The recent call by Mines Minister, Honourable Christopher Yaluma, for Zambia to start manufacturing finished copper products locally instead of importing them is a timely opportunity for the country to ask itself some pertinent questions on this vital issue.
What are the various options open to Zambia? From a policy perspective, is beneficiation the right way to go? And what lessons can Zambia learn from other countries that have embarked on beneficiation drives?
Beneficiation – or downstream beneficiation, to use its formal definition – is defined as taking a primary product and adding value to it. Take flour, for example: you add some ingredients, work it into a dough, and stick it into the oven. An hour later, you have a loaf of bread, which is worth more than the flour.
Copper goes through many similar phases of beneficiation. It is converted from ore to copper concentrate, and then into copper anode, and then into copper cathode, which is 99.99% pure. Cathode copper is then processed further into tubes, sheets, wiring and other forms. It is then used in everything from roofing and cars to electric motors and cellphones.
Countries have to think strategically and focus on their competitive advantage.
It’s reasonable to conclude that beneficiation is always desirable; after all, you get a higher-value product which you can sell for more money. However, there are costs and challenges involved; sometimes it doesn’t make business sense, in the same way that it doesn’t make business sense to bake one’s own bread at home.
Chile, the world’s largest copper producer, is a case in point. “Despite controlling one-third of global copper production, Chile does not engage in significant downstream beneficiation and processing – China has already captured the efficient means to do so,” says a 2017 paper, A roundtable on opportunities in the mineral sector between Chile and Africa. The roundtable took place in Addis Ababa in June 2017, between a Chilean mining delegation and representatives from African mining countries.
Downstream beneficiation is not the only way for countries to get value from mining; they could also, for example, create supplier industries around the mines that can produce greater employment and economic activity.
For example, noting the high costs, energy inputs and technical requirements of downstream beneficiation (which involves heavy smelting and refining to produce finished metal), the Chileans suggest that African countries should explore commercial opportunities in upstream value addition instead – such as supplying mining equipment and machinery, consumables and services.
The Chileans’ recommendations are squarely in line with those of the Africa Mining Vision (AMV), a roadmap formulated by African nations to show how mining can drive the continent’s development. The AMV recommends beneficiation should extend not just upstream, but also sidestream (e.g. into financial services, power, logistics) and even laterally (where capacity and expertise developed in mining can be applied to other sectors of the economy). Indeed, “any enterprise that can feed into mining should be encouraged”, the AMV says.
“Beneficiation contributes to growth and diversification only when it generates above-average upstream and sidestream linkages, and should not be pursued merely for its own sake,” says a study by the AMV’s International Study Group. It adds that African countries “need to choose where to make the most effective intervention”.
This point is echoed by Ross Harvey, a development economist from the South African Institute of International Affairs. “It’s not desirable to add value to minerals in all cases,” he says in an interview. “You have to think very strategically, focus on your competitive advantage and see where on the value chain it makes sense to be.”
Zambia is not alone in this challenge; mining countries like South Africa, Botswana and Namibia face it too.
For example, diamond-rich Botswana has moved into downstream beneficiation of diamonds, notably cutting and polishing, but is facing challenges around competitiveness. “Diamond beneficiation is no panacea”, says a 2016 article in Botswana’s Weekend Post, citing statistics showing that it is three to six times more expensive to cut and polish diamonds in Botswana than in India or China.
African Business Magazine, arguing the pros and cons of beneficiation, puts the Botswana dilemma in perspective: “What matters is not the comparative advantage (having the minerals) but the competitive advantage (having the skills and infrastructure to produce competitively at the right price). If you’re producing aluminium, say, what matters isn’t having bauxite; it’s having cheap energy.”
In Zambia’s case, cheap energy is certainly not a competitive advantage the country enjoys today. There is therefore probably not a strong business case for building and operating the additional energy-intensive electro-refining capacity the country would need for full downstream beneficiation of copper – particularly as the additional gains in metal purity would be marginal. As Chile has already concluded, China can do this more efficiently.
In any event, downstream beneficiation is already a major part of the Zambian mining landscape. Mines beneficiate copper up to many different levels – from concentrate and blister to anode and cathode. For example, Barrick Lumwana and FQM Sentinel go up to copper-concentrate level only; while larger mines like Mopani and KCM go all the way up to cathode copper, as they already have the smelting and refining infrastructure.
Zambia is also no stranger to upstream beneficiation. For example, in Luanshya, Metal Fabricators of Zambia (Zamefa) manufactures electrical wiring and cabling; and in the N.W. province town of Kalumbila, a $40-million Chilean/Chinese manufacturing plant will soon be producing mill-balls for Zambian mines, and for export. Indeed, the entire town of Kalumbila is an example of the kind of business activity that mining can stimulate. Complete with housing, shops, an industrial park and an airport, it is fast becoming a template for economic diversification.
More such ventures are certainly possible, though they will be a challenge so long as various structural cost-competitiveness issues persist. A 2014 report by the International Council on Metals and Mining (ICMM) notes that Zambian suppliers of mining inputs and equipment are more expensive than competing foreign suppliers for reasons such as foreign exchange regulations, high costs of credit (30 to 40%), limited supply of skilled labour, high power costs and high corporate tax rates (30-35%) compared to neighbouring countries like Botswana, Namibia and South Africa. Addressing these issues would help to create the competitive advantage without which no beneficiation venture can be sustainable.
As Patrice Motsepe, executive chairman of the South African mining company African Rainbow Minerals, observes in a study on African beneficiation: “We have for many years – not just in South Africa but in many parts of the continent – spoken about beneficiation. I think part of the secret is you have got to make it attractive [and] profitable for the private sector – and it will take off.”
See also: Copper’s next bull market?