A LINKAGE MODEL FOR THE SOUTH AFRICAN
MINERAL SECTOR: A PLAUSIBLE OPTION
PASEKA JOHANNES KATLEHO LEEUW
A research report submitted to the Faculty of Engineering and the Build
Environment, University of the Witwatersrand, in fulfilment of the requirements for
the degree of Master of Science in Engineering
Johannesburg, 2012
iDECLARATION
I declare that this research report is my own unaided work. It is being submitted for
the degree of Master of Science to the University of the Witwatersrand,
Johannesburg. It has not been submitted before for any degree or examination to
any other University.
……………………………………………………………………………………………….
(Signature of Candidate)
……………………day of……………………………..year………………..
ii
ABSTRACT
The mining industry is an important sector of the South African economy
contributing approximately 10% to the GDP in the last decade. It is also the
largest contributor to the country’s exports, bringing in the necessary foreign
income.
The strength of the South African mining industry stems from the country’s
mineral endowment and mining expertise built over many years of mining. Some
of the legacies of mining in South Africa are the establishment of cities of
Johannesburg and Kimberley and the creation of the biggest stock exchange and
economy in Africa. However South Africa is crippling with one of the highest
income inequalities in the world, high unemployment rate, and poverty despite its
mineral endowment, stable political climate, and constitutional democracy.
To fight inequality, unemployment, and poverty, this document proposes the use
of Resource-based Research and Enterprise Development Model or the Linkage
Model as one of the instruments at the disposal of the government. The Linkage
Model is strategic in nature and is primarily based on the economic linkage theory.
It comprises of six components or pillars, namely government support, research
funding, functional research institutions, adequate research skill supply, resource-
based research output, and commercialisation of research findings. Through the
latter, it is hoped that employment opportunities will be created in industries that
support the mining industry.
iii
ACKNOWLEDGEMENT
I will like to express my gratitude and acknowledgement for the contribution and
assistance of the following persons towards the completion of this report:
My wife, Mmabatho, and my son for their love, patience and understanding.
My supervisor, Dr H. Mtegha, for his motivation, guidance and support.
My colleagues at the University of the Witwatersrand for their fruitful discussions
during my research.
iv
CONTENTS
DECLARATION..........................................................................................................................i
ABSTRACT ...............................................................................................................................ii
ACKNOWLEDGEMENT ...........................................................................................................iii
CONTENTS ............................................................................................................................. iv
TABLE OF FIGURES................................................................................................................vii
TABLE OF TABLES................................................................................................................... ix
LIST OF ABBREVIATIONS.........................................................................................................x
LIST OF SYMBOLS ................................................................................................................. xii
1. INTRODUCTION.................................................................................................1
1.1. Overview of mineral sector economics in South Africa....................................1
1.2. Motivation for research ....................................................................................6
1.2.1. Mining and mineral beneficiation.....................................................................6
1.2.2. South African unemployment rate ...................................................................9
1.3. Proposed research outcomes .........................................................................11
1.4. Scope of the study ..........................................................................................12
1.5. Contents of the research report .....................................................................12
2. RESOURCE-BASED THEORIES ..........................................................................14
2.1. Introduction ....................................................................................................14
2.2. Economic linkages...........................................................................................14
2.3. Industrial clusters............................................................................................19
2.4. Economic multipliers ......................................................................................21
2.4.1. Input-output analysis of the South African mining industry ..........................21
2.4.2. Effects of mining multipliers in South Africa ..................................................26
2.5. Concluding Remarks........................................................................................28
v3. A BRIEF HISTORY OF MINING IN SOUTH AFRICA ............................................31
3.1. Introduction ....................................................................................................31
3.2. Pre-Witwatersrand mining .............................................................................32
3.3. Early history of mining in the Witwatersrand basin .......................................33
3.4. The establishment of the Chamber of Mines of South Africa ........................37
3.5. Home grown mining companies – abridged history.......................................40
3.6. Reorganisation of mining in the 1990s ...........................................................44
3.7. Politics and the mineral sector in South Africa...............................................49
3.8. Concluding remarks ........................................................................................54
4. LINKAGES IN THE SOUTH AFRICAN MINING INDUSTRY..................................57
4.1. Introduction ....................................................................................................57
4.2. Mining related Science Councils in South Africa ............................................58
4.2.1. The Council for Geoscience ............................................................................59
4.2.2. Council for Scientific and Industrial Research ................................................60
4.2.3. The Council for Mineral Technology...............................................................62
4.3. Institutions of higher learning in mining engineering ....................................64
4.4. Case studies in the mineral sector from 1890 to 2006...................................68
4.4.1. Case study 1: Dynamite in South Africa..........................................................68
4.4.2. Case study 2: Gold extraction technologies ...................................................69
4.4.3. Case study 3: Portable Rock-drills...................................................................72
4.4.4. Case study 4: Drill bits.....................................................................................76
4.4.5. Case study 5: Ferrosilicon (FeSi) .....................................................................77
4.5. Concluding remarks ........................................................................................78
5. MINERAL RESEARCH AND DEVELOPMENT IN SOUTH AFRICA........................80
5.1. Introduction ....................................................................................................80
5.2. Nature of mining research and development in South Africa........................80
vi
5.2.1. Nature of mining .............................................................................................81
5.2.2. The procurement pattern of South African mining industry..........................85
5.2.3. Research environment in mining post COMRO..............................................89
5.2.4. South African mining research and development in perspective ..................91
5.3. Concluding remarks ........................................................................................92
6. THE LINKAGE MODEL ......................................................................................95
6.1. Introduction ....................................................................................................95
6.2. The nature of business development in South Africa ....................................96
6.3. The components of the Linkage Model ....................................................... 105
6.3.1. Government support ................................................................................... 106
6.3.2. Resource-based research funding ............................................................... 109
6.3.3. Skills supply .................................................................................................. 112
6.3.4. Research authorities .................................................................................... 116
6.3.5. Mining research and beneficiation .............................................................. 118
6.3.6. Commercialisation of research findings ...................................................... 121
6.4. The implementation of the Linkage Model ................................................. 132
6.5. Concluding remarks ..................................................................................... 134
7. CONCLUSION................................................................................................ 137
REFERENCES ...................................................................................................................... 141
vii
TABLE OF FIGURES
Figure 1.1: Top 10 in-situ minerals resource value by country ....................................7
Figure 1.2: Mineral beneficiation along the value chain ................................................8
Figure 2.1: Mining value chain and economic linkages...............................................18
Figure 3.1: Early history of mining in South Africa .......................................................32
Figure 3.2: Top 10 mining companies ranked according to their market value in
2010 .....................................................................................................................................45
Figure 3.3: Change in the average of real prices of all mineral commodities
(excluding oil and gas) from 1900 – 1992 .....................................................................47
Figure 4.1: Proliferation of extraction technologies in the early days of gold
production in the Witwatersrand basin ...........................................................................71
Figure 4.2: Penetration rate of portable rock-drills in the Witwatersrand basin
between 1913 and 1933 ...................................................................................................74
Figure 5.1: Annual revenue of gold, PGMs and coal between 1980 and 2007 .......86
Figure 5.2: Total expenditure of South African mining industry in 2009 ...................87
Figure 6.1: The economic activity due to a strong primary industry ..........................96
Figure 6.2: South African State funded business development agencies on
