BUSINESS REFLECTION: After the Bell: The siren song of downstream beneficiation

Beneficiation, at least downstream beneficiation, seems like such an obvious target on which governments would like to set their sights. Currently, the Mining Indaba is happening in Cape Town, and I’m willing to bet that the word ‘beneficiation’ hangs in the hallways like a bright star. Every mining minister of every African country seems likely to be captured by the siren song of downstream beneficiation.

So why does the idea work so badly? To answer this, I think the history of the Australian iron ore industry is one of many great examples. Iron ore is by far Australia’s biggest single export, and constitutes about a third of global production and about half of the seaborne trade. Australia produces about 900 million tonnes of iron ore a year. SA, by the way, produces around 60 million tonnes, just inside the world’s top 10, and it’s been that way for almost a decade.

BHP expanded its steel production after the war, and behind the tariff wall the company’s steel business prospered, right through into the 1970s. But in the 1980s, BHP started making losses. To shore up the industry, the government imposed numeric quotas that guaranteed 80% to 90% of local production to local producers. Wowzer. How could the company not succeed in these circumstances?

If you think about it, all of this makes perfect economic sense. Producing a metal locally isn’t necessarily a big advantage for local buyers because there is no reason for the local miner to charge local customers less than international customers — even when that customer is part of the same company! To change this equation, the government had to intervene, but intervention to create an industry is almost certain to be a reason for its rise — and fall.

😂It sounds softer than beneficiaries and once you've benefitted, it becomes beneficiation. 😂

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