electricity purchased from Botswana.

South Africa already has an extensive mining supply sector that can be utilised and

expanded to service this growth pole. The Botswana sector should also get further stimulus

to grow. Although there are likely to be significant differences downstream of the Lephalale

and Tete areas, the linkages are likely to be somewhat similar and the reader is referred to

section 3.1.3 on page 51.

3.3.1 Government revenue

Grynberg (2012) gives possible projections for coal production, export, employment and

revenue based on the previous work of Freeman and Fichani (2012). The employment

figures in the table are clearly incorrect, but the government revenue data appears to be

reasonable (see Table 11). The data refers to total possible production from Botswana

coalfields and assumes high prices and no infrastructural constraints. In the phase two of the

growth pole project this type of economic data should be structured with various constraint

scenarios which would then also consider possibly differing routes of export and/or local

beneficiation for the different coalfields. It is unclear why there is a dip in production and

income in 2019-2022.

Table 11: Unconstrained coal export and revenue projection for Botswana coalfields

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Production (Mtpa) 1.1 6.2 13.2 19.1 31.6 43.4 48.7 57.5 62.4 62.4 67.9 72.9 72.9 72.9

Export Revenue

(Billions Pula)

0 1 3 5 8 12 10 11 13 13 16 17 18 19

Nominal Government

revenue (Millions Pula)

59 126 1201 1790 2699 2933 2000 1789 1898 2018 2815 3173 3191 3246

Real Government

revenue (Millions Pula)

55 112 1015 1441 2079 2142 1391 1185 1197 1212 1610 1729 1656 1605

Source: Grynberg (2012) after Freeman and Fichani (2012) ‘Minerals and Energy Export and Revenue Projections’ A report

Commissioned by BIDPA for BOCCIM

Note: this table refers all Botswana coal


3.4 Growth Pole 4: Copperbelt

Although the Copperbelt can be regarded as already being industrialised to some extent

there remains a very real potential to add value by improving the products as well as

delivering mining-related goods and services to new mines.

The complexity of the Copperbelt and the many mines in the area made the process of

decision on what to include or not in this limited scoping study difficult. As a result all of the

Zambian and Democratic Republic of the Congo deposits which were recorded in the

database, were included here (see Table 12), however it is clear from the ranking where the

balance of opportunity lies. Three manganese deposits and a small coal mine have also

been included in the grouping.

Rapid infrastructural development will be required in both the DRC and Zambia if they are to

meet their own growth expectations. KPMG’s senior partner in Zambia, Jason Kazilimani,

points out that that, according to an Africa Infrastructure Country Diagnostic 2011 report on

Zambia, investment of at least $16 b is required over the next decade to catch up with the

rest of the developing world (Mavuso, 2013).

Zambia has somewhat of a head-start with the Zambia-China Cooperation zone (ZCCZ)

which was officially inaugurated in February 2007 at Chambishi, with a “subsection” opened

near the Lusaka international airport in 2009.

The Chambishi ZCCZ lies within the mining concession of the China nonferrous Metals

Company Ltd. (NFCA) in Kalulushi Municipality in the Copperbelt Province. The zone aims

to channel investment into copper and cobalt metallurgy and to process byproducts. It is also

aimed at the production of electrical wire and cable, mine equipment, construction

equipment, chemical products, fertilisers, and pharmaceuticals for local and regional

markets (Alves, 2011).

Table 12: Deposits related to the Copperbelt growth pole


Kamoto DRC 11 Cu 5 CPR 1

Kanshashi Zambia 12 Cu 5 CPR 1

Kipushi DRC 13 Zn 5 EPR 1

Konkola Zambia 14 Cu 5 CPR 1

Lumwana Zambia 15 Cu 5 CPR 1

Tenke Fungurume DRC 17 Cu 5 CPR 1



Sentinal Zambia 20 Cu 5 APR 1

Chambishi Zambia 22 Cu 4 CPR 1

CNMC Luanshya Zambia 23 Cu 4 CPR 1

Kipoi DRC 24 Cu 4 CPR 1

Kamoa DRC 35 Cu 5 PRO 1

Frontier DRC 48 Cu 4 APR 1

Etoile DRC 50 Cu 3 CPR 1

Sino-metals Leach Zambia 52 Cu 3 CPR 1

Kapulo DRC 125 Cu 3 PRO 1

Kampumba Zambia 188 Mn 2 PRO 2

Mansa Zambia 218 Mn 2 APR 3

Luena Coal Mine DRC 222 Coal 1 CPR 3

Kisenge DRC 254 Mn 3 ABD 3

The Lusaka ZCCZ was designed as an international commercial hub with the aim to create a

light industry cluster (manufacturing, assembly and packaging of goods) that is connected to

nonferrous metals as well as other sectors (garment and food-processing), wholesale

facilities, logistics and real estate (Alves, 2011).

The investment incentives are: exemption from tax on dividends for five years from the year

of first declaration of dividends; no corporate tax for five years from the first year profits are

made, with 50% of profit taxed in years six to eight and 75% in years nine to ten; no import

duty rate on raw materials, capital goods and machinery for five years; and deferment of

VAT on machinery and equipment imports. There is a $500,000 investment threshold (Alves,

2011). Baosen (2013) indicates that by July 2013 there were 27 enterprises operating within

the ZCCZ, providing more than 7,000 local jobs and with a $1.1b investment. Although

encouraging there is still a lot to be done to improve the impact of the Zone on the Zambian

economy, but clearly this is an area where significant growth can still be achieved in

lengthening and broadening the copper value chain.

Metal Fabricators of Zambia (ZAMEFA) produce a range of quality (ISO Standard 9002:1994

and SABS certified on some products) beneficiated products, but not enough copper is

moving through to this level, and there are still further small steps (e.g. insulated wire) that

can be taken. Further work also needs to be done on market development in the region and

internationally. Other factors at play that increase the difficulty of beneficiation include


transport and logistics difficulties and exchange rate volatility. ZAMEFA and Kavino (wire

and cable manufacture) are already producing most of the products shown in the Copperbelt

value chain (Figure 20), however only a small percentage (less than 5%) of Zambia’s

copper production is used for downstream manufacture in Zambia, whilst many

manufactured products from copper are imported (Worldbank, 2011). The way forward may

be for significant organic growth with possible new plants in the ZSSZ. A policy decision that

could be made in Zambia and the DRC (if not already in place) is to ensure all domestic

water piping is in copper pipes. Not only will this improve the safety of water but it will also

assist in local offtake of finished product.


Figure 20: Copperbelt Value Chain

Note: The colour coding

works from red (most


through orange, yellow,

green, blue and violet

(least likely to take place)


The quality of the copper product for wire drawing cannot be overemphasised where

manufacturers experience wire drawing problems, which lead to major downtime and

therefore cost implications they will quickly look for other sources of copper supply. It

appears the major reason for necking and breakage of drawn copper (outside of the actual

production line itself where die angle, annealing conditions, and choice of lubricant are key

issues) is inclusions in the copper. Raskin (1997) as reported by Norasethasopon and

Yoshida, (2003) shows that in a sample of 673 breaks 52% were due to inclusions. When

considering that superfine copper wires are drawn down to less than 15 microns it can be

seen that even the tiniest inclusions can have serious effects on the drawing process.

Ensuring the very highest quality products can only assist with marketing and pricing of the

product.

Projects already planned are:

Kamoto expansion to 300 ktpa copper and 30 ktpa cobalt by 2015 is underway

A new smelter is being built in Zambia which Kansanshi and Sentinel will share. It will

produce 300 ktpa of treated copper concentrate. Supply will come from Sentinel (67%),

Kansanshi (33%). The refractory lining of all the smelting units will be installed by the

Dickinson Group which plans to be on site from April-June 2014

Kanshahsi which currently employs ~3,000 people (excluding contractors), is expanding

and, by 2015, production should reach 400 ktpa, the company target is 1 Mtpa of Cu

production by 2017

ABB Ltd. will construct a $32 M new substation to facilitate reliable power to Kansanshi

The project is expected to be completed by 2014 (Zacks, 2013)

Murray & Roberts Cementation has been awarded the contract to prepare the Lubambe

mine for trackless high-speed development

Robor Pipe Systems (RPS) will supply the main pump columns for the new

Synchlonorium project at Mopani Copper Mines, in Zambia, which is scheduled for

completion in April 2014

A second acid plant is currently being built at Mopani Copper Mines (MCM) in Kitwe,

Zambia - the project is part of a three-phase smelter upgrade plan at a cost $450 M.