national level ......................................................................................................................99
Figure 6.3: Proposed simplified structure of public enterprise development
agencies in South Africa................................................................................................ 101
Figure 6.4: The Linkage Model..................................................................................... 106
Figure 6.5: Split between government funding and commercial income of Science
Councils from 2007 to 2010 .......................................................................................... 118
Figure 6.6:  Employment growth in USA between 1948 and 2000......................... 125
viii
Figure 6.7: Relationship between productivity and employment in USA from 1947
to 2010 ............................................................................................................................. 126
Figure 6.8: Proposed composition of the steering committee responsible for the
Linkage Initiative ............................................................................................................. 133
ix
TABLE OF TABLES
Table 1.1: 2000 – 2010 Income gini coefficients of selected countries ......................2
Table 1.2: The example of beneficiation stages in South Africa..................................3
Table 1.3: Selected minerals and downstream beneficiation .......................................9
Table 1.4: Scenarios of South African unemployment levels from 2010 to 2025 ...10
Table 2.1: Backward linkage inputs with import component included ......................23
Table 2.2: Backward linkage inputs with import component excluded .....................24
Table 2.3: Forward linkages outputs with import component included .....................25
Table 2.4: Forward linkage outputs with import component excluded ......................25
Table 2.5: Typical mining multipliers in South Africa ...................................................26
Table 3.1: Top eight Johannesburg based Mining Houses in 1907 ..........................37
Table 4.1: Mining degrees and diplomas offered by South African universities .....65
Table 4.2: Number of first year mining engineering students at Wits .......................66
Table 6.1: Public business development agencies in South Africa ...........................98
Table 6.2: Classification of large, medium and small businesses in South Africa
based on annual turnover ............................................................................................. 102
Table 6.3: Selected contribution of economic sectors to GDP in the second quarter
of 2012 according to company size ............................................................................. 102
Table 6.4: South African production of selected minerals and metals in 2008..... 104
Table 6.5: South African production of selected beneficiated metals in 2008 ...... 105
xLIST OF ABBREVIATIONS
AEMFC African Exploration Mining & Finance Corporation
BEE Black Economic Empowerment
BRICS Brazil, Russia, India, China and South Africa
BUSA Business Unity South Africa
CMSA Chamber of Mines of South Africa
CSIR Council for Scientific and Industrial Research
DBE Department of Basic Education
DBSA Development Bank of South Africa
DED Department of Economic Development
DHE&T Department of Higher Education and Training
DME Department of Minerals and Energy
DMR Department of Mineral Resources
DST Department of Science and Technology
DTI Department of Trade and Industry
GDP Gross Domestic Product
HDSA Historically disadvantaged South African
IDC Industrial Development Corporation
I/O Input-Output Analysis
MEC Mineral-energy-complex
MIT Massachusetts Institute of Technology
MPRDA Mineral and Petroleum Resources Development Act
Nedlac National Economic Development and Labour Council
NRF National Research Foundation
NUM National Union of Mineworkers
OEM Original Equipment Manufactures
PGM Platinum Group Minerals
PhD Doctor of Philosophy (doctorate degree)
xi
PI Primary Industry
R&D Research and development
RSA Republic of South Africa
SADC Southern African Development Community
SDA Skills Development Act
SIMRAC Safety in Mine Research Advisory Council
SOE State Owned Enterprise
SUT Supply Use Table
TU Technology Usage
UP University of Pretoria
UJ University of Johannesburg
UNISA University of South Africa
USA United States of America
USSR Union of Soviet Socialist Republics
WBS Wits University Business School
Wits University of the Witwatersrand, Johannesburg
xii
LIST OF SYMBOLS
$ USA Dollar
km kilometre
kt thousand metric tonnes
Mt million metric tonnes
R South African Rand
T metric tonne and equals to 1000 kilogrammes (kg)
Ton Imperial ton and equals to = 1 016.04691 kg
Tpa metric tonnes per annum
11. INTRODUCTION
1.1. Overview of mineral sector economics in South Africa
South Africa is blessed with mineral endowment to the extent that in 2008
“approximately 53 different minerals were produced from 1 515 mines and
quarries” (DMR, 2009a: p1). Despite this enormous economic potential, South
Africa has a high unemployment rate hovering at approximately 25% compared,
for example, to other BRICS countries with the unemployment rate in Russia,
Brazil, China and India being at 6.6%, 6.7%, 9.6% and 10.7% respectively in 2010
(SAIRR, 2011).
In addition to the problem of the South African unemployment rate, there is also a
problem of dependence on social grants for those living in poverty. It was
estimated that there were 5.2 million South African registered tax payers in 2008,
and 13 million social grants recipients. Out of the 13 million, 8.8 million were
children (SAIRR, 2011 and Jacobs et al, 2010).
One of the benefits of social grants so far, according to Jacobs et al (2010), has
been their ability to narrow down the inequality gap in South Africa. At one stage
South Africa was one of the most unequal societies in the world with a gini
coefficient of 0.681. A coefficient of one (1) in this case would indicate a society
where one person earns all the income and the rest of the working populace earn
1 Source: http://www.sabinetlaw.co.za/presidency/articles/government-releases-development-indicators-
2010
2nothing, while a coefficient of zero (0) would indicate a society where all the
working populace earn the same income.
According to HDR (2010) the average South African income gini coefficient
between 2000 and 2010 was 0.578, an improvement attributed to social grants.
Irrespective, the income gini coefficient of 0.578 was the worst in the BRICS
countries and relatively unimpressive compared to some of the SADC countries
despite South Africa being the regional economic power (see Table 1.1).
Table 1.1: 2000 – 2010 Income gini coefficients of selected countries
BRICS Countries Selected SADC Countries
Country 2000 – 2010 Incomegini coefficient Country
2000 – 2010 Income
gini coefficient
India 0.368 Mozambique 0.471
China 0.415 Swaziland 0.507
Russia 0.437 Zimbabwe 0.510
Brazil 0.550 Lesotho 0.525
South Africa 0.578 South Africa 0.578
Botswana 0.610
Namibia 0.743
Source: HDR (2010)
It can be argued that the burden of social grants on a small pool of tax payers and
companies is not sustainable in the long term if deliberate actions are not taken.
Assertion is made here that a viable method of bridging the inequality gap has to
come from a sustainable economic model that will result in economic growth and
creation of entrepreneurial opportunities. A window of opportunity, as argued in
this research report, is the intensification of mineral beneficiation accompanied by
economic linkages in the economy.
3According to the South African government, there are four stages of beneficiation,
namely primary, secondary, tertiary and final stages (Table 1.2). The primary
stage comprises of activities such as mining, recovery, reduction and smelting with
the emphasis being on the conversion of raw minerals into concentrates. The
secondary stage is a transition stage between mining sector and industrial sector,
and is largely concerned with the conversion of mineral concentrates into
intermediate products. The tertiary stage involves refinement of intermediate
products to produce high-value intermediate products. Lastly the final stage
involves manufacturing of final products (MPRDA, 2002).
Table 1.2: The example of beneficiation stages in South Africa2
Stages of
Beneficiation Metals Industrial Minerals
Primary Saleable smelted products (coppercathode)
Processed raw material (granite
blocks)
Secondary Fabricated alloys and metals (coppertubes)
Basic final products (granite slabs)
Tertiary Semi-manufactures articles(armatures)
Refined products (polished granite
tops)
Final Fabricated articles (electric motors) Fabricated articles (graniteworkstations)
Adapted from Robinson and von Below (1990)
All mines in South Africa are involved in the primary beneficiation of their products
when considering that at least all mines undertake a mining activity of some sort.
The debate of mineral beneficiation in South Africa should therefore revolve
around secondary, tertiary and final stages. These are the stages where industrial
competency has an upper hand in relation to mining. In South Africa, industrial
2 Table 1.2 should be read in conjunction with Figure 1.2.
4activities fall under the domain of the Department of Trade and Industry (DTI)
while mining activities fall under the Department of Mineral Resources (DMR).
The industrial sector on the other hand is both the supplier and customer of the
mining sector within a symbiotic relationship generally referred to as the mineral
sector. Logically it would be expected that this symbiotic relationship within the
South African mineral sector would result in higher levels of mineral beneficiation.
On the contrary, mineral beneficiation amounting to only R40 billion was achieved
in 2009 compared to raw mineral sales of R225 billion (DTI, 2010). That being the
case, Jourdan (2001) asserted that the classification process under the Standard
Industrial Classification undermines the contribution of the South African industrial
sector in the mineral beneficiation value chain.
Industrial processes, in particular manufacturing, are important downstream
activities in the mineral sector. Manufacturing is generally regarded as having a
higher potential than mining to create job opportunities for low skilled people
because of its high labour absorbency. On the other hand mining, especially at the
scale at which it takes place in South Africa, is capital intensive. One of the
characteristics of capital intensive industries is their low labour absorptive capacity
(especially of non-skilled personnel).
This was illustrated by Pegg (2006) when pointing out that Sadiola Gold Mine in
Mali created approximately one mining job per $700,000 invested. In another case
Randgold created one job for every $1.23 million invested to develop a new mine
in Mali (Pegg, 2006).
5Davis (1998) earlier pointed that mining industries internationally have low labour
absorptive capacity with two thirds of mining countries in the world having less
than 3.5% of their total working force employed in their respective mining
industries. In 2008 the South African mining industry employed only 3.3% of the
country’s work-force in non-agricultural formal sector (DMR, 2009a).
The ability of the mining industry to create significant employment opportunities
rests in its symbiotic relationship with the industrial sector. It is from this premise
that this report seeks to provide a plausible solution to the problem of the inability
to create meaningful employment opportunities in the mineral sector such that
issues of unemployment, inequality and poverty in South Africa are addressed.
