The indelicate balance of ethics against profit

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South Africa’s resources as the basis for the economic recovery and strengthening of its international position

15 november 2021

The Republic of South Africa (South Africa) is the world’s leader in terms of reserves and the production of many types of mineral resources. The diversity of mineral resources, as well as the heavy reliance of the world powers on some of them, make South Africa the subject of the continuing competition for access to its deposits and securing a reliable supply of raw materials.

The South Africa’s non-energy mineral reserves are estimated at $2.4 trillion to $3 trillion. This makes the country one of the richest non-oil powers in the world. For example, South Africa accounts for more than 90% of the global reserves of platinum group metals (PGMs), 80% of manganese, 72% of chromium, 32% of vanadium, and 13% of gold. However, most of the resources were discovered using outdated exploration methods. This means that with the use of advanced technologies, there is a huge potential for discovering new deposits of world importance.

The country’s mineral wealth is the basis of ferrous and non-ferrous metallurgy. South Africa accounts for more than 59% of the world production of platinum group metals, 30% of manganese ore, 25% of ferrochrome. South Africa’s mining industry provides about 78% of the global supply of primary chrome ore, 54% of aluminosilicate, and almost 50% of manganese ore.

Transformation of the South African economy - from agrarian to post-industrial one

Until the end of the 1860s, South Africa remained predominantly an agricultural country. Structural changes in its economy became possible thanks to the revolution in raw materials, which began with the discovery of a diamond on the bank of the Orange River in 1866, and of large diamond deposits - the kimberlites - in the 1870s in the Kimberley area. Later on, the town gained the status of a diamond capital, which is still one of the world’s diamond mining centers.

The search for diamonds resulted in the discovery of gold deposits in 1886 in the Witwatersrand (now the Gauteng province). Later, the deposits of coal, manganese, chromium, copper, platinum, uranium, and other minerals were discovered.

The development of the coal industry was closely related to the growing demand for fuel in mining gold and diamonds. In particular, the rapid development of new coal basins in Transvaal (Boksburg, Witbank) in the 1880s through 1890s was linked to the growth of the gold mining industry.

With the richest coal reserves on the African continent and very rich iron ore resources, South Africa created powerful ferrous metallurgy. The manufacturing industry appeared mainly after the Second World War.

The South Africa’s economy today

Today, South Africa is an industrialized country that, according to the World Bank classification, is an upper middle-income country (in 2020, its gross national income (GNI) per capita was $5.410). South Africa is the only African country that is a full member of such a prestigious forum as the Big Twenty (G20). In February 2011, it officially joined the BRIC bloc (Brazil, Russia, India, and China), which became the BRICS, an unofficial club of the world’s largest developing economies.

Until 2012, South Africa’s economy was the largest on the African continent, but later on, the country lost its leading position to Nigeria. In 2020, Nigeria’s GDP ($432 bn) still outperformed South Africa’s GDP ($302 bn). The restrictions imposed due to the COVID-19 pandemic had a negative impact on the country’s economy as in 2020, its GDP showed the strongest drop in the history of South Africa (minus 7%).

The mining industry has suffered greatly from strict, in my opinion, lockdown due to the COVID-19 epidemic, which led to a significant reduction in the production of gold, diamonds, and PGMs. In addition, commodity prices are highly volatile, and the volatility increases during uncertainty periods and global crises.

Nevertheless, South Africa remains a regional leader and a manufacturing hub maintaining a higher level of GNI per capita and a diversified economy. South Africa accounts for most of the continent’s economic and industrial infrastructure, with its first-class network of roads, railways, and ports. The state-owned company Eskom produces about 90% of the electricity consumed domestically and about 45% of the electricity used on the continent.

South Africa is a leading producer and supplier of a variety of minerals, with more than 1,800 mines and quarries throughout the country. In 2020, the mining industry accounted for 8.2% of the country’s total GDP and provided 451,427 jobs directly (excluding the employees in the related sectors of the economy).

As the world economy recovers, I believe that it is South Africa’s rich mineral resource base that can serve as a driver for the growth of South Africa’s economy.

Mineral resource base of South Africa

It was with the discovery of diamonds and gold that the development of South Africa as a mining power began. Thanks to the development of these industries, roads, and railways were built, and South Africa’s economy became the largest on the continent. Meanwhile, both industries have undergone dramatic changes for more than a century and a half.

As of 2020, South Africa’s diamond reserves were estimated at about 130 mn carats. According to this indicator, the country ranks fourth after Russia, Botswana, and Congo. Diamond mining amounted to 8.5 mn carats and ranked sixth in the world. By 2023, the South African government intends to leave about 70% of the diamonds mined in the country for further processing. Nowadays, just about 4% of the diamonds mined in the country are cut and polished locally.

South Africa dominated global gold production in the 20th century, with over 75% of the world’s gold reserves in 1970. But due to resource depletion and high operating costs, the country’s dominance in the global gold sector has since declined from 1st place in the 1970s to 8th place in 2018.