Work is expected to be completed before 2015. Once completed, sulphur dioxide

capture will increase from 51% to 97%. The MCM smelter upgrade project has

generated 400 local jobs (African Review, 2013)


The $832 M Chambishi South-East ore body, which is expected to produce 60 ktpa of

copper, is expected to be operational by 2015.

An $850 M project at Tenke, including mill upgrades, mining equipment, a new

tankhouse and new sulphuric acid plants, is aimed at increasing output of copper by

68 ktpa.

Sentinel Copper is being developed by Kalumbila Minerals, a subsidiary of First

Quantum Minerals. It is expecting delivery of two cyclone clusters for the SAG mill and

four clusters for the ball mill this year

By the end of 2014, the ramp-up of the stage 2 SX-EW plant will be complete

The Kapulo mine is expected to commission in Q1, 2014, ~$67 M of capital is already

spent

Zambian government has embarked on a major road upgrading project

Kaboko made its first sale of 2 kt of high grade manganese ore from the Mansa mine in

Zambia to the Noble Group in August 2013 under its $10 M pre-pay and offtake

agreement.

3.4.1 Linkages

Fiscal linkages: Exploration licence fees, mining licence fees, royalties, taxes on profits of

companies, taxes and on wages and salaries of mining company employees, VAT on

employee purchases, taxes on company profits and employees of linked business.

Employee consumption linkages: Due to size of this growth pole it is expected that the

direct, stable employment by the mining companies listed as well as other associated mines

in the area providing industrial minerals for use in the linked development may increase to

beyond 120,000 persons (the industry currently offers 74,000 in Zambia alone, Mulikelela,

2013) once the many current expansions are in place and new mines and associated

infrastructure are built. If more metal is taken downstream this number could see an

increase, although as pointed out by Worldbank (2011) the semis industry does not create

many jobs so increases are likely to be in 100’s rather than thousands. This will lead to a

further growth in consumption linkages as new business offering food and clothing, building

services for housing, laundry services, medical and restaurants and various service sector

businesses will open the meet the demand from the mining employees, these too will have

employees with similar demands and will enhance the effect.


Production linkages: This growth pole is large but is spread out over a very large area,

although some nodes do occur within this. As the development of the area continues it will

have strong upstream and sidestream linkages. Downstream linkages may be less effective

dependent on the progression of development in the area:

Upstream or backwards linkages: Strong upstream linkages will include continued

and /or growing demand for capital equipment; (drilling equipment; pumps, pipelines

“yellow vehicles” [excavators, dozers, shovels, dump trucks, graders]; land; cement,

clay, bricks; steel sheet; building services; conveyor systems [inclusive of engineering,

design and installation, belts, belt cleaners, safety equipment, skirting and dust control

etc.]; draglines; winders and hoists; cables; copper wire; cement spraying systems, roof

drilling and bolting systems; refrigeration and ventilation systems; compressors; fans;

explosives; explosive drilling and packing systems; backfill technology and equipment;

communication systems; person transport [underground and surface]; battery packs and

lighting systems for personnel; electrical services, mechanical services; pulleys; pumps,

cabling; environmental services; logistics systems; loading equipment; cranes;

comminution and screening systems; mine scheduling software; roof supports; hydraulic

valves; rail siding equipment; laboratory analysis equipment; automated scanners to

monitor production quality);

Downstream or forwards linkages: see Appendix G for the downstream scenario for

copper mines. A specific opportunity is to move a further step or two down the

value chain but especially to provide a product of a very high quality. Copper from

Zambia apparently needs further refining. A personal communication from a buyer in

South Africa indicated that when wire is drawn from copper imported from Zambia there

are a lot of breakages which led to significant downtime. As a result, this buyer is now

purchasing copper from Europe – this may well have originated in Zambia, but since

there have been no related breakage problems it is likely that it has undergone a further

refining step.

Sidestream or horizontal linkages: there are constant references to the poor state of

transport infrastructure on the copperbelt and it is clear that it is a requirement of having

a successful industry based on the mining sector that there needs to be significant

improvement to road and rail transport. Having quick efficient and cheap transport is

really the key to ensuring that the Copperbelt can become an area of major industrial

development in the heart of Africa. As the sector grows and with the building of a fourth

smelter in Zambia the requirement for electricity and excellent electrical reticulation will

also grow and needs to be provided by the state. Banking, legal and administrative


services will grow with the industry. Building, mechanical and other services developed

or enhanced to meet the needs of the mining sector will be available for the broader

community. A specific requirement is for tax experts who are fully conversant with

local tax laws and regulations

3.5 Growth pole 5: Zimbabwe steel

Zimbabwe Iron & Steel Company (ZISCO) was a fully integrated steel plant installed in

1936-38 with designed capacity of a 1 Mtpa of crude steel. It was operated below design

capacity and gasses were allowed to escape into the atmosphere. Oxygen was procured

externally. The plant closed down in January 2008 due to a prolonged national grid failure,

which resulted in damage to the furnaces. The Government of Zimbabwe decided to

disinvest in ZISCO and its subsidiaries and it launched an international private offer for

investment in August 2010. Essar Africa Holdings Limited was selected as the foreign

partner for reviving ZISCO, and there have been ongoing discussions and an on-off

relationship between the parties since that time. Major investment and refurbishment is

required to make the project operational and profitable once again, but all indications are

that it is quite feasible to do so and the go-ahead appears to be directly related to political

will.

Zimbabwe has a need for more electricity and steel to redevelop the economy. It has the

required ingredients and has considerable interest in regenerating the steel production of the

past. Here is an industrial node that is ready to run as soon as government can sort out the

policy inconsistencies that have so-far stymied the development. With abundant coal, iron

chromium and nickel, Zimbabwe could be a significant regional supplier and exported of

steel and stainless steel.

The iron ore deposits in Zimbabwe lie far from each other and the coal too is not that close.

However, the area produced steel in the past and there is a huge potential to do so again. In

this growth pole only some of the larger coal deposits which are relatively close to the iron

ore at Ripple creek were considered (see Table 13), although others may equally be

included if this project moves to a second phase.


Table 13: Deposits related to the Zimbabwe iron and steel growth pole


Ripple Creek 10 Iron 4 CPR 0

Buchwa 19 Iron 3 CPR 0

Lubimbi 38 Coal 5 PRO 1

Sessami-Kaonga Coalfield 164 Coal 4 DNE 2

In March 2011, government agreed to $750 M deal with Essar that resulted in Ziscosteel

being unbundled into two companies, NewZim Steel and NewZim Minerals. The deal gave

Essar 54% control of the new company NewZim Steel and 80% ownership of NewZim

Minerals with the government holding the remaining 20%. However since that time the deal

has had a torrid ride with constant changes in requirements. The Zimbabwe mail (2013)

reports that Essar is expected to inject at least $355 M in fresh capital into Ziscosteel. Essar

has also pledged to pay off Zisco’s $240 M debt to KFW of Germany, $55 M for

Government’s stake and invest $65 million in refurbishing blast furnaces 3 and 4. It would

also renew the coke oven battery. Furthermore, Essar committed to invest up to $4 b in a

beneficiation plant in Chivhu where BIMCO holds iron ore reserves (The Zimbabwe Mail,

2013). The Zimbabwe steel value chain is shown in Figure 21.

It appears in news since the Zimbabwean election that the Zisco steel deal with ESSAR Is

once again on, and Essar is apparently also committed to invest in a 552 km railway line.

The planned heavy freight dedicated single track railway will be electrically powered, with

power sourced from a captive power plant. ESSAR will require 80 new locomotives and 10

shunting locomotives.


Figure 21: Zimbabwe steel Value Chain

Note: The

colour coding

works from red

(most likely to

take place)

through

orange, yellow,

green, blue and

violet (least

likely to take

place)


3.6 Growth Pole 6: Northern Cape iron/manganese

The expert group was supportive of this area as a growth pole not so much due to the

opportunity for direct downstream development from the iron ore, but more due to the growth

of industrial projects attracted to the area because of the development already in the

Northern Cape Province. The iron ore deposits are in essence acting as a magnet drawing

in other related and even unrelated activity since there is already a critical mass of services

in the area to allow it to leapfrog into an industrial growth point.