In so doing, this report will seek to develop a model that could enhance the South
African mining competency and knowledge while creating a fertile ground for the
growth of the secondary and tertiary industries. The model will incorporate
research and enterprise development components. The envisaged model will take
cognisance of the South African Mining Charter and relevant industry initiatives.
The model will also draw from established theories such as backward and forward
linkages, input-output (I-O) analysis and economic clusters.
61.2. Motivation for research
1.2.1. Mining and mineral beneficiation
South Africa has a long modern history of mining dating as far back as 1846 when
the British acquired a copper mine in Namaqualand from the Dutch. Forty years
later the discovery of gold in the Witwatersrand basin firmly put South Africa on
the mining radar. Hundred and sixty years later, after the dawn of modern history
of mining in South Africa, there were approximately 1 515 operating mines and
quarries in the country producing 53 different minerals. Furthermore it was
estimated that in 2009 there were 5 906 abandoned mines and shafts that had to
be rehabilitated at an estimated conservative cost of R30 billion, with 1 730 of
them considered as high risk (DMR, 2009a and Auditor General, 2009).
Despite a period of more than a century and half of mining, Citibank in 2010 stated
that South African’s known in-situ mineral resources were worth $2.5 trillion, the
largest in the world then (see Figure 1.1). Some analysts viewed the Citibank’s
statement as an opportunity for South Africa to come up with a long term plan for
mineral beneficiation (Creamer, 2010).
Currently very little of South African minerals are beneficiated beyond primary
stage. A decade ago Mintek et al (2000) established that a ton of stainless steel
containing chromium was worth 147 times more than a ton of chromium in
chromite ore and the value of polished diamonds was between 30 and 173 times
7more than that of rough diamonds depending on where they were along the value
chain3.
Figure 1.1: Top 10 in-situ minerals resource value by country
Source: Citibank in Baxter (2011)
The benefits of higher stages of mineral beneficiation are clearly evident when one
looks at the South African ferrous industry. In 2008 a sale of 65.4Mt of ferrous ore
realised R45 billion in revenue whereas a sale of 4.2Mt of processed ferrous
metals realised a revenue of R52 billion. In the same year the total sale of South
African minerals (excluding diamonds and strategic minerals) was R300.3 billion
(DMR, 2009a).
3 Subject to size (carat), clarity, colour and cut
8By beneficiating more minerals along the mining value chain, the country would
not only generate more tax revenue from the growth in value of beneficiated
minerals as shown in Figure 1.2, but would also be creating more job
opportunities when new companies or divisions are established to provide
products and services to the mineral sector along the entire value chain.
According to the DMR (2009b), South Africa will benefit enormously by
beneficiating the ten minerals shown in Table 1.3.
Figure 1.2: Mineral beneficiation along the value chain
Source: Mtegha (2009)
9Table 1.3: Selected minerals and downstream beneficiation
Selected Commodities
Selected Value
Chains Go
ld
PG
Ms
Dia
mo
nd
s
Iro
n O
re
Ch
rom
ium
Ma
ng
an
es
e
Va
na
diu
m
Nic
ke
l
Tit
an
ium
Co
al 
&
Ur
an
ium
Energy 
Steel/Stainless steel     
Pigment production 
Auto-catalyst and
diesel particulate 
Diamond processing
and jewellery   
Source: DMR (2009b)
1.2.2. South African unemployment rate
As stated earlier, South Africa has a persistently high official unemployment rate
hovering at 25%. The situation becomes gloomier when the extended definition of
unemployment rate4 is considered. Under the extended definition, the South
African unemployment rate reached 42.5% in 2003 and eased to 34.3% in 2007
(Kingdon and Knight, 2009).
Another perspective of unemployment situation in South Africa was provided by
Business Unity South Africa (BUSA), which developed three scenarios for the
official unemployment rate trajectory in South Africa using output elasticity of
employment methodology and GDP growth (Table 1.4). The employment growth in
the three scenarios was projected from 2010 to 2025 using the 2010 official
4 Extended definition of unemployment includes those individuals who are capable of working but are
discouraged to look for work, whereas official unemployment rate takes into account only those who are
actively looking for a job.
10
unemployment rate of 25.3% as the base. The projected South African
employment growth was compared to that of Malaysia.
Table 1.4: Scenarios of South African unemployment levels from 2010 to 2025
LEVEL OF UNEMPLOYMENT (expressed as a percentage)
Average Road
3 % GDP Growth Rate per
annum
High Road
7 % GDP Growth Rate per
annum
Very High Road
9 % GDP Growth Rate per
annum
Year Malaysia SouthAfrica Malaysia
South
Africa Malaysia
South
Africa
2010 25.30% 25.30% 25.30% 25.30% 25.30% 25.30%
2015 23% 26,9% 15,4 % 24,2% 11,4 % 23%
2020 19,7% 27% 3,1 % 22,2% - 19,7%
2025 16,6% 27,7% - 20,5% - 16,6%
Source: BUSA (2010)
From Table 1.4 it can be seen that at the South African historical GDP growth of
3%, the official unemployment rate in South Africa would have deteriorated to 27%
in 2025 compared to a reduction of almost 9% in Malaysia. At the GDP growth of
9%, it is forecasted that the unemployment rate in South Africa will only drop to
16.6% by 2025 compared to 0% in Malaysia.
From the empirical study of BUSA (2010), it can be concluded that GDP growth in
exclusion of other employment generating policies will yield suboptimal results in
South Africa. This was the case between 2000 and 2008 when South Africa was
criticised for having a jobless economic growth (BUSA, 2010).
To reduce unemployment rate and realise economic growth, South Africa needs a
wholesale review of policies targeting services, outsource, value chain,
11
knowledge, bio-, green, leisure and grey industries5 (BUSA, 2010). Most of these
industries are part of the fast growing tertiary sector of the South African economy
with few featuring in the secondary sector dominated by manufacturing. Although
the importance of the above mentioned industries in recent times (with the
exception of the grey industry) is acknowledged, it is however asserted in this
report that the primary sector of the economy, in particular mining, can still
contribute significantly to the economic well-being of the country. Through its
connectedness in the South African economy, mining can stimulate growth in
secondary and tertiary sectors of the economy if appropriate policies are adopted.
For example the resource-based research that is linked to mining and mineral
beneficiation competency and enterprise development could be engineered to
create the required labour absorptive employment opportunities in the
manufacturing industry, with finance provided by institutions in the tertiary sector.
1.3. Proposed research outcomes
This research report aims to achieve the following research outcomes:
• To provide the understanding of how economic linkages between mining and
other sectors can be used to create employment opportunities in South
Africa. Employment opportunities in the context of this report means the
potential and not actual jobs created.
• To develop a South African mineral sector linkage model that incorporates
research and development (R&D); a network of supporting agents such as
5 Grey industries are those industries that operate outside the regulatory system and will include but not
limited to illegal drug dealing, human trafficking, prostitution and all prohibited trading.
12
government departments; Science Councils6; universities; and enterprise
development agencies, with the ultimate aim of creating employment
opportunities in the mineral sector.
1.4. Scope of the study
The successful completion of this study will largely depend on focusing on the
following areas.
a. A history of mineral beneficiation in the South African mineral sector and its
multiplier effect.
b. Analysis and extent of economic linkages created by the mining industry in
South Africa with the view of identifying areas that could provide South
Africa with a competitive edge.
c. Identification of bottlenecks that could hinder adequate level of resource-
based research in the mineral sector.
The scope of this study will be confined to the South African mineral sector
although lessons may be drawn from other local economic sectors and
international experiences where appropriate.
1.5. Contents of the research report
• Section 1 introduces the research topic by giving a general overview of the
significance of the South African mining industry in the economy and socio-
6 Science Councils refer to CSIR, Mintek and Council for Geoscience (CGS).
13
economic problems the country is facing. Furthermore section 1 outlines the
motivation for the research and objectives that should be met.
• Section 2 touches briefly on the resource-based theories. In particular it
focuses on the economic linkage theory, the multiplier effects of mining in the
economy, and the nature of enterprise clustering brought about by mining in
South Africa.
• Section 3 looks at the 160 years of modern history of mining in South Africa
and the impact that the politics have on mining.
• Section 4 briefly touches on the case studies of products and services
developed in South Africa in the past 100 years as a result of mining
activities. This section also reviews the role that Science Councils and
universities play with regard to resource-based research and beneficiation.
