Export tax will destroy chrome ore mining [in South Africa] – Metmar – by Martin Creamer (Mining Weekly.com – March 7, 2012)

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JOHANNESBURG (miningweekly.com) – The proposed $100/t tax on the export of raw chrome ore would destroy the South African chrome ore mining business and allow competitors from other producing countries to benefit, JSE-listed Metmar CEO David Ellwood said on Wednesday.

Ellwood was responding to Merafe CEO Stuart Elliot’s revelation of the proposed imposition of a $100/t export tax as a means of giving the industry “some breathing space” in the short term.

Elliot complained that South Africa’s ferrochrome production was being displaced by Chinese ferrochrome production. “It’s unbeneficiated ore that is leaving the country and growing the Chinese ferrochrome industry at South Africa’s expense,” Elliot said.

Ellwood claimed that the proposed tax represented a 100% tax on the chrome ore production cost and a 300% tax to upper group two (UG2) operations, many of which were community based.“By imposing a tax, we will be effectively imposing a ban on chrome ore from South Africa,” he told Mining Weekly Online.

The net effect, he said, would be the collapse of the internal chrome ore price, as had happened following the ban of raw chrome ore exports from neighbouring Zimbabwe.

“My opinion is that this is a very delicate matter that needs to be debated with all chrome stakeholders.

“We hold 65% of the world’s chrome reserves, but only have 50% of the Chinese market. Is it being suggested that we give up this share of the market and let the Chinese buy from other sources?” Ellwood queried.

The hard-hit South Africa ferrochrome industry, which has already temporarily closed 30% of its furnace capacity, has asked the South African government to impose the tax as a short-term relief measure.

Last year South Africa supplied more than half of the 9.4-million tons of raw chrome ore that China imported, with this country’s 300 000 t supply loss exactly matching China’s 300 000 t gain.

Half of the South African supplies to China arose from platinum miners producing chrome as a byproduct of their mining of the UG2 reef, 30% from integrated ferrochrome producers and 20% from independent chrome-ore miners, Elliot said.

Xstrata Chrome MD Deon Dreyer told Mining Weekly Online that the quick flow of ore coming in from the UG2 mining was at the heart of the threat to South Africa’s mature ferrochrome industry, which employed more than 200 000 people and which contributed more than R42-billion a year to South Africa’s gross domestic product.

Dreyer added that the industry had informed the government of the dire situation so that there would not be a repeat of the Eskom situation, in which the government only realised the full seriousness of the capacity shortage when it was already too late.

He did not want a situation of the industry one day being asked why it had neglected to highlight the full seriousness of the decline of the once-booming local ferrochrome business.

“But as the industry, we can’t lay down the rules. All we can do is highlight the crisis that’s facing our industry. It’s now up to the government to decide what action should be taken,” he told Mining Weekly Online.

However, Ellwood cast doubt on the county’s ability to provide the necessary power to meet its ambitious beneficiation aspirations.

“Assuming that there was the capital available internally to beneficiate all chrome ore to ferrochrome, or all manganese ore to ferromanganese or silicomanganese, where would Eskom find the required power and at what tariff?

“We are competing with new power suppliers across the world, one of them is Sarawak’s new 20 000 MW hydropower at around $0.04 cents per kilowatt hour,” Ellwood remarked.

Dreyer’s view was that an attractive ferrochrome business would entice producers to invest in their own competitive power capacity.

Investing in own generation was the norm elsewhere in the ferrochrome world.

“In India, those successful in ferrochrome have their own power plants. Create the right investment climate that provides the right returns and the power plants will follow,” Dreyer added.

India was formerly the biggest exporter of raw chrome to China until the Indian government clamped down on raw ore exports to facilitate local beneficiation, action that the South African government was now poised to emulate.