As a case in point of just how much the sheer size of this project helps it to stabilise

business is the problem it faced recently when the market for a section of Sishen’s coarse

sinter project disappeared. This could have had serious implications for the company’s

profitability, but it was able to make changes to the processing plant to produce a 10 mm

lump sintered product. It then blends the >6.3 mm material into its current dense media

separation (DMS) lumpy product and the <6.3 mm product goes to the DMS fines product.

This still allows for the lumpy product to be fed directly into blast furnaces and allows it to

maintain profitability. The project cost the company R159 M to complete (Modern Mining,

2013).

The iron and manganese mines where included in this growth pole since both are pulling

development opportunities to the Northern Cape (see Table 14).

Table 14: Deposits related to the Northern Cape growth pole


Khumani 26 Fe 5 CPR 2

Sishen 27 Fe 5 CPR 2

Black Rock 96 Mn 4 CPR 3

Gloria 100 Mn 4 CPR 3

Kalagadi 102 Mn 4 CPR 3

Mamatwan 105 Mn 4 CPR 3

Nchwaning 107 Mn 4 CPR 3

UMK 116 Mn 4 CPR 3

Wessels 118 Mn 4 CPR 3

Kolomela 147 Fe 3 CPR 3

Tshipi 174 Mn 4 PRO 3

Beeshoek 176 Fe 2 CPR 3

Eersbegint 205 Mn 3 PRO 3



Gravenhage 206 Mn 3 PRO 3

Gravenhage South 207 Mn 3 PRO 3

Haakdoorn 208 Mn 3 PRO 3

Projects already under way include:

Provision of reflective gear, industrial overalls, headlamps and smart ports (Sibahle

Reflective Gear Co.)

A R2.3 b project to up-grade the railways network to the Port of Ngqura in the Eastern

Cape, has been approved,

A sinter plant at Kalagadi is already operational,

The 81 MW Kathu Solar Photo Voltaic farm has been financed to $346 M. Developers

expect to be on site before the end of November 2013.

The R1.5 b Kudumane Manganese Mine will consist of both open pit and underground

mining, with the intention of shipping an initial 1.5 Mtpa of manganese ore out by both

road and rail to the harbour at Port Elizabeth. The project will be in full production by

end of 2013. The infrastructure to be developed as part of the project includes 5.3 km of

railway siding, an automated 3.5 ktph rapid loading station, a crushing and screening

plant. Plans are also underway to construct a sintering plant. Other infrastructure being

developed includes roads, housing, schools, and a hospital.

A 79 room hotel has recently been built at Kathu; there are also plans to build 700

houses (Barralho, 2013)

A contract for the construction of a 47 950 m2 housing project near Sishen has been

awarded to construction company Steffanuti Stocks and is scheduled to begin before

the end of 2013 (Claybrick, 2013)

Some 400 houses are being built at the Kolomela mine for staff

In Posmasburg, they are currently busy with the construction of some 700 new houses.

In Kuruman, 800 houses will be built.

Kumba is looking at beneficiating low grade discard ore at Sishen which could produce

some 5 Mtpa of fine ore (Rennies, 2013)


Assmang has an expansion project at the Khumani mine. The mine which is a 10 Mtpa

facility will be expanded to a 16 Mtpa. Of the 6 Mt, some 4 Mt will be exported and 2Mt

will be for the domestic market (Rennies, 2013)

The Kolomela mine owned by Kumba will produce at its designed capacity of 9 Mtpa

during this year. Consideration is being given to expanding production by a further

6 Mtpa (Rennies, 2013)

Diro Resources has contracted the supply of a 200 tph dense-medium separation plant

to beneficiate iron ore at its Kathu mine.

Manganese slag is currently classified as waste in South Africa, but elsewhere in the world it

is utilised in the production of bricks and cement as well as being used for road building. The

classification is currently up for review in parliament and if approved will mean that a waste

stream becomes a valuable co-product which will also assist in the demand for inputs into

the buildings currently being planned in the area.

No value chain is shown here since it appears unlikely that there will be any further

downstream activity in the area to develop industry based directly on the mining activities,

and that the growth pole effect of the area is more due to what has already happened in the

past, and the massive size of the deposits in this area.

3.7 Growth pole 7: Songo-Songo Central Tanzania

Although the Mkuranga deposit occurs far to the north of the Songo Songo and Kiliwani

deposits, it was included with them since it is also a gas deposit and is likely to have a

similar future (see Table 15). The Songo Songo gas field has been developed to generate

electricity and is connected to the national grid.

The Songo Songo gas field, located on and around Songo Songo Island, was discovered in

1974. A plant on the island serves two onshore and three offshore natural gas wells. The

gas processing plant and pipelines were built and are owned by Songas Ltd. and the gas

plant and wells are operated on its behalf by PanAfrican Energy Tanzania Ltd, a local

subsidiary of Orca Exploration Group Inc.


Table 15: Deposits related to the Songo Songo growth pole


Songo Songo 28 Gas 5 CPR 2

Mkuranga 189 Gas 2 PRO 2

Kiliwani 269 Gas 1 PRO 3

Construction of a pipeline network to transport gas to Dar es Salaam was completed in May

2004. At Dar es Salaam the gas is used as the principal fuel for turbine generators at

Songas Ubungo power plant in Dar es Salaam to generate about 180 MW of electricity for

the national grid; gas is also used at a local cement plant, Wazo Hill, as well as a number of

other industries and power plants in Dar es Salaam (Offshore, 2013).

Gas from the wells is processed by two 1 Mcmpd processing units (dehydration and

refrigeration) on the island. Removed hydrocarbon liquids are shipped to Dar es Salaam and

the gas is transported in a 25 km, 12” pipeline from Songo Songo to the mainland at

Somanga Funga, and then in a 207 km, 16” pipeline to Ubungo and Wazo Hill.

If, (as is likely) more gas is discovered, the local demand in Dar es Salaam and elsewhere in

Tanzania may be fulfilled and excess will be considered for LNG production, but in the

interim gas will be used to ensure that local demand is met. There are several localities that

have potential in Tanzania for possible LGN production (see Figure 22 Hudson 2013).

Although Hudson (2013) indicates that floating LNG production remains an option, land

based plants are preferable.

Although the Tanzanian government is adamant that before any LNG export takes place, the

internal needs of the country must be fully met, it has been shown that there will be an

excellent jobs multiplier for LNG production (see

Figure 23). Note that in

Figure 23 the direct employment remains quite low and it is the indirect employment figures

which can make a real difference.

Projects already under way include:

A new treatment plant on Songo-Songo island will be located less than 2 km from

Kiliwani North


A second new treatment plant, being constructed approximately 30km from the Ntorya

area.

Britain's BG Group, its exploration partner and Norway's Statoil have all discovered gas.

They plan to build a $10 b liquefied natural gas (LNG) terminal (Reuters, 2013).

Kiliwani North is expected to be supplying Dar es Salaam with gas by early 2015 and is

ready to produce as soon as a pipeline is in place

Based on current knowledge Figure 24 gives some indication of the likely beneficiation route

of the Songo Songo and related projects in the short to medium term.

Figure 22: Potential LNG site locations

Source: Hudson, 2013


Figure 23: Possible direct, indirect and induced employment from LNG production

Source: Hudson, 2013.


Figure 24: Songo Songo Value Chain

Note: The

colour coding

works from

red (most

likely to take

place) through

orange,

yellow, green,

blue and violet

(least likely to

take place)


3.8 Growth Pole 8: Cabinda / Bas Congo DRC Oil / Phosphate

The phosphate deposits in Cabinda and Bas Congo are large and will almost certainly be

mined within the next few years. Taking these to high value fertilisers will be dependent on

both political will as well as the provision of power and the required inputs. The production of

nitrogenous fertilisers will also be possible due to the large oil and gas deposits in the area.

The Cacata deposit is in the Nhenha river valley, some 60 km east of Cabinda City. The

Cacata area has an indicated resource of 30.4 Mt at 17.2% P2O5. Although Originally

Minbos intended to start small scale mining at Kanzi in the DRC first whilst still working on

the opening of their major minie at Cacata (then leaving most of the Kanzi deposit for later

development) they have now decided to divest from the DRC phosphate deposits and

concentrate on opening up Cacata by the end of 2015. The Cacata mine should be able to

support a large scale phosphate rock complex producing about 1.25 Mtpa over 10 years

LOM. It will be an open-pit operation with a conventional beneficiation process to produce a

35% P2O5 product (Minbos, 2012). Ideally the process can be taken further downstream to

produce phosphoric acid, and then together with the possible addition of ammonia from the

hydrocarbons industry (Soyo natural gas plant) all the way to complete fertilisers (see

Figure 25). To do this sources of sulphuric acid (or sulphur) and potassium must be found or

they must be imported.