• Section 5 looks at how mining research unfolded in the South African mining
industry after the Chamber of Mines of South Africa Research Organisation
(COMRO) was absorbed by the Council of Scientific and Industrial Research
(CSIR) in 1993.
• Section 6 discusses six components or pillars of the Resource-based
Research and Enterprise Development Model and the implementation
thereof.
• Lastly, the conclusion section summarises salient points coming out of this
research report.
14
2. RESOURCE-BASED THEORIES
2.1. Introduction
Over the years there have been many resource-based theories developed such as
‘economics of exhaustible resources’ by Hotelling, ‘mining rent’ by Smith and
Ricardo, ‘backward and forward linkages’ by Hirschman, ‘input-output analysis’ by
Leontief, and ‘intensity of metal use’ by Malenbaum. Notwithstanding the extensive
coverage of resource-based theories elsewhere, this chapter will focus on the
economic linkage theory, industrial clustering, and mining multiplier effects as they
apply in the South African economy.
2.2. Economic linkages
Economic linkages arise when economic activities in one industry lead to
economic growth in other industries and/or the emergence of new industries.
Fundamentally economic linkages are forward or backward biased. Forward
biased linkages are called forward linkages whereas backward biased linkages are
called backward linkages (Hirschman, 1958).
Hirschman postulated that the effects of economic linkages depend on whether a
primary industry (i.e. an industry that generates the demand) is important or is
strong. The difference between these two forms of industries is that important
primary industries may not necessarily create new industries in the local economy
while strong primary industries invariably create new industries in the local
economy.
15
Given the connectedness of mining in the South African economy today, it can be
hypothesised that the current form of the South African economy has its origin in
mining. This hypothesis is not is not far-fetched when considering that mining has
given rise to the South African industrial sector and the stock exchange among
others. Through synthesis it can be concluded that the South African mining
industry in the past (and possibly even today) was a strong industry with the ability
to give rise to backward and forward linkages.
A forward linkage is also known as a downstream linkage, which is basically a
beneficiation or value-adding activities by downstream industries. In the case of
mining, in the South African context, downstream industries would largely be found
within the industrial sector (e.g. steel and chemical sectors). A backward linkage or
an upstream linkage, on the other hand, arises because of economic relationship
between the primary industry and its suppliers (e.g. exploration). Therefore the
economic chain entails procuring from backward linkages in order to supply
forward linkages.
In recent times it has been accepted that there are also two additional types of
economic linkages. The third type is called lateral linkage. According to Lydall
(2009: p112) the lateral linkage arises “from the modification and application of
generic technologies to other industrial sectors”. This largely stems from the
interaction of the primary industry or mining industry, in this case, with its service
providers on one hand and the interaction between service providers on the other
hand. According to Jourdan (2001) the application of modified generic
16
technologies across various industries in the South African mineral sector is due to
multiplier effects of lateral linkages of the mining industry in the economy.
Hirschman placed much more value on backward linkages than on forward
linkages in developing countries, stating that forward linkages could never occur in
pure form, as they are always accompanied by backwards linkages. In countries
where industries are not yet developed, Hirschman postulated that it would be
much easier to establish backward linkages from the final product and
systematically move backwards along the value chain until an industry that
produces a primary product is established.
In analysing backward linkages in depth, Lydall (2009: p112) came up with three
types (possibly pointing to the importance of backward linkages as mentioned by
Hirschman earlier). Using the platinum group metals (PGM) sector as an example,
Lydall described the first type as a vertical backward linkage “which generally arise
as a consequence of the demand at the producer level for a particular product and
service”. The second type was described as a horizontal backward linkage typified
by “research partnerships and close interaction between supplier firms, mining
companies, and related and supporting industries over a long period of time
around to solve common industry challenges”. The third type was described as
“technological or production-related linkages, which arise as a result of the
introduction of new technologies or an improvement of existing systems in the
various stages” of system or entity life.
17
Hirschman (1958) also posited that where primary industries employ primitive
means of production, the extent of backward linkages will be limited compared to
where modern technology is employed. Similarly mines with primitive means of
production will develop weak linkages with their suppliers and customers.
The implication is that technology in mining is important. Modern mines are capital
intensive entities and the more they are designed to use modern technology, the
higher is the likelihood that they will develop stronger linkages in the economy.
Given that mines are linked to other industries internationally through their import
and export capability, it does not automatically mean that the benefits of these
linkages will accrue locally unless there is a clear policy in this regard.
Figure 2.1 shows mining value chain with local forward, backward and lateral
linkages that could be created as a direct consequence of an operational mine. On
the other hand Figure 1.2 shows the value of mining products and corresponding
employment opportunities along the mineral sector value chain. Situations
depicted in Figure 1.2 and Figure 2.1 could take place at regional, national or
global level. The implication being that while mining is beneficial in one way or the
other, it does not necessarily mean it will benefit local economies all the time.
Mines are established because there is a deposit that could be mined
economically. The establishment of mines and subsequent recapitalisation will
induce the development of financial instruments in the financial sector. Similarly,
the development of mines and subsequent operation will induce the demand of
goods and services from the industrial and services sectors. Mines and their
18
suppliers and customers will further require skilled human resources to meet their
obligations to each other. The capacity of local institutions and companies to
supply mines and beneficiate mining outputs will largely determine the extent to
which mining benefits accrue locally.
Figure 2.1: Mining value chain and economic linkages
The establishment of mines and their local (regional or national) benefits lead to a
fourth type of economic linkage called fiscal linkage. According to Eggert (2001:
p22) the fiscal linkage arises out of “tax and royalty revenues regional
governments use to develop infrastructure such as hospitals and schools and to
purchase other goods and services”. A good example would be the use of royalty
revenue from Impala Platinum by Bafokeng nation to develop their ancestral land
of Phokeng near Rustenburg.
19
2.3. Industrial clusters
The success of economic linkages largely depends on the nature of clusters in the
economy. Walker (2005: p2) defined a cluster as “a concentration of expertise
among closely linked industries and companies in which extensive investment in
specialised factors of production catalyses a positive growth trajectory”.
Porter (1990) identified four characteristics of clusters. Firstly, clusters generally
tend to concentrate geographically. Companies agglomerate around customers,
inputs sources or access to information. Secondly, clustering is competitive by
nature. This character of clustering forces companies to be innovative in order to
survive or outsmart competition which in turn grows the industry. Thirdly, clustering
is supportive, i.e. group of companies within the cluster support each other through
provision of inputs, customer diversification and spread of information through
interaction with customers and mobility of expertise. Fourthly, clustering safeguard
against inertia, inflexibility and inward focus that could hold the industry back.
In the South African mineral sector, clustering “has a distinct geographic and
spatial dimension” (Walker and Minnitt, 2006: p14). Companies mining the same
commodity tend to agglomerate geographically due to the concentration of
minerals in specific areas. For example, locations of coal mines are dictated by
geographical location of coalfields, similarly location of platinum mines is dictated
by geographical location of the Bushveld Complex or the Witwatersrand basin in
the case of gold mines. Generally there is a high concentration of mines in
Mpumalanga, Limpopo, Northwest and Gauteng Provinces, and to a lesser extent
in Free State and Northern Cape Provinces. The location of mines on the other
20
hand tends to determine the location of concentrators while refineries cluster
around places where it is cheaper to access electricity and feedstock (Walker and
Minnitt, 2006).
Heavy industrial engineering companies tend to cluster in Ekhuruleni, while
consulting agencies, financial institutions and software development companies
tend to cluster around Johannesburg, both being metropolitans in the Gauteng
Province. This type of clustering could be due to the legacy of gold mining in the
Witwatersrand basin. Similarly research institutions and universities that deal with
the mineral sector are generally located in the Gauteng Province. While
companies, institutions and universities that interact with the mineral sector have
fixed locations, they also have national presence which characterise their spatial
coverage.
According to Walker (2005), the South African mining industry has two tiers of
supplier companies. The first tier consists of companies that deal directly with
mining companies which include engineering consultancy firms, original equipment
manufacturers, input suppliers, agents, and distributors. The second tier consists
of subcontractors and input suppliers (e.g. components and consumables) that
service the first tier companies. The number of people employed tends to increase
as the supply chain moves further away from the primary industry (Walker and
Minnitt, 2006). This phenomenon leads to employment multiplier effect that one
would expect in backward linkages.
