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Slow progress on chrome ore tax is hurting government’s pockets

And putting around 3 000 jobs at immediate risk, according to Save SA Smelters.
The benefits of beneficiation are well-known, yet SA ore is increasingly being exported at the expense of its industrial capacity. Image: Luke Sharrett/Bloomberg

While South Africa continues to try to manage what is proving to be the most challenging wave of the Covid-19 pandemic, the chrome beneficiation industry is facing some significant challenges and needs key protection through the implementation of an export tax on raw chrome ore.

A recent statement by Save SA Smelters points out that government’s sluggish adoption of a taxation on the export of raw chrome ore is costing the country an estimated R15 billion in taxable income based on the exported ore tonnages from 2020.

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More concerning is the fact that – according to Save SA Smelters – government’s slow approach to the implementation of this tax is putting an estimated 3 000 jobs at immediate risk and between 8 000 to 9 000 downstream jobs at risk.

This would have a devastating impact on the chrome mining industry, which would have to cater for global demand with a smaller workforce.

Related industries

Lindelani Nyathikazi, Save SA Smelters co-convenor, points out that countries such as China and other Asian giants are turning to construction to revitalise their economies post Covid-19. South Africa needs to align its policy to cater for this demand.

“The Chinese, and increasingly important Indonesian markets, are growing and will dominate demand for chrome ore and ferrochrome in the future.

“If the price disparity between China and the West is allowed to continue, then there will be no South African smelting industry left standing,” says Nyathikazi.

“The Chinese marvel at South Africa’s increasing indifference to allowing its minerals to be shipped abroad at the expense of its domestic industry, [which] is concerning.

“It will also be a betrayal to the great policies of the country’s Mining Charter and Freedom Charter … Imposing this chrome export tax will grow this industry in South Africa instead of China and other countries.”

On the frontlines

Steph van Sittert, chief operating office of smelting at Samancor, says one should not underestimate the impact this export tax would have on the industry.

“Recent studies commissioned by the Department of Trade, Industry and Competition found that it will be difficult to replace the volume of current SA chrome ore exports to China with an alternative supply and therefore a low probability exist[s] for local chrome miners to absorb the proposed export tax on non-beneficiated ore.

“Not implementing the tax would have greater risks in losing industrial capacity of not only ferrochrome producers but also the supply industry, and would see further deindustrialisation of the South African economy,” says Van Sittert.

“The implication is that increasingly ores are exported at the expense of industrial capacity. There is however an ongoing imperative to ensure structural transformation of the South African economy and measures are required to support further processing and fabrication.”

Energy costs

One of the biggest challenges South African chrome miners have been facing is the inflation in electricity prices, which has caused many smelters to close down.

“These increases are not sustainable for the industry and without urgent interventions such as the ore export tax, [the] closure of more smelters will continue,” says Van Sittert.

“The industry has been engaging with all relevant departments in government and Eskom for a number of years to discuss possible interventions and solutions to the rising electricity pricing.

“It has been agreed by all parties that use of an export tax as a standalone measure to support the industry is insufficient and must be accompanied by other measures taken by both government and the industry, with a focus on energy efficiency being central.”

Van Sittert adds that while there are players in the ferrochrome industry that were not sustainable in the face of rising electricity prices, the industry did however maintain production levels until early 2020, despite the fewer players.

Going forward however, the risk is that without the export tax the industry will see further erosion in domestic ferrochrome production, with an impact on the entire chrome ore export sector.

“The export tax would be catalytic in giving the industry the confidence to make the investments required to regain its competitiveness and increase capacity, which in turn will sustain 8% of Eskom base load electricity supply and associated revenues, with the potential to increase supply in the long term as the industry increases capacity,” says Van Sittert.

“The export tax will not address the electricity pricing concern but would put smelters on a competitive base in terms of total cost of production.”

Significant value

The cornerstone of South Africa’s economy has long been its rich abundance in minerals and its ability to beneficiate these minerals before exporting them to international customers. In 2019, the mining sector  contributed approximately R226.2 billion to the country’s GDP.

According to Charmane Russell, spokesperson for the Minerals Council South Africa, the value added by the beneficiation of minerals in South Africa is quite significant.

“About 94% of South Africa’s cement is made locally from locally mined products. Eighty-three percent of South Africa’s steel is made locally from locally mined iron ore, chrome, manganese, and coking coal, she says.

“Around 30% of the country’s liquid fuels are produced from locally mined coal, as is 85% of its electricity. Most of our domestic chemicals, fertilisers, waxes, polymers, plastics, are fabricated using locally mined minerals and coal. Finally, 8% of the world’s platinum catalytic converters are produced locally,” adds Russell.

She says the Minerals Council estimates that beneficiation adds around R500 billion in overall commodity sales value. In addition, it estimates that more than 200 000 jobs are created in the downstream beneficiation industries.

Read: Police accused of standing by while chrome mine is invaded

Slow progress

Nyathikazi points out that Save SA Smelters has begun dialogue with government. However, progression towards a workable solution is nowhere in sight.

“A task team has been formed by the Department of Trade and Industry and the Department of Mineral Resources to discuss the taxation issue. They fully support it and believe that the preservation of jobs is vital for South Africa at a time when we need to grow our economy.”

“The problem is with [National] Treasury,” says Nyathikazi. “We need to convince Treasury that the taxation of chrome ore, and the ramping up of beneficiation plants around the country can add significant value at little cost.

“A task team has been set up to investigate what it would take to fast-track the ramping up of smelters in Lydenburg. In addition, there are smelters in eNtokozweni [Machadodorp], Rustenburg, and other plants around the country that will add significant value at little expense.”

Additional constraints

In addition to Treasury’s reluctance to commit immediate funding to ramping up the smelters around the country, the energy crisis is a binding constraint when it comes to the beneficiation of chrome ore.

“This is a significant problem that government is aware of. We are engaging with various governmental task teams as well as the smelters themselves to find alternatives to alleviate the pressure that they place on Eskom. However, this is not an easy problem to resolve,” says Nyathikazi.

The beneficiation industry in South Africa adds significant value to the fiscus and employs a significant number of people in a country that is facing an unemployment crisis. The taxation of the export of raw chrome ore will not only add more value to the fiscus but will force countries such as China and Indonesia to purchase beneficiated ore rather than beneficiating in their own country.

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Just a bunch of inefficient people looking for a protection racket to help them !!!

There are many brilliant professionals in all race groups in South Africa.

But as for Cabinet , probably only Pres. Ramaphosa, Tito M and Pravin G understand Business.

Pravin Gordhan understands business???

WHAT are you smoking??? Cow dung?

Tito MIGHT know something about pilchards, but he knows nothing about business.

No surprises with this ANC government, especially when it comes to acting in ways that compound the high unemployment rate and misappropriation of tax, and potential tax!

Patel again. The delay in the cabinet reshuffle is costing South Africa dearly. There are plenty of young, qualified Back South Africans who would do a far better job than the current crowd. Give them a chance.

It is a continuous source of amazement to me that after nearly 3 decades of ANC rule that we, unlike other previously colonised countries ( notably Asian ones ), can still, despite our huge mineral resources, remain unable to do what they have built up. What is in their DNA that we lack?. If I were made President I would decree it obligatory that before anybody could sit in my cabinet, they spend 6 months in our embassy in an Asian country learning to see what they do which we cannot.

End of comments.

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