Figure 25: Cabinda Value Chain

Note: The colour

coding works

from red (most

likely to take

place) through

orange, yellow,

green, blue and

violet

(least likely to

take place)


3.9 Growth pole 9: Kabanga / Burundi nickel growth pole

The huge deposits of nickel in Burundi and Tanzania represent more than 10% of the

worlds’ nickel resource and remain untouched. A large part of the problem was that the

resources have been relatively recently discovered, they are far inland and there is a serious

power shortage in the area. The power shortage looks like it may soon be dealt with – at

least to some extent and the rail has been planned for some time. Again one thing leads to

another, and already the interest in the area for other minerals is increasing. Just recently for

example rainbow minerals announced that it hoped to start mining the Gakara rare earth

deposit in 2015.

The potential for an extensive nickel region in Tanzania and Burundi makes it imperative that

opportunities for shared infrastructure are investigated and implemented. For example, the

Kabanga concentrate is likely to be shipped to Dar es Salaam via existing road and rail

(Lindsay 2007). The project would benefit from a purpose built railway line, however, with

an expected 200 ktpa concentrate from Kabanga, would not, in itself, provide sufficient cargo

to support a railroad (Callaghan and Spicer, 2008). The development of rail from

Dar es Salaam all the way to Musongati where the other major nickel deposit in the area

exists, is still in process. The African Development bank (AfDB) closed a call for consulting

services on the railway in August 2013. The project entails the construction of two new lines

(Kigali to Isaka and Gitega and Musongati to Isaka), the rehabilitation of the existing Isaka to

Dar Es Salaam line and the acquisition of rolling stock to carry passengers, cargo and ore

traffic. The total expected cost will be $9.4 b.

In 2008 Callaghan and Spicer indicated that the earliest production from Musongati

(assuming quick resolution of the legal issues between the exploration company and

government) would be 2014-2016. In a recent report it was indicated that mining would

begin in 2014 by Burundi Mining Metallurgy Ltd. (Bloomberg, 2013). Metal Bulletin (2013)

reported that Burundi Mining Metallurgy Ltd had received a concession to start building a 75

kW hydropower plant to provide electricity for the Musongati nickel project.


Figure 26: Kabanga / Burundi Growth pole

Note: The colour coding works from red (most likely to take place) through orange, yellow, green, blue and violet (least likely to take place)


4 CONCLUSION

The 9 growth poles dealt with in section 3 are shown in the graphic in Figure 27.

Figure 27: Locality of growth poles

Although the growth poles are dealt with in the text in the order that they came out of the

sorting process there was little difference, from the point of view of the criteria used, in those

that made the final cut. However when considering the value chains in terms of what is

possible and likely to happen, then it appears there may be two or three clear winners in the

amount of local development that can be engendered from their development.

Thus, although the Lephalale /southern Botswana and the Rovuma basin come out with

major deposits that put them near the top of the possible growth poles, both of them are

likely to have very short value chains leading to power generation or export, they both do still

have potential to spawn major industrial centres but it is deemed unlikely that this will be the


case. In the case of both most of the value addition may in fact happen at some point

distant to the deposit, even if it does happen in the region. Coal from the Lephalale and

southern Botswana may be converted locally into electricity to support industry at a distance

but a large portion of it is likely to be transported to other power stations mainly in South

Africa, or exported out of the region. Gas remaining in the region from the Rovuma gas fields

will be piped to offtakers in southern Mozambique and in South Africa, where industrial

development may be supported by the availability of the gas.

Tete, the Copperbelt and the Zimbabwe iron and steel complex however all have very strong

cases for the development of significant industrial growth poles within the region in the

medium term and with political will and the availability of sufficient capital these are areas

that are considered to have the strongest cases to be taken further in the second stage of

development towards the development of a strong business case to provide the required

capital incentives to stimulate the development and ensure its success.

In the case of the northern Cape and Songo Songo, the development is already somewhat

advanced, and neither is considered here to have huge potential for on-site development

directly related to the mineral commodity, although in both cases it is considered that the

ongoing development can certainly trace its roots to the initial mineral commodity stimulus.

The Cabinda/Bas Congo growth pole is already established in regard to the hydrocarbons,

and the development of the phosphates is not yet confirmed although there are positive

signs. In the case of the Nickel at Kabanga and in Burundi, this is a very exciting area of

development but it remains to be seen if the nickel from Kabanga will be fully processed

locally (unlikely) and when the Burundi operations will actually go ahead, since there are still

several hurdles to leap before production. Both of these projects should perhaps be seen

more in the view of medium to long term growth poles.


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http://www.iese.ac.mz/lib/publication/III_Conf2012/IESE_IIIConf_Paper19.pdf

Reuters, 2013. Tanzania wants energy firms to speed up gas production. 9th July 2013,

Accessed on 10 July 2013. Mining Weekly

Risch C, Sowards K, and Copley AK, 2013. Value Added Opportunities from Natural Gas.

Vision Shared. May 2013 45p. Accessed 5 September 2013.

http://www.visionshared.com/shale/pdf/Value%20Added%20Opportunities%20from%

20Natural%20Gas%20FINAL%205%2014%2013.pdf

Sheldrick A, 2013. Andarko expects to sign Mozambique gas agreement this year. 10

September 2013. Livemint.com

Taylor, J. 2013. Kenya-Uganda leg of larger power transmission project under way.

Engineering news.

The Zimbabwe Mail, 2013. Ziscosteel Disposal On Track. 17 September 2013.

http://www.thezimbabwemail.com/business/18110-ziscosteel-disposal-on-track.html

Worldbank, 2011. What is the potential for more copper fabrication in Zambia? 12p.

Zacks, 2013. ABB to Power Africa's Copper Mine. Zacks Equity Research | Zacks – Mon,

Aug 19, 2013. Accessed 18 September 2013. http://finance.yahoo.com/news/abb-

power-africas-copper-mine-160002210.html

Appendixes Page 92

APPENDIX A ENERGY CONTENT

The energy content of natural gas is variable dependent on the content of the gas but various references give a content of between 34.6 and

38.3 MJ per m3. This equates to about 9.6-10.6 kWh. A simple rule of thumb conversion of 10 kWh per m3 of natural gas is therefore

reasonable, although probably a slight underestimation.

Appendixes Page 93

APPENDIX B IRON AND STEEL VALUE CHAIN

Just as there are many ways to look at generic value chains so equally when one considers specific value chains. Furthermore each step from

in the simplified value chain in Figure 11 will be the core of its own chain of value growth.

More detailed value chains are given for the iron and steel industry for the steps marked A through to F in Figure 11. These still remain generic

since they speak to broader processes. Since each mineral occurrence is unique, there would also be a unique set of circumstances

surrounding the deposit and it value addition alternatives and as such a value chain for a particular operation will itself be unique, but will

remain broadly in line with the generic value chains given here. Beyond stage F the value chains become too diverse to deal with in this

overview and would require far more detailed study.

Appendix B.1 Exploration and discovery

Exploration is generally undertaken to fulfil a need. There is no sense in the cost and effort of exploration if there is unlikely to be a good

demand and a profit to be made if, and when, a commercial deposit is discovered. Before exploration can take place it is necessary to ensure

that the exploration company has the rights to explore for that mineral (or group of minerals) in the specified area (see Figure 28). Obtaining

such a licence would generally require the services of administration staff, lawyers, geologists, hydrologists and environmental scientists.

Geologists in co-operation with remote sensing specialists will advise the company on the most suitable areas to consider for the exploration

program based on current knowledge of the area and available maps and remote sensing data. In some cases reconstruction of possible

geological development of an area may present clues which are not available on maps. This may lead to the discovery of new areas of

metallogenesis. Reconstruction of this type may, for example, be based on new theories of crustal formation and movement. It is interesting

that although a certain amount of ground-proofing is required on location much of the services leading up to the development of a new project

can be delivered from remote locations.

Appendixes Page 94

Once the right to explore has been confirmed there is a variety of methodologies that can be used including remote sensing (aerial

photography, interpretation of satellite imagery, airborne ground penetrating radar), geophysics (airborne geophysical tests), mapping,

sampling, various field tests (geological, geochemical and geophysical). Much of this work will depend on the types of mineral deposit being

sought, the progress made, and the exploration budget.