21
2.4. Economic multipliers
2.4.1. Input-output analysis of the South African mining industry
Wassily Leontief is regarded as the father of input-output (I/O) analysis which has
its origins in the works of classical economists such as Adam Smith and David
Ricardo (Kurz and Lager, 2000). “Input-output analysis is a basic method of
quantitative economics that portrays macroeconomic activity as a system of
interrelated goods and services”7. In developing I/O model, a country or a region is
divided into sectors representing economic activities and the flow of inputs
(products, services and labour) and outputs (products and services) between
these sectors is then quantified in monetary terms.
The intensity of intra-sector purchases and sales within the I/O model constitutes
the connectedness or linkages in the economy whereas the final demand
represents exports of goods and services, and consumption by government and
households. The gross sector output achieved to meet the final demand indicates
the multiplier effect within the economy or the ‘buy and sell chain reaction’ across
industries caused by the initial demand. Theoretically the ‘buy and sell chain
reaction’ is terminated by taxes, imports, savings and profit repatriation (Coughlin
and Mandelbaum, 1991).
In the context of this report, it will be assumed that the demand is initiated by
mining companies. The effects of the demand or the interaction between mining
7 Source: http://www.referenceforbusiness.com/encyclopedia/Inc-Int/Input-Output-Analysis.html.
Accessed 10 April 2011.
22
companies and their suppliers and customers result in multipliers that reverberate
throughout the economy.
To determine the value of economic multipliers, governments (Statistics South
Africa in the case of South Africa) produces I/O models called Supply-Use Tables
(SUT) prepared in accordance with the guidelines of 1993 or 2008 System of
National Accounts.
According to Stilwell et al (2000: p20) the following are assumptions made when
compiling SUT:
• The models are final demand driven;
• different production activities are grouped into homogeneous sectors, each
producing one product type;
• there is no substitution of intermediate inputs;
• each sector’s demand or intermediate inputs changes in direct proportion to
the output from that sector; and
• no technological change occurs during a period of measurements.
Take for example the analysis of the 2003 South African SUT by Tregenna (2007).
It can be observed in Table 2.1 (reading from top to down) that important sectors
to the mining industry in so far as inputs were concerned were services (28.4%),
labour (24.6%), transport (21.9%) and manufacturing (15.2%). When the import
component was excluded from mining inputs as shown in Table 2.2, local services,
labour, transport, and manufacturing contributed 26.4%, 34.4%, 19.9% and 9.4%
23
of mining inputs respectively. The difference between Table 2.1 and Table 2.2
arise due to the import component of mining inputs from different sectors. When
considering that services, transport and manufacturing inputs into the mining
industry are generally provided by agents of multinational companies registered in
South Africa and not to mention that these agents are sourcing their products and
services abroad, it can be deduced that the mining import component (the
difference between Table 2.1 and Table 2.2) is a lot higher than stipulated.
Table 2.1: Backward linkage inputs with import component included
Ag
ric
ult
ure
Mi
nin
g
Ma
nu
fac
tur
ing
Ele
ctr
ici
ty 
ga
s
an
d w
ate
r
Co
ns
tru
cti
on
Tra
de
Tra
ns
po
rt
Fin
an
ce
CS
P
Go
ve
rnm
en
t
Se
rvi
ce
s t
ota
l
Agriculture 2.4 0 4.9 0 0 0.2 0 0 0.1 0.1 0.1
Mining 0.7 0.5 10.8 16 4.3 0 0.2 0.2 0.3 0.3 0.2
Manufacturing 31.1 15.2 38.4 7.9 33.9 9 21.2 7.1 14.5 10.2 11.8
EGW 1 2.3 1.2 15.7 0.3 1.1 1.4 0.6 1.1 0.4 1
Construction 0.3 0.6 0 3.4 19 0.9 0.4 1.2 0.6 0.8 0.9
Trade 6 2.6 7.2 2 4.1 6.2 8.7 4 6.1 2.9 6
Transport 7.6 21.9 3.8 1.7 2.1 10.4 14.3 5.4 4.2 3.4 8.7
Finance 2.8 2.6 6.3 5.3 8.2 17.9 8.1 23.7 19.1 5.3 18
CSP 2.6 1.3 1.4 0 0.3 0.3 0.4 1.5 2.1 3.6 1
Government 0 0 0 0 0 0 0 0.1 0.9 4.7 0.1
Services 18.9 28.4 18.7 9 14.6 34.9 31.5 34.7 31.5 15.1 33.6
Labour 26.6 24.6 7.3 39 13.2 19.1 13.8 21.5 19.5 53.2 18.6
Total 100 100 100 100 100 100 100 100 100 100 100
Source: Tregenna (2007)
24
Table 2.2: Backward linkage inputs with import component excluded
Ag
ric
ult
ure
Mi
nin
g
Ma
nu
fac
tur
ing
Ele
ctr
ici
ty 
ga
s
an
d w
ate
r
Co
ns
tru
cti
on
Tra
de
Tra
ns
po
rt
Fin
an
ce
CS
P
Go
ve
rnm
en
t
Se
rvi
ce
s t
ota
l
Agriculture 2.2 0 4.5 0 0 0.2 0 0 0.1 0 0.1
Mining 0.4 0.4 6.1 14.9 2.1 0 0.1 0.2 0.2 0.2 0.1
Manufacturing 22.5 9.4 27.8 5.2 25.7 7.3 12.9 5.1 9.2 6.5 8
EGW 1 2.3 1.2 15.6 0.3 1.1 1.4 0.6 1.1 0.4 1
Construction 0.4 0.7 0 4 22.1 1.3 0.5 1.6 0.8 0.8 1.2
Trade 6 2.6 7.2 1.9 3.8 6.1 8.6 3.9 6 2.8 5.9
Transport 6.9 19.9 3.5 1.5 1.8 9.9 13.6 5.1 4 3.1 8.2
Finance 2.7 2.5 6 5.1 7.3 17.2 7.8 23 18.1 4.9 17.3
CSP 2.5 1.4 1.5 0 0.3 0.3 0.4 1.5 2.3 3.5 1
Government 0 0 0 0 0 0 0 0 0.8 7.4 0.1
Services 18.2 26.4 18.2 8.5 13.2 33.5 30.4 33.5 30.5 14.3 32.4
Labour 37.2 34.4 24 43.3 23.4 23.1 24.3 25.5 26.9 56.1 24.7
Total 100 100 100 100 100 100 100 100 100 100 100
Source: Tregenna (2007)
With respect to mining outputs or forward linkages, it can be observed in Table
2.3 (when reading across from left to right) that 61.7% of mining outputs were
used as inputs into the manufacturing sector whereas 26.6% was sold directly for
final consumption. When the import component was excluded from the analysis
as shown in Table 2.4, it can be observed that 34.7% of mining outputs were used
in manufacturing while 56.42% was directed for the final consumption. In the case
of Table 2.4, the final consumption includes material sold directly by mines for
final consumption and those exported for further beneficiation outside South
Africa.
Taking manufacturing as an example, the difference between values in Table 2.3
and Table 2.4 is the location of factories (final consumers to some extent). In
Table 2.4, manufacturing is exclusively in South Africa while in Table 2.3 it is
25
anywhere in the world including South Africa. It can therefore be concluded, from
Table 2.3 and Table 2.4, that large quantities of South African mining output by
value are exported to other countries.
