1. Understanding a commodity’s value chain
At the heart of beneficiation lies the primary commodity itself, and possible pathways in that commodity’s value chain. For any beneficiation policy to be effective, it is therefore key to fully understand the steps that are involved in the transformation of raw minerals into a marketable product. Whereas value is added to a commodity at all stages in its value chain, not all stages are equal in their potential to maximise benefits to a country. Moreover, depending on the mineral and the respective end-product, a commodity’s pathway can differ significantly from that of another commodity. Gold for example is a high value, easily transportable commodity that finds its uses in downstream industries such as electronics or jewellery, whereas iron ore is a bulk commodity that finds its use mainly in steel production. Before considering any interventions, policy makers therefore need to first gain an understanding of that commodity’s value chain, together with the respective inputs that are required at each stage, as well as the related economics. Only after a comprehensive assessment is it recommended that policy makers move to identifying the points in the value chain which are appropriate targets for beneficiation policies.
In generic terms, value chains can be roughly divided into four steps:
- Ore is extracted. The product is washed, sized or undergoes processing to a concentrate. Depending on the commodity and the extent of technology innovation/automation, these processes are both capital and/or labour intensive.
- The commodity is converted into a bulk commodity or an intermediate good such as a metal alloy. This process is usually more capital and less labour intensive.
- Conversion of this intermediate product into a refined product. After this step, many commodities are ready for purchase by industries, for example by the manufacturing sector.
- From this point, the end product is usually a manufactured, ready-for sale produced good that can reach markets and consumers directly.
The concept of value chains, however, often seems simpler in theory than it is in the real world. The inputs and applications of each commodity at each stage of the value chain – from highly technological and expensive to simple low-tech input material – are difficult to catch in their totality. Therefore, attempts to map value chains are at best an abstraction of much more complex processes. Nevertheless, value-adding policy interventions can be undertaken at many stages at which commodities are transformed. Countries that want to implement beneficiation policies strive to keep most of the steps within their territory. The diagram below is a schematic that can be helpful in mapping value chains. Thereafter, more detailed descriptions of the steel and gold value chains are given, as examples.
Source: Chamber of Mines of South Africa
The examples of Steel and Gold
Each resource has its own value chain and specifications in terms of the four steps mentioned. This will depend on the grade percentage needed by customers and consumers, the inputs needed to produce them and their respective capital and labour intensities.
Value chain of Steel
Around 98% of iron ore produced is used in the steel industry. In that sense, there is a close connection between both goods. While iron ore belongs to one of the most abundant metallic elements in the world, steel belongs to one of the most important industrial commodities.
Steel has two methods of production, one using iron, the other recycling existing steel. The first method requires iron ore, energy (often coal) and limestone inputs to produce new steel and remove impurities. To produce 1,000 Kg of steel, roughly 1,400 Kg of iron ore, 800 Kg of coal and 300 Kg of limestone is needed.
Source: New Steel Construction
The iron ore is put into a furnace, which is fuelled by coke (coal), reacting with the iron ore at high temperatures and producing so-called ‘hot metal’. In a further step, the “hot metal” is again added to a furnace, this time injected with oxygen. Later, the steel can be transformed into different shapes and forms, before being used in manufacturing or other industries such as construction. Although in theory, iron ore can be found in many places in the world, only a few countries dominate global steel output. The last decade has seen China ascend to become the world’s top producer, with almost half the global steel production in 2017.
Value chain of Gold
Like iron ore, gold is geographically spread, with no country accounting for more than 20% of global reserves. Although the Witwatersrand deposit in South Africa is historically one of the largest gold deposits so far discovered, by a large order of magnitude, and South Africa has accounted for approximately 40% of global production to date. Usually, gold is either extracted from riverbeds (“alluvial”) or from cracks in rock formations. Processing, which often takes place on-site, is the time-consuming removal of carbon, oxides or sulphides that are part of the ore. In a second step, the gold is then melted into a “doré" bar, which contains up to 90% gold. The next step, refining, transforms the commodity into a (semi)final product, depending on the use. This product is sold to various industries, with more than 40% being used to make jewellery.