Appendix B.2 Proving Discovery and Development

Once some degree of success has been had with early exploration the company may decide to give up areas that it now considers less

prospective to curtail costs and to concentrate on areas in which early indications of mineralisation have been found. Here more detailed

exploration and drilling will generally be undertaken to establish the size and grade of mineralisation present.

Where the deposit has the possibility of being of commercial size and grade, the company will generally establish a maiden resource (applying

the SAMREC of JORC code) and will announce this to shareholders. From this point it may still take several years (depending on the nature of

the deposit) to get to the point where a commercially viable reserve can be established. If the deposit is not up to the required standard, the

exploration company will generally give up the exploration rights and apply for others in an area that it still considers to be prospective.

However, if the deposit clearly meets the size and grade requirements for mining the company will begin mine planning (often in collaboration

with others). Although shown sequentially in Figure 29, the reserve estimation and initial mine planning goes hand in hand.

Appendixes Page 95

Figure 28: Iron and steel value chain, Stage A – Exploration and Discovery

Appendixes Page 96

Appendix B.3 Open Pit mining

Since most iron ore is produced in open pit mines, this is taken as the process for detailed analysis here.

Successful open pit mining is an exercise in planning and efficiency. It requires careful geological and geotechnical planning, a great deal of

attention to environmental and safety issues and careful scheduling of drilling, blasting, and earthmoving equipment. All equipment must be

retained in optimum working condition with regular on-site servicing and repair. Drilling, blasting and earthmoving equipment consumables and

spares must be carefully monitored and a sufficient inventory kept at all times. Constant monitoring of every aspect of the mining process with

feedback loops to ensure organised maintenance and process improvement aims to limit and reduce costs and improve the quality and quantity

of ore extracted in the safest, most efficient manner.

Each deposit will be mined by the method most suited to the size, shape and specific geological and geotechnical aspects of the deposit.

Once extracted material is generally crushed (often in-pit) before further treatment.

The sequence can be considered a cycle of events from drilling to hauling, each revolution of the cycle representing an increase in pit depth by

one bench (usually about 10 m).

Appendixes Page 97

Figure 29: Iron and steel value chain, Stage B – Proving discovery and development

Appendixes Page 98

Appendix B.4 Concentration and extraction

When mining both the valuable mineral commodity as well as other material from the surrounding rock is collected and this must be separated

out. Furthermore, the blast rock will have a wide variety of particle sizes that cannot be easily dealt with unless it is first crushed. In the case of

magnetite deposits (see Figure 31) the valuable component tends to be fine grained and exists together with various silicates that it needs to be

separated from. Firstly it must be crushed then finely ground in a mill and followed by screening to a narrow range of particle sizes for feeding

into a set of magnetic separators which will extract the magnetic (magnetite) material from the non-magnetic (waste) material.

The resulting fine magnetite powder cannot be fed into a blast furnace as is and must first be made into pellets that can be large and heavy

enough to withstand the rigours of transport and the blast furnace process. Once suitable pellets have been produced they can be fed into a

blast furnace.

Appendixes Page 99

Figure 30: Iron and steel value chain, Stage C – Mining

Appendixes Page 100

Figure 31: Iron and steel value chain, Stage D – On-site concentration and extraction

Appendixes Page 101

Appendix B.5 Off-site Refining

Figure 32 shows a flowchart of the integrated manufacturing process for iron and steel using the blast furnace (BF) and basic oxygen furnace

(BOF). This methodology is still the most commonly used throughout the world in terms of total production of steel. The iron-making process

involves the smelting of the iron ore (pellets in this case) by carbon reduction.

During iron-making, iron ore, coke, hot air and fluxes are fed into a blast furnace. The coke combusts providing both the heat and carbon

source for the iron smelting process. Fluxes are added to react with and remove impurities from the molten iron. The resultant slag floats to the

top of the molten iron and can be tapped separately to lead to a series of low value by-products if correctly processed.

The BF process leads to iron with a high carbon content, which leads to it being very brittle (pig iron) and unsuitable for most applications. Thus

the molten iron is fed into a BOF where it undergoes decarburization to produce molten steel. In the BOF oxygen is blown into the molten iron

and combusts the carbon and silicon.

This steel typically is still relatively impure and may now contain too much hydrogen and oxygen as well as a variety of other impurities. In the

production of high grade steel, secondary steelmaking processes such as refining under vacuum remove these gas components (vacuum

degassing).

Secondary refining is now considered standard for producing high grade steel. Secondary refining includes final desulphurisation, degassing

(oxygen, nitrogen, hydrogen, etc.), removal of inclusions, and final decarburization for ultra-low carbon steel (JFE, 2013).

Appendix B.6 Cast iron downstream

About 30% of iron is used in various forms of cast-iron to produce moulded products (Figure 33) Iron is more amenable to casting into intricate

shape than steel and less expensive.

Appendixes Page 102

Appendix B.7 Steel Downstream

Although various processes are available for the further production of steel to its multiple finished products, only certain of these will be followed

in this simplified view of the downstream steel industry. Steel is amenable, when hot, to rolling and as a result steel is usually cast and hot

rolled before further in-house processes or transport to specialised mills for producing semis.

For the continuous casting process the molten steel is cast by pouring it into a tundish (reservoir) and from there into a vertical water-cooled

copper mould. The steel is then drawn through a series of rollers that curve so that, as it solidifies, it is extruded horizontally. The cast steel is

cut to the prescribed length using automatic gas burners. The products of this process (depending on size and shape) are billets, blooms or

slabs (Figure 34).

After re-heating to the rolling temperature, billets, blooms or slabs are hot-worked to the required products. Steel shapes, bars, and wire rods

are worked on shaped-section mills, bar mills and wire-rod mills. Products may be transported to cold rolling mills or further cold worked at the

same locality after pickling to remove scale from the surface. Cold-rolled steel products may be tinned or galvanized as required to produce

various surface-treated steel sheet products. Steel pipe is produced by forming and welding steel sheets or plates, or by piercing a billet and

rolling to the final dimensions without a seam.

As these products are fed into industry the variety of semi-finished and finished products are extremely broad, and cover every aspect of

modern life.

Appendixes Page 103

Figure 32: Iron and steel value chain, Stage E – Off-site refining

Appendixes Page 104

Figure 33: Iron and steel value chain, Stage F1 – Downstream cast iron

Appendixes Page 105

Figure 34: Iron and steel value chain, Stage F1 – Downstream steel

Appendixes Page 106

Appendix B.8 Steel Recycling

A large amount of steel is recycled when the finished product comes to the end of its life – scrap is an important input into all steelmaking and

in particular in the case of the rapidly expanding mini-mills, where it is the prime raw material. Steel products can remain in the system for as

little as a few months in the case of cans, to 1-20 years for small implements and household goods, around 15 years for motor vehicles, 10-30

years for large scale mining equipment and fencing, and as long as 100 years for steel used in construction and shipbuilding.

Appendixes Page 107

APPENDIX C CHROME VALUE CHAIN

The discovery and mining of most minerals will (broadly) follow the processes set out above for iron. Therefore the simplified value chains will

only be set out for the products of mining.

The ROM chromite ore is crushed and screened into lump, chips and fines. Since chromite is highly friable, only a small proportion of the final

product is lumpy. Lumpy chromite ore or pelletised fines is generally melted in a submerged arc furnace, however it is possible to process fines

in a plasma arc furnace. Most chromite ore is converted into ferrochrome, which in turn is used in the production of stainless steel. Chrome is

an important constituent in a variety of steel alloys (vital for stainless steel). Where chrome metal is produced most of it is used in the

production of a variety of nonferrous superalloys with aluminium, copper, and nickel. About 6% of chromite mined goes into chemical grade

chromite. Chemical grade chromite should have Cr2O3 > 45-46% with a Cr:Fe ratio between 1.5 and 2. Sodium chromate is the precursor to

the chrome chemicals value chain, whilst sodium dichromate is the major chemical product from and is produced from sodium chromate by

CO2 pressure saturation. This requires a highly concentrated (99%) source of CO2 (LANXESS (Pty) Ltd. has recently built a CO2 plant at its

factory in Newcastle, South Africa).

A variety of chromium pigments are produced from sodium dichromate and as a result chromium is a base pigment for colours including reds,

yellows, oranges, blues and greens. An added advantage is that chrome based pigments inhibit corrosion. Chrome oxides produce very stable

pigments.