Table 2.3: Forward linkages outputs with import component included
Ag
ric
ult
ure
Mi
nin
g
Ma
nu
fac
tur
ing
Ele
ctr
ici
ty 
ga
s
an
d w
ate
r
Co
ns
tru
cti
on
Tra
de
Tra
ns
po
rt
Fin
an
ce
CS
P
Go
ve
rnm
en
t
Fin
al
co
ns
um
pti
on
SU
M
Agriculture 2.4 0.04 63.12 0.01 0.01 0.98 0 0.05 0.21 0.23 32.95 100
Mining 0.3 0.45 61.66 5.83 3.44 0.03 0.31 0.61 0.24 0.53 26.6 100
Manufacturing 2.39 2.67 38.43 0.51 4.79 3.22 6.58 3.53 2.36 3.22 32.3 100
EGW 1.26 6.37 19.43 15.75 0.63 6.13 6.79 5.05 2.76 1.85 33.98 100
Construction 0.18 0.8 0.01 1.52 19.04 2.33 0.77 4.34 0.64 1.77 68.6 100
Trade 1.28 1.27 20.04 0.36 1.62 6.22 7.55 5.61 2.79 2.52 50.74 100
Transport 1.88 12.38 12.27 0.34 0.95 12.07 14.25 8.76 2.2 3.41 31.49 100
Finance 0.43 0.92 12.69 0.68 2.31 12.89 5.02 23.75 6.22 3.34 31.75 100
CSP 1.2 1.45 8.5 0.01 0.22 0.59 0.81 4.47 2.05 6.93 73.77 100
Government 0 0 0 0 0 0 0.03 0.09 0.47 4.75 94.66 100
Services 1.09 3.75 14.06 0.43 1.55 9.4 7.34 13.01 3.85 3.57 41.95 100
Source: Tregenna (2007)
Table 2.4: Forward linkage outputs with import component excluded
Ag
ric
ult
ure
Mi
nin
g
Ma
nu
fac
tur
ing
Ele
ctr
ici
ty 
ga
s
an
d w
ate
r
Co
ns
tru
cti
on
Tra
de
Tra
ns
po
rt
Fin
an
ce
CS
P
Go
ve
rnm
en
t
Fin
al
co
ns
um
pti
on
SU
M
Agriculture 2.21 0.03 58.25 0.01 0.01 0.91 0 0.04 0.2 0.23 38.11 100
Mining 0.16 0.36 34.72 5.42 1.69 0.02 0.17 0.52 0.17 0.35 56.42 100
Manufacturing 1.73 1.65 27.82 0.33 3.64 2.62 4 2.53 1.51 2.12 52.05 100
EGW 1.26 6.34 19.39 15.65 0.59 6.16 6.8 5.03 2.79 1.94 34.05 100
Construction 0.22 0.83 0.01 1.82 22.07 3.25 1.02 5.74 0.87 1.91 62.26 100
Trade 1.28 1.27 20.02 0.35 1.5 6.14 7.42 5.43 2.74 2.52 51.33 100
Transport 1.72 11.29 11.29 0.32 0.83 11.42 13.63 8.25 2.09 3.29 35.87 100
Finance 0.42 0.87 12.05 0.65 2.06 12.33 4.84 22.97 5.92 3.22 34.67 100
CSP 1.18 1.49 8.91 0.01 0.22 0.67 0.83 4.6 2.29 7.03 72.77 100
Government 0 0 0 0 0 0 0.04 0.07 0.4 7.39 92.1 100
Services 1.05 3.48 13.64 0.41 1.4 9.02 7.1 12.57 3.73 3.5 44.1 100
Source: Tregenna (2007)
26
2.4.2. Effects of mining multipliers in South Africa
Table 2.5 shows typical mining multipliers in the South Africa economy (Jones and
Baxter 2002: p83-84).
Table 2.5: Typical mining multipliers in South Africa
Multiplier Description
Social
Construction of infrastructure by mining companies such as
housing, roads, schools and clinics, and provision of utilities such
as electricity and recreational facilities.
Primary incomes Household demand for goods as the consequence of primaryincome derived from the mining industry.
Employment Jobs created in other industries as a consequence of demand orsupply of goods by the mining industry.
Income terms-of-trade
Net positive effect on balance of payments, foreign reserves,
monetary policy and general business confidence induced by
mining exports.
Capital formation Positive effect by the mining industry in attracting inflow of foreigncapital and generating domestic capital as well.
The size of mining multipliers in the economy is generally dependent on the scale
of mining. On the other hand the scale of mining largely depends on the level of
technology employed. The relationship between mining multipliers and the rest of
the economy is proportional to the amount of money invested in the region by
primary industries (mining in this case) and in turn this investment depends on
three factors namely, the size of the region, the current level of development (e.g.
urban or rural), and the proximity of the region to other well-developed regions. For
27
example the bigger the region, the more likely it will satisfy the demand of the
mining industry. The more developed the region, the more likely it will absorb
outputs of mining industry as well as satisfying its demand. The proximity of a
mining region to a well-developed region will likely undermine the mining multiplier
effects in the mining region in favour of the well-developed region (Eggert, 2001).
Consider Gauteng Province in South Africa. This province is a home to the South
African manufacturing hub in Ekhuruleni and financial sector hub in Johannesburg
with software specialists and consultants spreading throughout the province. In
addition it is the second highest populated province in the country with the highest
concentration of professionals and skilled people. It is for these factors that the
Gauteng Province is well poised to satisfy the demand of mining (inputs) as well
as beneficiating mining outputs. According to Eggert’s argument, mining multipliers
in the Gauteng Province should be stronger than anywhere else in the country.
On the other hand the eastern limb of the Bushveld complex in the Limpopo
Province is not a well-developed region and its proximity to the Gauteng Province
is expected to undermine its mining multipliers according to Eggert (2001). The
Mpumalanga Province is inferior to the Gauteng Province in all aspects related to
mining apart from the abundance of coal and platinum group metal (PGM)
deposits, and the land mass. The mining of PGMs is similar to that of gold and due
to this reason, PGM mines in the Bushveld Complex are more likely to attract
commuting professionals and skilled labour from the Gauteng Province. These
professionals and skilled labour are likely to spend their income in the Gauteng
Province instead of Mpumalanga Province. Furthermore products and services are
28
likely to be sourced from the Gauteng Province, an act that will further undermine
local enterprise development initiatives in the Mpumalanga Province.
What takes place on a provincial level also takes place on a country level.
Resource countries tend to send their raw materials to developed countries for
beneficiation due to a lack of local capacity. The best option in this regard is for
resources countries to maximise their mining multipliers by increasing the amount
of money invested locally and minimise leakages in a form of unbeneficiated
exports. Admittedly, it is a difficult task in the current environment of globalisation
and multi-nationalism.
2.5. Concluding Remarks
There are many resource theories such as the economics of exhaustible
resources, mining rent, backward and forward linkages, input-output analysis and
intensity of metal use that can be used to quantify the importance of resources in a
country. In the case of South Africa the author opted to create a better
understanding of the effects of mining in the economy through the economic
linkage theory, industrial clustering and mining multipliers. This was achieved by
incorporating the input-output analysis theory, which is generally translated into
SUT by governments.
Over the years the economic linkage theory was expanded from its original two-
dimensional backward and forward biased theory to a four-dimensional theory by
incorporating lateral and fiscal linkages. A four dimensional view of the economic
29
linkage theory is relevant to the South African mining industry because of its
connectedness in the economy.
Hirschman (1958) placed much more value on backward linkages in developing
countries because of their multiplier effects. To this effect Lydall (2009) identified
three forms of backward linkages, namely vertical backward, horizontal backward
and technological linkages. The latter has the ability to spill over into other
industries when new technologies emerge or existing technologies are modified.
Economic linkages manifest themselves through economic multipliers. Jones and
Baxter (2002) identified five primary mining multipliers in South Africa, namely
social, primary incomes, employment, income terms-of-trade and capital
formation. To this effect, assertion is made that technology intensive mines will
lead to much more entrenched mining multipliers due to the spill over effects of
technological backward linkages. It is also believed that the development of
technology will flourish under the industrial clustering strategy. The advantages of
industrial clustering, among others, are their ability to raise the level of technology
employed or supplied because of their competitive nature and ability to safeguard
against technology inertia due to the ease of mobility of customers and expertise
between different companies within the cluster.
The downfall of clustering in the South African context would be that the emerging
PGM sector in the Mpumalanga Province will not result in the expected economic
benefits because of its proximity to the Gauteng Province. The latter has well
established clusters in Ekhuruleni and Johannesburg.
30
On a national level, the analysis of the South African SUT by Tregenna (2007)
paints a picture where the mining industry exports most of its products while
significantly relying on imported inputs. However the author would like to believe
that this situation can be rectified if there is a political will to change. It should be
noted this change is imperative because mining is the cornerstone of the South
Africa economy with a long illustrious history of tenacity and ingenuity.
31
3. A BRIEF HISTORY OF MINING IN SOUTH AFRICA
3.1. Introduction
Mining is a significant component of the South African economy. The contribution
of mining to the economy can be traced as far back as 1870 when diamond
bearing kimberlite pipes were discovered in Kimberley. The Kimberley diamond
pipes were so significant to the extent that South Africa replaced Brazil as an
important source of diamonds for the European market (Letcher, 1936).
In retrospect, diamond mining was a crucial training ground for managers and
financiers who would later play a crucial role of building a vibrant gold mining
sector from scratch in the Witwatersrand basin. While the city of Kimberley was
established by diamond miners and merchants, gold mining in the Witwatersrand
basin resulted in the creation of Johannesburg. Gold in the Witwatersrand basin
attracted professionals across the globe and gave rise to the notion of Mining
Houses8. Difficulties experienced in the early days of gold mining led to the
establishment of the Chamber of Mines of South Africa (CMSA) and under its
leadership many interesting inventions were made that led to the growth of mining
in general.
