Image: Selibe Pikwe mine, Botswana. By Merlin on Flickr
Botswana’s copper and base metals firms are in discussions along with the government over the road ahead for beneficiation in the country. Two things are pretty clear: the copper companies want nothing to do with the country’s desire to beneficiate its base metals; and the iron ore and coalminers do, at least for the moment. Why? Well, ‘it’s the price – stupid’.
The price of copper remains reasonably steady but coal and iron ore have taken a hammering since 2011. South African coal export prices are roughly half what they were at their peak of $125/tonne in April 2011.
It’s all about the price and the cost of transport.
Copper concentrate is approximately 27% copper, so roughly three quarters of the trucks going from the mines in Botswana and western South Africa are simply clogging and destroying roads by carrying waste to Durban which will then be shipped to India and China. It costs the same to truck a tonne of copper concentrate as it does a tonne of low-grade coal and iron; coal can only be transported by rail, and copper concentrate can be trucked. Why would anyone carry waste so far rather than ship it as refined copper cathode? The answer is -‘it’s the price – stupid’
China and the Great Compression
The world’s biggest market for copper is China. Industrial policies over the last few years have expanded their capacity to smelt and refine copper well beyond their domestic supply of concentrate and even above reasonable imports from mines in proximate markets. Their copper smelters and refineries were operating at levels of capacity of around 60% in 2013 and yet China continues to build ever more and larger refineries. This over-expansion has meant they have been desperate to acquire concentrate to increase their capacity utilisation rate. This in turn has driven down smelting and refining margins over the last decade and there were even reports in 2011 Chinese smelters were willing to refine for prices close to zero just to get the capacity through their plants.
The consequence of the Chinese industrial policy is global. All over the world countries that were once major refiners of copper, such as the USA and Australia, have moved out. Even Chile, the world’s biggest copper miner, has not been expanding its refining capacity significantly preferring to sell concentrate to the Chinese. This Great Compression of copper refining margins caused by Chinese subsidies and industrial policy towards its state owned enterprises is the flip side of the rising copper and base metal prices enriching large parts of Africa over the last decade. African miners don’t want to build refineries unless they are forced to do so. Why refine when the Chinese will do it for peanuts? While the Chinese have enriched miners and the coffers of government, their policy has prevented Africa from value-addition exporting.
Controlling the middle part of the value chain gives end users of those base metals a commercial advantage over foreign competitors. Japan with almost no mines or electricity and high cost labour was able, between the 1970s’- 2000, to refine and smelt aluminium, iron and copper from mines they partially owned in remote locations in Asia and Latin America.
Like Japan four decades ago, Chinese policy makers are creating domestic commercial advantages. By then Japan wiped out large segments of the American and European automobile, steel and ship building industries and China now will do something similar in its down-stream industries.
Where to Botswana?
If Botswana wants to refine copper it will not get the voluntary agreement of mine owners. They want off-take agreements for the life of the mine giving them maximum flexibility. The Ministry of Minerals Energy and Water Resources must put its foot down, grant a five-year renewable off-take agreement to the copper miners until Botswana has its own refinery. This is a first step to avoid being left with a hole in the ground in thirty years but the second will be to assure that a refinery is actually built.
A copper refinery, in and of itself, is really not much of a development for Botswana. It is capital intensive, creates few jobs and normally lots of pollution. But if we connect the dots by having refineries of copper, nickel, zinc and iron, much can be done to secure relatively good jobs for the youth of Botswana. To walk the road to industrial development we must price electricity to reflect our abundant coal resources. We do not have to put the nation’s youth into dead end jobs in call centres to export services. Copying China or Japan is not possible; we must walk our own road. However, they have shown that the right policies, the right infrastructure and the right prices can achieve great things.
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