Sodium dichromate and chromium sulphate also used in the tanning industry. Chromic acid is used to produce copper chrome arsenic salts

(CCA’s) used in timber preservation. Potassium dichromate is used as a mordant in the dying of textiles and in the manufacture of safety

matches and in photography. Ammonium dichromate is used in fireworks and photoengraving. Considering the recent massive growth of the

pharmaceuticals industry in South Africa it is interesting to note that chrome chemicals are used in the manufacturing process of vitamin K as

oxidising agents.

Appendixes Page 108

Figure 35: Chromite value chain – All grades

Appendixes Page 109

Figure 36: Chromite value chain – Chemical Grade

Appendixes Page 110

APPENDIX D MANGANESE VALUE CHAIN

Manganese is produced from open pit and underground mining. It is washed and screened from fine to lumpy. High carbon ferromanganese

and silicomanganese are produced in submerged arc furnaces. The production of medium and low carbon ferromanganese is accomplished by

further ladle processes (see Figure 22). The proportion of the products varies dependent on market demand and pricing. About 90-95% of

manganese (Mn) produced in the world is used in steelmaking. Steel is essentially an alloy of iron and carbon, however crude steel still

contains oxygen and sulphur from the iron ore and coal used in producing it. Manganese combines with sulphur and has a powerful de-

oxidation capacity and therefore improves the workability of the steel. There is no substitute for the desulphurization role that manganese plays

in steelmaking (IMnI, 2013). The rest of the manganese used in steels is used as an alloying element. This is discussed in detail in the second

report in this series.

Manganese metal is used in the production of some series 200 (high manganese) steels as well as in the production of non-ferrous alloys with

aluminium, copper, zinc titanium, magnesium gold silver and others. The 5-10% of manganese that is not used in steel and related alloys (see

Figure 38), finds its way into a wide diversity of industrial uses such as in the manufacture of batteries, in water purification (potassium

permanganate), acid leaching of ores, pigments, fertilizer, animal feeds, welding rods, fungicides, fuels, medicines and even fragrances and

flavours.

The four grades of manganese produced for batteries and chemical use are:

Dry cell electrolytic manganese dioxide (EMD): Must have MnO2>92%, H2O<2%, Fe<0.02%, Cu<0.0005%, Pb<0.0009%

Battery grade manganese dioxide: MnO2 content must be in the range 75-90%

Chemical grade Manganese dioxide: minimum of 35% Mn, manganese has the possibility to exist is six different oxidation states, which makes it very useful in the chemical industry

Fertiliser grade manganese dioxide: Must have 30-60% Mn

Appendixes Page 111

Figure 37: Manganese value chain

Note:

Manganese slag is currently

classified as a waste product

in South Africa. There are

currently proposals before

parliament which show that the

Manganese in the slag does

not leach and that it is a

valuable aggregate material

and can be used for cement

and brickmaking.

Appendixes Page 112

Figure 38: Manganese value chain - Chemicals

Appendixes Page 113

APPENDIX E NICKEL VALUE CHAIN

The mining and initial processing of nickel ore will differ markedly dependent on whether the ore is in a surficial laterite deposit or an

underground sulphide deposit. The extractive metallurgy of nickel ores is complex and as a result many process routes are utilised around the

world. Broadly there are processes for sulphide ores (Kabanga, Muremera) and oxide ores (the laterite deposits such as Musongati). Sulphide

ore processing typically entails comminution to liberate the minerals of value, upgrading of the ore by dense medium separation (DMS) and

flotation to produce a sulphide concentrate. This concentrate is then reduced by pyrometallurgical methods to produce a nickel matte followed

by leaching, or the concentrate can be directly leached.

Laterite ores require process routes which are dependent on the composition of the laterite. Pre-concentration is typically not feasible with

lateritic ores (since the nickel is substituted in the lattice of the rock-forming minerals), and the ore itself is treated pyrometallurgically for high

grade ores to produce ferronickel, or by a mixture of pyrometallurgy and hydrometallurgy (such as in the Caron process, where the ore is pre-

reduced to nickel metal and then leached in ammonia), or directly leached, such as with the atmospheric or high pressure leach processes. The

presence of PGEs in laterite deposits pose an additional challenge (Callaghan and Spicer, 2008)

Many of the primary producers only produce intermediary products as the life of the mine and / or remote location does not justify the relatively

large capital investment required for further processing. The treatment of the leach solutions produced from both sulphide and laterite nickel

ores are similar, using hydrometallurgical processes such as precipitation, solid-liquid separation and solvent extraction, to recover nickel and

cobalt as intermediary products, such as sulphides or carbonates, or as metals, using electrowinning or hydrogen reduction. Due to the

process complexity as well as the fact that final processes chosen for the deposits discussed in this project are yet to be chosen only a very

broad overview is given in Figure 39, and the reader is referred to Callaghan and Spicer (2008) for a more complete discussion.

In Figure 39 there is an option after the flotation and dewatering to export concentrate. It is understood that the current plan at Kabanga it to

process only so far before export of the concentrate for overseas refining.

Appendixes Page 114

Figure 39: Nickel value chain

Appendixes Page 115

APPENDIX F VANADIUM VALUE CHAIN

Vanadium is produced mainly from open pit mines as a byproduct of vanadium bearing titanomagnetites.

Ore is typically crushed, washed, screened and milled, before undergoing magnetic separation to produce magnetite concentrate with at least

2% V2O5. This is roast-leached to produce pentoxide and tri-oxide. Ferrovanadium can be produced by aluminothermic reduction.

In the EVRAZ process the concentrate is pre-reduced in a rotary kiln before melting in a submerged electric arc furnace to produce a high

vanadium pig iron as well a titanium slag. The pig iron undergoes a shaking ladle process to produce pre-blown pig iron and a high vanadium

slag which is crushed and milled, undergoes magnetic separation before metallothermic reduction to vanadium.

Appendixes Page 116

Figure 40: Vanadium value chain

Appendixes Page 117

APPENDIX G COPPER VALUE CHAIN

Processing copper (as in any mineral commodity) will be highly dependent on the mineralogy of the deposit. In this broad scoping only a

simplified generalised process for copper sulphides (see Figure 41) and a simplified process as used at Konkola mines (Figure 42) has been

shown. Furthermore the downstream process from copper metal to semis and to finished product is also given on a broad scale in Figure 43.

Appendixes Page 118

Figure 41: Copper value chain – Generalised process to cast co

Appendixes Page 119

Figure 42: Copper value chain – simplified Konkola process

Appendixes Page 120

Figure 43: Copper value chain – Downstream

Appendixes Page 121

APPENDIX H ZINC VALUE CHAIN

The majority of zinc mines around the world are opencast mines and the most common element mined for zinc is sphalerite (ZnS). Typical

grades are 5-15% Zn, and therefore the zinc must be concentrated before the more costly part of the processing. The ore is crushed milled and

screened so that it has the correct grain size for processing and the valuable mineral contents will be exposed to the reagents in processing.

Typically zinc ore is concentrated at the mine site in a flotation process to produce a concentrate with some 55% zinc, generally including some

copper, lead and iron (see Figure 44).

Roasting the zinc concentrate at above 900ºC oxidises the sulphur to sulphur dioxide that can be captured and sent to a sulphuric acid plant.

This forms an important by-product of the process and since it is required later in the process will also lower overall costs. The zinc sulphide is

also oxidised to zinc oxide (ZnO).

More than 90% of the world’s zinc is now produced via a hydrometallurgical leaching process. During leaching of the calcine, sulphuric acid

dissolves the zinc oxide whilst iron precipitates as ferrous sulphate and the lead and silver in the calcine remain undissolved.

The leachate still contains impurities and to clean it of these, zinc powder is added to the solution. As all the elements to be removed (Iron,

lead, copper, silver and gold) lie below zinc in the electrochemical series they can be precipitated by cementation in which the zinc powder is

oxidised (by loss of electrons and taken into solution whilst the other elements are reduced to their metallic form and are precipitated. The

purified solution is now subjected to an electrolytic process. An electrical current is circulated through the electrolyte by applying a 3.3-3.5

voltage between the lead alloy anode and aluminium cathode. Zinc metal with a very high purity then deposits on the aluminium cathodes. The

zinc is stripped off, dried, melted and cast into ingots of either High Grade 99.95% or Special High Grade (SHG) 99.99% zinc.