8 Financial corporations established to finance mining ventures
32
3.2. Pre-Witwatersrand mining
South Africa has a long history of mining dating as far back as 1000 years ago
when copper was mined and smelted in Phalaborwa9 (see Figure 3.1).
Archaeologists also discovered that inhabitants of Mapungubwe, an ancient
civilisation not too far from Phalaborwa, traded with other civilisations such as
those of China, Egypt and Middle East in refined iron, copper and gold among
others10. In addition, there is a body of evidence that shows that gold was mined
centuries ago in the district of Lydenburg-Pilgrim’s Rest (Letcher, 1936).
Figure 3.1: Early history of mining in South Africa
Adapted from http://www.distinctiveafrica.com/Map%20of%20South%20Africa.htm
9 Source: http://www.phalaborwa.org.za/service_mining.htm
10 Source: http://www.mapungubwe.com/cultural.htm
33
At the beginning of the sixteenth century Portuguese explorers encountered Arab
merchants along the south-eastern coast of Africa. They learned from the Arabs of
the availability of gold inland. Upon receiving this information, they drove Arabs off
the south-eastern coast of Africa and established trade relationships with Africans,
possibly with the motive of acquiring gold mines (Letcher, 1936).
In the seventieth century the Dutch established a colony in the Cape Peninsula.
While they were in the peninsula, they heard of copper mining in Namaqualand, a
stretch of land along the south-western coast of Africa. Governor Simon van der
Stel sent an expedition team northwards which encountered copper mining
residents of Namaqualand. Upon verification of copper deposits, the Dutch drove
off the locals from their land before establishing a European style copper mine at
Koperberg in 1685 near what is today a town of Springbok. Copper resources at
Koperberg were described as ‘inexhaustible’. Apart from copper, there were also
reports of silver mine near Hout Bay and elsewhere in the Cape Colony, but
proved to be a mere speculation (Botha, 1934).
3.3. Early history of mining in the Witwatersrand basin
Depending on an individual’s point of view and motives, a starting point for the
history of mining in Southern Africa can be anywhere between the times man first
inhabited the southern part of Africa and 1870. Notwithstanding, for the purpose of
this report, the starting point of the modern history of mining in South Africa will be
taken as 1846 when the British took over copper mining in Namaqualand from the
Dutch.
34
After taking over copper mining in Namaqualand from the Dutch, the British
realised that they needed energy source if they were to have a viable economy in
the Cape Colony. The energy requirements of copper mines and industry in the
Cape Colony led to an extensive exploration for coal, perhaps driven by the
knowledge of the importance of coal for a viable industry back at home. After an
extensive exploration, the first colliery was established in the coalfield of
Stormberg in 1864 and soon thereafter other collieries were established in other
coalfields across the country including Bethal where local communities had been
mining coal for many years and the Vereeniging coalfield which played a crucial
role in the development of mines in Kimberley (Pogue, 2006a).
The news about the discovery of coal and other minerals in South Africa spread
throughout the world and soon explorers from USA and Europe were descending
down to the shores of South Africa. There was optimism among these explorers
that bigger and richer deposits would be found and through their relentless efforts,
gold deposits were discovered along the Blyde River. The Blyde River discovery
resulted in a speculative gold rush in 1873 (Pogue, 2006a).
Notably the turn of events that put South Africa on the global mining map started
with the discovery of kimberlite pipes in Kimberley in 1870 and later the discovery
of gold in the Witwatersrand basin in 1886 (Robinson and von Below, 1990). The
discovery of gold in the Witwatersrand basin led to the establishment of
Johannesburg, undoubtedly the most successful mining town in the world. The
vastness of gold deposits (albeit low in grades) in the Witwatersrand basin, led to
35
the establishment of Mining Houses (finance corporations) that carved the
economic landscape of South Africa from their headquarters in Johannesburg.
In the early days of mining in the Witwatersrand basin, mines had to import skills
from the USA, Britain and other European countries. In particular managerial skills
and engineering consultancy were imported from the USA while technical skills
and underground mining expertise were imported from the northern parts of
England. In an attempt to establish local mining capacity, native white11 miners
(mostly Afrikaners) were taught the necessary mining skills in the evening at the
Transvaal Technical Institute12 (Mawby, 2000).
The discovery of gold in the Witwatersrand basin in the 1880s attracted many
diggers. By 1886 many of these diggers realised that the grade and vastness of
the Witwatersrand basin was not suitable for diggings but rather lent itself to
European mining techniques. Soon thereafter several mines were established
along the strike of the Witwatersrand basin outcrop. As the news about the gold
discovery spread, the Kimberley barons such as Barney Barnato and Cecil
Rhodes who made their fortunes from mining diamonds, left Kimberley for
Johannesburg. The barons were fairly experienced in raising capital internationally
as well as managing complex mining ventures (Mawby, 2000).
By 1890, many of small mines in the Witwatersrand basin were facing production
challenges to the extent that this situation precipitated a recession. A combination
of a recession, the complexity of mining gold reefs, and the difficulty of raising
11 White in this case refers to people of European descent
12 A precursor of the University of the Witwatersrand
36
capital led to the consolidation of mining claims. The barons seized the opportunity
by using their capital or access to capital to takeover struggling mines and built
mining empires (Mawby, 2000).
The consolidation of mining claims similar to that of Kimberley gave rise to the
notion of Mining Houses. The nature of Mining Houses was such that they owned
shares and control mines rather than operating them. Mining Houses were
responsible for providing capital, technical assistance and creation of capacity
through cross subsidisation and sharing of overheads. There was a complex cross
shareholding of mining concerns among Mining Houses but in general a mine was
deemed to be under the control of a Mining House with the largest shareholding.
The interesting feature of Mining Houses was their collaboration in finding
solutions to common problems amidst their stiff corporate competition. By 1907
there were eight significant Mining Houses in the Rand accounting for a large
portion of gold production as shown in Table 3.1 (Mawby, 2000).
Many of the Mining Houses in Table 3.1 have their humble beginnings in
Kimberley. For example Consgold was partly financed by the proceeds from De
Beers Consolidated Mines (DBCM). JCI on the other hand was established with
the proceeds from the sale of Barnato Diamond Mining Company to De Beers in
188813. Even Sir Ernest Oppenheimer, the founder of Anglo American
Corporation in 1917, had his initial training in mining in Kimberley.
13 De Beers took over Barnato Diamond Mining Company to form De Beers Consolidated Mines
37
Table 3.1: Top eight Johannesburg based Mining Houses in 1907
Mining House Gold Production
(ounces)
Rand Mines Limited (Corner House or Rand Mines) 182 000
Consolidated Gold Fields (Consgold) 56 000
East Rand Propriety Limited (ERPM) 48 000
Johannesburg Consolidated Investment (JCI) 38 000
Randfontein Estate 32 000
General Mining and Finance Corporation (Genmin) 26 000
Goerz & Company 26 000
S Neumann & Company 26 000
Source: Mawby (2000)
A glance over the history of mining in South Africa reveals a distinct pattern that
moved from diamonds to gold and now PGMs as the dominant sector in terms of
value. Basically diamond mining gave rise to gold mining. Recently gold mining
has given rise to PGM mining. Coal mining has always played a crucial role of
providing energy, initially through the generation of steam and lately through the
generation of electricity and manufacturing of synthetic fuels.
3.4. The establishment of the Chamber of Mines of South Africa
The chaotic administration of claims, fraudsters and misrepresentation of results
by mining officials led to the need to form an association that would look after the
interests of miners in the Witwatersrand basin. To this effect, the Chamber of
Mines was established on 7 December 1887 with the objective of gathering
authentic mining statistics and publishing them periodically. Within two years of its
establishment, the Chamber of Mines collapsed (Lang, 1987). According to Lang
38
the demise of the Chamber of Mines was due to its open membership, where
anyone with slight interest in mining was eligible for membership. Open
membership attracted individuals with differing and ulterior motives who
smothered mine operators with real concerns.
The demise of Chamber of Mines brought forth the realisation of the need for an
industry organisation. On the 5th of October 1889 the Witwatersrand Chamber of
Mines (from here onwards called the Chamber of Mines of South Africa or CMSA)
was formed by industry players which included the Corner House, Consgold and
JCI. This time around the CMSA was focused solely on mining issues, a decision
that led to its enduring life to date despite changing its name numerous times (see
Table 3.2).