South Africa has significant reserves of non-ferrous metals, including nickel, copper, zinc, lead, titanium, zircon, antimony, and cobalt. This industry employs about 17,000 workers.

South Africa is the largest producer of platinum group metals, including platinum, palladium, rhodium, ruthenium, osmium, and iridium. In particular, it accounts for over 80% of the world's platinum production, over 30% of palladium, and about 80% of rhodium. It employs about 38% (172,000 people) of the total workforce in South Africa’s mining industry.

For the first time since 2010, the PGM sales outperformed the coal sales and made the largest contribution to the total mining industry’s sales, reaching R190 bn in 2020. This was more than the value of the iron ore and gold sales combined.

Of the six PGMs, rhodium is the most expensive metal, as it is extremely rare. It is also used to neutralize toxic gases (carbon monoxide) in a vehicle’s exhaust system.

The rhodium and palladium sales account for 72.7% of the total PGM sales, with the remainder being platinum. A decade ago, platinum accounted for 68.1% of PGM sales.

The coal industry is the most significant component of the mining industry in terms of added value. It accounts for about 24% of the total volume of the mining sector. In 2020, the proved coal reserves amounted to approximately 9.9 bn tonnes. South Africa consumes approximately 75% of its coal production.

Although coal still dominates South Africa’s energy mix, it has given way to other energy sources in recent years. While in 2013, renewable energy sources (water, wind, and sun) contributed 0.4% to the total volume of electricity produced, this figure increased to almost 5% in 2019. Over the same period, the share of coal decreased from 88.3% to 87.2%. In 2006, the share of coal was 92.8%.

South Africa’s uranium reserves account for 6% of the global ones. South Africa has the largest uranium reserves in Africa and ranks fifth in the world for this indicator. Most of the uranium volume is produced mainly as a by-product in processing gold-bearing ores, so its generation is highly dependent on gold mining productivity.

South Africa, with its two nuclear reactors at the Koeberg power plant in the Western Cape, is the only country on the African continent to produce nuclear energy.

South Africa does not have significant proven oil and gas reserves, producing oil and gas from coal, and importing crude oil as well. If offshore exploration and shale gas exploration are successful, South Africa will have localized oil and gas supplies to the country, which will help diversify the country’s energy balance.

South Africa’s ferrous metallurgy is based on its local raw materials, being an important export industry and a source of income. The country has the largest deposits of chromium, manganese, and vanadium, as well as significant deposits of iron ore, antimony, copper, nickel, lead, titanium, zinc, and zirconium.

South Africa is the world’s largest producer of chrome ore, a key ingredient in stainless steel production. In 2019, it supplied 12.5 mn tonnes of this mineral to China or 83% of China’s total chromium imports.

In 2019, South Africa became the largest manganese ore producer and exporter in the world, accounting for 30% of the global production and nearly 50% of the global exports. The country supplied manganese ore (mainly to China, India, Japan, and Norway) for $3.16 bn, which made this metal the eighth largest export product.

South Africa was the first African country to start commercial copper mining after launching the Palabora copper mine in 1966. This mine remains one of the largest and deepest open-pit mines in the world. Rio Tinto, a subsidiary of the Palabora Mining Company, operates the mine, smelter, and refinery complex, South Africa’s only refined copper producer. With an annual production of about 80,000 tonnes, it provides for most of South Africa’s copper needs and exports the rest of copper volumes.

At present, China dominates the rare earth market and produces about 60% of the world’s rare earth metals, recycles about 80%, and is a key player in the global supply chain. The largest economies in the world are completely dependent on Chinese imports as 80% of the imports to the USA and 98% of imports in the EU come from China. Therefore, the possibility of limiting its supplies or even stopping them could seriously damage the industry and the decarbonization plans. This forces the countries to look for alternative sources.

In the future, South Africa will be able to compete with China in the world market for rare earth metals. The Steenkampskraal mine is located in the Western Cape, which is the high-grade rare earth metal mine in the world. Its reserves are estimated at almost 790,000 tonnes, and it is among the top ten countries for this indicator.

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As the global economy recovers from the consequences of the COVID-19 pandemic, the restoration of traditional ties, transport and logistics chains, and the revival of demand, South Africa has the potential not only to rather quickly reach the “pre-pandemic” production level, but also to significantly ramp up its production, processing, and export.

The demand for raw materials in the future will remain and will also increase for some types. In the era of digitalization, the demand for rare earths, also called “technological metals”, is increasing. The composites will gain in importance with the transition to the fourth industrial revolution. Given the global trend towards sustainable production, the demand for platinum group metals will increase.

The leading powers understand the dangerous dependence on one single supplier, so the drive towards diversifying the sources of raw materials will be one of the cornerstones of ensuring their national security. There is already fierce competition for access to South Africa’s natural resources and, most likely, it will only intensify.

Taking into account the above, South Africa, whose subsurface resources virtually have the entire Periodic Table, will undoubtedly play an increasingly significant role both on the African continent and in international affairs.

Margarita Obraztsova for Rough&Polished