Appendixes Page 122

Figure 44: Zinc value chain – Mine to Special high grade zinc

Appendixes Page 123

Figure 45: Zinc value chain – Downstream from Special high grade zinc

Appendixes Page 124

APPENDIX I LEAD VALUE CHAIN

Figure 46: Zinc value chain – Downstream from Special high grade zinc

Appendixes Page 125

APPENDIX J PHOSPHATE VALUE CHAIN

Phosphate rock in the Tripartite is largely in the form of intruded carbonatites. The high carbonate content is generally a disadvantage since

more acid will be used in the production of phosphoric acid and at the same time more gypsum will be produced. Although Gypsum does have

some value as a soil ameliorant in agriculture as well as for the production of plaster boards, as a cement retardant, as well as in other areas of

the construction industry, it is likely that more gypsum will be produced at a plant than can find buyers and as a result a large proportion of it

may find its way to dumps.

The phosphate rock is crushed and finely milled and screened before a froth flotation stage to separate out the apatite from quartz and other

constituents. The apatite concentrate is reacted with sulphuric acid to produce superphosphate or phosphoric acid. Phosphoric acid can also be

produced in an electric furnace with no gypsum production and with a very pure product. But this route is much more expensive and commonly

only used for food grade phosphoric acid.

Phosphoric acid or superphosphoric acid is reacted with ammonia to produce di-ammonium phosphate (DAP) or Mono-ammonium phosphate

(MAP). Finely ground Potash and Urea ammonium nitrate may be added to the MAP and DAP to produce a range of NPK fertilisers dependent

on demand.

Appendixes Page 126

Figure 47: Phosphate Value Chain

Appendixes Page 127

APPENDIX K HYDROCARBONS

Appendix K.1 Gas Value Chain

The production of natural gas from especially the east coast of Africa should lower the price of natural gas for regional consumers and lead to

significant industrialisation in Mozambique and Tanzania if correctly managed. Natural gas is the basic input into a great variety of value-added

products which can build strong industrial clusters. It is essential for the region that policy makers take a careful look at the diverse possibilities

and ensure that the economic benefits of the resources can be retained in the region by following the value chain. This could also supply a

great number of jobs and lead to significant industrial clustering with far reaching effects across the region. The comparative advantage of

having huge gas resources is less in the pricing of the gas for downstream development but with careful policy development, it is more about

guaranteed availability of the raw materials for long term business development and job provision to the region.

Natural gas is generally richer in the lighter gasses and therefore the most commonly produced products are methanol, ammonia, and

ethylene. “Dry” gas has a preponderance of methane (typically >95%) whilst “wet” gas contains a greater proportion of heavier gasses and

natural gas liquids (NGLs). A typical breakdown of the components of natural gas is given in Table 16.

Table 16: Typical composition of Natural Gas

Component Chemical formula % composition

Methane CH4 70-90%

Ethane C2H6

0-20% Propane C3H8

Butane C4H10

Carbon dioxide CO2 0-8%

Nitrogen N2 0-5%

Appendixes Page 128

Hydrogen sulphide H2S 0-5%

Oxygen O2 0-0.2%

Other rarer gases A, He, Ne, Xe trace

Source: naturalgas.org

An important opportunity not to be overlooked is the production of steel using gas instead of coal especially in considering the coal poor west

coastal areas which have important iron ore deposits as well as oil and gas. Elmquist (2013) indicates that several U.S. steel plants as well as

new entrants are considering facilities that use gas instead of coal for steelmaking.

Much of the industrial downstream value-add from hydrocarbons is the production of plastics. Important products at the beginning of the

plastics value chain that are developed directly from hydrocarbons are: polyethylene, polypropylene, polystyrene, polyvinyl chloride and nylon.

Polyethylene, polyurethane and polystyrene are made from ethylene which is in turn derived from ethane (see Figure 48). Polypropylene and

polyvinyl chloride are produced from polypropylene which is in turn derived from propane (see Figure 17). Since the majority of these plastic

product precursors are produced as plastic pellets, they are easily transportable.

Job opportunities from the petrochemical industry are huge and to give an example of numbers of jobs that can be supported by the industry,

Risch and others (2013) give the following numbers for key petrochemical based industry in the U.S. in 2011: Resin, synthetic rubber, artificial

synthetic fibres and filaments – 80,219 jobs; Plastics and rubber products – 674,690 jobs.

Of particular importance in Africa is the possibility of production of nitrogenous fertiliser using natural gas. Methane is the principle ingredient in

the production of ammonia which is the precursor to nitrogen based fertilisers.

Appendixes Page 129

Appendix K.1.1 Processing

In order to gain the maximum value out of natural gas in the region it should be processed locally and a petrochemical industry should be built

out from the gas processing to provide at least the precursor materials to the final products.

Figure 48 provides a simplified overview of the gas value chain. Notice that there is a water removal step as well as a dehydration step. The

first step of water removal will probably occur at the wellhead, whilst the second dehydration step will most likely take place at the gas

processing plant and is required to remove water vapour in the gas stream. It is important to remove water as soon as possible to assist in the

protection against the formation of gas hydrates, as well as the water condensing in pipelines and reducing flow rate.

The water vapour can be removed by one or more of the processes of cooling, adsorption or absorption. Gas should be cooled to the lowest

temperature it is likely to encounter in transport before compression of piping and in this process it is likely that water present will condense.

In adsorption the water molecules are trapped as a thin film on the surfaces of collectors such as zeolites, silica gel, alumina or bauxite (cannot

be used for sour gas because of its iron content). In the absorption process the most commonly used desiccants are glycols (ethylene glycol,

diethylene glycol, triethylene glycol or tetraethylene glycol). The glycols must be in a circuit which constantly “recharges” them by stripping out

the water and recirculating into the absorption column.

“Sweetening” the gas by removal of H2S and CO2 is required both because these gases are acidic, furthermore H2S is very poisonous. The

removal of these gases may be either by adsorption of absorption and should ideally be a regenerative process with the recovery of byproduct

sulphur. Most commonly the process used is one of amine absorption. The sulphur is collected via regeneration and pure sulphur can then be

produced as a byproduct via the “Claus process” in which the hydrogen sulphide is partially oxidised in air at high temperatures (1000-1400°C).

This produces elemental sulphur as well as SO2 and some H2S remains. The SO2 and H2S is then reacted in several stages at 200-250°C

over a catalyst.

Appendixes Page 130

There are two major methods used for the extraction of natural gas liquids – the absorption method and the cryogenic expander method. In the

absorption method the gas is passed through an oil absorbent. The “rich” oil after absorbing most of the propane, butane, pentane and other

heavier hydrocarbons is heated enough to boil off the NGLs. If the “lean” oil is cooled before the absorption phase it captures some of the

ethane as well, and there is an enhanced capture of the other NGLs.

Because the lighter hydrocarbons and especially ethane is difficult to capture using the oil absorption method a cryogenic recovery

methodology is used where the gas stream is cooled to about -85°C by one of various methods but most commonly by cooling the gas and

then rapidly expanding it in an expansion turbine (“cryogenic expansion process”).

Appendixes Page 131

Figure 48: Gas Value Chain

Appendixes Page 132

Once removed from the methane the NGL’s are separated out by a fractionation process based on the boiling point of each of the gases.

Where methane is not used directly or by moved by pipeline it needs to be stored and shipped. To do this it is cooled to a liquid (liquefied

natural gas - LNG) at about -162°C. this reduces its volume by about 600 times and makes it amenable to storage and shipping. It is later

returned to the gaseous state and piped to the final user.

Appendix K.2 Oil

Although much of the value chain of oil is similar to that of gas there are a few additions to the process. Firstly oil will usually exist together with

gas which is likely to be dissolved in the oil. The first step required will then be the separation of the oil and gas (as well as much of the water

and other impurities such as sand and salt) and this is most likely to be accomplished at the well-head or nearby gathering centre. The water

will most likely be pumped back into the reservoir, whilst the oil and gas will be stored to await further processing or sale.

In general crude oil is not usable as is and needs to be refined into separate useful products in order to meet buyer’s specifications. Refineries

will generally be set up with a specific input as well as a specific range of products in mind, and as a result the range of processes at refineries

will differ somewhat. The depiction of the process in Figure 49 is a simplified generic process. Crude oil is separated into its component parts

by heating and fractional distillation (in principle the longer the carbon chain the higher the temperature required to boil the hydrocarbon).

Liquid Petroleum Gas (LPG) being the lightest fraction is the first to distil off and is collected towards the top of the distillation tower. Next would

be the basic components of petrol (gasoline), followed by medium fractions which include paraffin (kerosene), naptha and the basic

components of jet fuels and diesel, lower in the distillation tower heating oil then lubricating oils are tapped, whilst the residual (heavy) oils and

Bitumen (asphalt) remain at the bottom of the distillation tower (see Figure 49).

Appendixes Page 133

Because the demand for petrol outstrips the availability of petrol from the distillation process (only about 40%), some of the heavier fractions

are sent to a cracking unit for conversion to petrol. Naptha which is extracted from the light and middle distillate groupings is used chiefly as a

feedstock for the petrochemical industry. Similarly, dependent on market demand lighter fractions may be chemically reformed to petrol.

Heavy oils are vacuum distilled to produce a final range of light and medium products and bitumen.

Since petrol is very much in demand various hydrocarbons must be converted to produce more petrol. This is done by processes in which

longer or shorter chain hydrocarbons are converted into hydrocarbons of a suitable carbon chain length.

Appendix K.2.1 Cracking

“Gas oil”, a distillate stream heavier than diesel but lighter than heavy fuel oil, is broken down into lighter hydrocarbons (particularly petrol)

using catalysts, high temperature and/or pressure. However the process is not totally controllable and a range of hydrocarbons is produced.

Those lighter than petrol will be fed into the catalytic reforming process. Cracking is accomplished by heating the oil to enhance decomposition

into octane or by introducing a catalyst such as silica or alumina (accomplishing the cracking at a lower temperature).

Dependent on the conditions and catalysts used in the cracking process there is a good degree of control (though not absolute) that can be

exercised over the product. For example where the product is to be used as petrol it is desirable to ensure that the cracked molecules are

largely saturated hydrocarbons. Conversely if the end point is to provide inputs into the manufacturing industry (monomers and drugs) it is

important to produce unsaturated hydrocarbons.

Appendix K.2.2 Catalytic Reforming

Catalytic reforming is a process where short chain hydrocarbons (naphtha) are reformed into aromatic hydrocarbons with a high percentage of

octane. In the process hydrogen atoms are released and significant amounts of byproduct hydrogen gas is produced. Other byproducts include

small amounts of methane, ethane, propane, and butane.

Appendixes Page 134

Appendix K.2.3 Treatment

“Cracking” produces oil of various carbon chain lengths, and like crude oil, this can be separated and blended to produce oils with specific

properties. Certain oil component’s (for example heptane) handle compression poorly and ignite spontaneously under a little compression.

Octane on the other hand deals very well with compression. The higher the octane rating of petrol the more compression it can take before self-

igniting (93 octane contains 93% octane). It was discovered about a 100 years ago (during world war I) that adding tetraethyl lead to petrol and

makes it react as if it has a higher percentage of octane. However lead is toxic and has now been banned in most fuels around the world,

although some jet fuel still uses lead.

Sulphur, nitrogen and aromatics are removed (reduced) from refinery products with a process known as hydrotreating. The process exposes oil

to hydrogen in the presence of a catalyst, generally at high temperature and pressure. Hydrotreating essentially “cleans” the fuel and also

enhances the cetane number (a measure of the fuels ignition delay – the higher the cetane number the shorter the ignition delay period),

density and smoke point of diesel fuel. The improvement of diesel engines has resulted in a shift toward diesel and as a result hydrotreating

has become more important in recent years.

There is a wide range of treatments to provide for the product and environmental demands on the industry.

Coal

The coal value chain has essentially several broad routes dependent on demand and coal quality. However, that said the uses of various

grades of coal are widely varied and are growing daily. The major areas of applications include:

Coal can be used in heating applications either for domestic, industrial or power generation

Powdered bituminous coal can be used as a reductant in specially designed furnaces

Appendixes Page 135

Where the coal has specific “coking” properties it can be heated in an oxygen free environment to produce coke which is a sought after material

for the reduction of metallic oxides as well as gases which can provide inputs for the production of a variety of value added compounds.

The fourth important use of coal is to use it to produce oil, gas and petrochemicals.

Anthracite is widely used as a superior filtration medium. Important to this application are the anthracite’s hardness and durability. It is excellent

at lowering water turbidity due to its high ability to load solids. Figure 31 presents a simplified view of the coal value chain, whilst Figure 51

shows the SASOL processes as carried out in South Africa.

Appendixes Page 136

Figure 49: Oil Value Chain

Source: http://www.ilo.org/

Appendixes Page 137

Figure 50: Coal Value Chain

Appendixes Page 138

Figure 51: Sasol processes

Source: http://netldev.netl.doe.gov/Image%20Library/technologies/coalpower/gasification/6-3-1_Sasol_Processes_lg.jpg

Appendixes Page 139

APPENDIX L DIRECT OPPORTUNITIES

The best and fastest opportunities to be followed in order to extract backwards linkages from the projects grouped in this document into growth

poles will be to supply – and were possible manufacture as many of the consumables as possible locally or regionally. It is important to clarify

that regional procurement is important since, in raising regional wealth, markets for the direct mineral commodity based goods or other goods

from the country are enhanced.

Such opportunities include:

Provision and manufacture of reflective gear and industrial overalls,

Provision and manufacture of tyres,

Provision and manufacture of fuels (requirement: about 0.5l diesel per tonne mined)

Provision and manufacture of mining explosives (requirement: about 1-2 kg/m3 mined)

Provision and repair of headlamps, battery packs for personnel,

Provision and restocking of emergency oxygen units for personnel

Provision and restocking of first aid kits

Provision, servicing and manufacture of fire fighting equipment

Provision and manufacture of cement (backfill for underground mines contains about 2-5% cement)

Provision of timber supports for underground mines

Provision of steel (especially for chutes, piping, roof bolts and anchors) and spares (for example for conveyors)

Appendixes Page 140

Provision of drill steel and accessories for production, exploration and delineation drilling

Mining equipment suppliers: there are three important African born players in the market to the current knowledge of Letlapa. It is important

to note that traders have already developed a profile in Africa to sell various makes of mining equipment for example the reader is referred

to the Kanu website http://kanuequipment.co.za/ (dealership in the Republic of Congo). This is a rich area for development from other types

of machinery production for innovative entrepreneurs in other African countries:

For open pit mining the company Bell Equipment is an important world player, and is a home bred African company, designing and

manufacturing its mining equipment in South Africa (it imports engines); to supply excavators, dozers, shovels, dump trucks, graders,

as well as screens and crushers and other mining equipment.

Bird Machines has a similar history to Bell, having been a supplier of agricultural equipment before 1988 when it started to manufacture

mining equipment which is now its speciality. It also manufactures some low profile machines for underground mining

Fermel (Pty.) Ltd originated in South Africa which also represents its main market although it is also represented in Namibia, the DRC,

Tanzania and South America. Besides having wholly owned entities in Zambia , Zimbabwe and Botswana. It provides a range of

mining and road building machines.

In many cases local production may be out of the question at first and traders can set up franchises, but as more mines open there may be a

critical mass to start assembling and later producing locally designed goods.

The service sector can give an even greater and smoother value add to the economy if the skills are in place. These could include:

HR services and employment agencies,

Security Services,

Environmental consultants – Independent environmental consultants are usually a requirement and this opens doors for small to medium

business development,

Appendixes Page 141

Legal practices, lawyers can move into specialisation with mining and environmental law relatively quickly,

Financial and tax services,

Medical practices, doctors will be required both because of increasing numbers around mines,

Drilling subcontrators,

Building contractors, masons, bricklayers, plumbers, painters, electricians,

Rewinding of electrical motors,

Refrigeration engineers,

Toolmakers,

Servicing of all manner of mine equipment.

Regional Integration Research Network | TradeMark Southern Africa+27 12 349 7500 www.trademarksa.org/rirn | [email protected]

ABOUT TRADEMARK SOUTHERN AFRICA

Trade Mark Southern Africa (TMSA) is a UKAid supported project that works with the Common Market for Eastern and Southern Africa (COMESA), the East Africa Community (EAC) and the Southern African Development Community (SADC) Tripartite to lower the physical, political and economic barriers that isolate national economies. The purpose of the programme is to improve southern Africa’s trade performance and competitiveness for the benefit of poor men and women.

TMSA’s activities address current constraints to trade. By supporting regional collaboration through the enabling environment in the COMESA-EAC-SADC Tripartite area, TMSA is helping African countries to unleash their full potential. For more information about TMSA please visit our website at www.trademarksa.org.