Table 3.2: Change of names for the Chamber of Mines of South Africa
Source: Chamber of Mines of South Africa (http://www.bullion.org.za)
Over time the CMSA amended its membership, which corresponded with the
change in the name. Original members of the CMSA were gold mining companies
around Johannesburg. As the political environment changed in South Africa and
Name Period
Witwatersrand Chamber of Mines 1889 -1896
Chamber of Mines of the South African Republic 1897 - 1901
Transvaal Chamber of Mines 1902 - 1952
Transvaal and Orange Free State Chamber of Mines 1953 - 1967
Chamber of Mines of South Africa 1968 -
39
other commodity mines established elsewhere, the name changed to reflect
changing times (Mawby, 2000).
Among other things, the CMSA was instrumental in the facilitation of new
technologies in the mines, notably the development of portable rock-drills which
dramatically increased production in gold mines. The cooperation of Mining
Houses inside and outside the CMSA, the co-option of various professional
organisations, and the political support from the government collectively made it
less arduous for the CMSA to tackle common problems facing the mining industry.
By 1990 the CMSA was offering various services to its members through its five
divisions, namely Corporate Services; Health Care Services; Recruitment Services
(The Employment Bureau of Africa or TEBA); External Relations; and Operations.
Under the Operations division, various organisations were established including
the Chamber of Mines Research Organisation (COMRO); Safety and Technical
Services; and Environmental Management Services. COMRO was formally
established in 1965 and was mandated to undertake research in mining. To fulfil
its mandate, COMRO had to establish various specialist units as shown in Table
3.3 (CMSA, 1990).
40
Table 3.3: Specialist units under COMRO and their functions
Unit Brief description No. ofpersonnel
Executive Research Office Executive management of COMRO 23
Administrative and
Professional Services Branch
Provision of administrative services which
include budgeting, accounting, publicity and
maintenance of a library
130
Coal Mining Laboratory Research in coal mining 31
Engineering Services Branch
Provision of mechanical, hydraulic and
mechanical services, including building of
specialised machinery
96
Engineering System
Laboratory Research in hydraulics, machines and materials 53
Environmental Engineering
Laboratory
Research in underground climate and water
quality 43
Gold Exploitation Laboratory Technical Evaluation and prediction of insitugold distribution 49
Human Resource Laboratory
Consultant agency relating to the development
of proper industrial relation procedures and
communication
39
Industrial Hygiene Laboratory Consultant agency relating to health and safetyissues 55
Mining Branch Consultant agency relating to conducting trialsand implementing new technologies 75
Rock Mechanics Laboratory Research in support systems and design of newand safe underground mining layouts 43
Stoping Technology
Laboratory
Development of new stoping methods and
machinery to improve productivity 31
Hazardous Material Unit Consultant agency relating to investigation intothe use of hazardous material on mines 5
Source: CMSA (1986)
3.5. Home grown mining companies – abridged history
The tripartite animosity between European (oppressors), the less oppressed
Afrikaners, and the oppressed Africans did not escape the attention of the CMSA.
The class separation endorsed by the CMSA was evident in the mines where
Europeans were enjoying preferential treatment, followed by Afrikaners and lastly
41
Africans who were barred from any significant position other than being just
labourers (Pogue, 2006a).
Right from the inception of mining in the Witwatersrand basin, Europeans and in
particular British nationals wielded significant influence in mining and consequently
benefitted more than any other constituents. Their fortunate position largely
stemmed from South Africa being a colonial state of Britain. In the 1940s as the
grip of Britain lessened on South Africa, Afrikaners took more prominence in
politics and industry with a drive towards their increased participation in mining14.
Significant empowerment of Afrikaners in mining at ownership level came in the
late 1940s in the form of Federale Mynbou, a mining company that was
established with the blessings of the South African government for the benefit of
Afrikaners (Freud, 1991).
Through the help of Harry Oppenheimer of Anglo American Corporation in the
1960s, Federale Mynbou took control of General Mining and Finance Corporation,
a company that was established in 1895 by two German nationals and became
one of the top Mining Houses in the early days of mining in the Witwatersrand
basin. After the merger, the resultant entity traded as General Mining (Genmin) as
from 1965. In 1980 Genmin merged with Union Corporation (a company that was
established by another German entrepreneur) to form Gencor. In 1994 Gencor
bought Billiton International, a company with Dutch origins. Gencor used Billiton to
house its non-gold assets soon after the first South African democratic election in
1994. In 1997 Billiton was separated from Gencor to become a standalone entity
14 Previously Afrikaners were largely focused on farming
42
with its main listing on the London Stock Exchange. In 2001 Billiton merged with
BHP to form BHP Billiton, an Anglo-Australian company.
In 1998 Gencor merged with Gold Fields of South Africa (GFSA) to form Gold
Fields Ltd. Gold Fields of South Africa (GFSA), a company that had strong links
with the British government, was established in 1887 by Cecil Rhodes and Charles
Rudd. In 1892 the company was reorganised into Consolidated Gold Fields of
South Africa (Consgold) and became a Mining House that provided mines in the
Witwatersrand basin with capital and expertise in exchange for their control. In
1959 a subsidiary of Consgold was established to manage its southern African
assets. In 1971 a South African based West Witwatersrand Areas Ltd took over
the Consgold’s southern African assets and the right to the name of Gold Fields of
South Africa15. The merger of GFSA and Gencor catapulted the resultant entity
(Gold Fields) into the second biggest mining company in South Africa after Anglo
American Corporation.
Another mining company that has been influential in the South African mining
history is Anglo American Corporation (AAC), established in 1917 by Sir Ernest
Oppenheimer (a naturalised British national with German origins), thanks to capital
injection from USA companies and institutions. In 1926 AAC became the largest
shareholder of De Beers Consolidated Mines (DBCM) with effective control taking
place in 1929. De Beers was established by Cecil Rhodes and Charles Rudd in
1880 after acquiring claims from individual diamond miners in Kimberley. De Beers
and Barney Barnato’s Barnato Diamond Mining Company were rivals in diamond
15 Source: http://www.enotes.com/company-histories/gold-fields-ltd/history-gencor-ltd
43
mining and trade. The rivalry ended in 1888 when De Beers bought Barnato
Diamond Mining Company to form DBCM16.
The ability of AAC to raise capital internationally gradually established it as the
largest mining company in South Africa with influence in exploration, mining,
research, financing, manufacturing, property and politics. In the late 1930s AAC, in
collaboration with other Mining Houses, undertook strong exploration17 drive in the
Witwatersrand basin and the resultant was the discovery of Welkom, Carletonville
and Klerksdorp goldfields between 1945 and 1960. The discovery undoubtedly
made AAC the premier gold mining company internationally. Subsequent
establishment of new gold mines attracted people from all the corners of South
Africa and neighbouring countries. The demand for housing and services in the
new mining regions gave birth to towns of Welkom, Carletonville, Evander and
Stilfontein18.
Political changes of the 1990s in South Africa forced many mining companies to
change how they go about doing business. For example it became imperative for
AAC to economically empower blacks19 in much the same way as it empowered
Afrikaners when they took over political power in the 1960s. The economic
empowerment of black people gave rise to Johnnies Industrial Corporation Ltd
(Johnnic) and African Rainbow Minerals (ARM) in the 1990s. The latter is the most
successful mining empowerment company in South Africa.
16 Sources: Timeline: http://www.google.com/search; and http://en.wikipedia.org/wiki/Barney_Barnato.
17 Through exploration it was established that the Witwatersrand basin extends from Johannesburg to
Welkom in a north-southerly direction and from Klerksdorp to Evander in a west-easterly direction.
18Source: http://www.fundinguniverse.com/company-histories/Anglo-American-PLC-Company-
History.html.
19 Blacks in this case means Africans, Asians and Coloureds (mixed race people)
44
In the 1990s mining companies had to deal with a threat of nationalisation or at
least the interference of government in mining. To this effect AAC separated its
gold assets from other assets which included its international operations and
moved its primary listing to the London Stock Exchange (LSE). Consequently its
headquarters moved from Johannesburg to London. Because of the London
listing, the company changed its name to Anglo American plc. The South African
based gold assets of Anglo American were named Anglogold. In 2004 Anglogold
merged with Ashanti Gold of Ghana to become Anglogold Ashanti. Anglo
American divested from Anglogold Ashanti in 2009.
3.6. Reorganisation of mining in the 1990s
During the rationalisation of the mining industry in the 1990s, South Africa lost out
to being a home to global mining giants despite having a long history of mining,
the largest in-situ mineral resources in the world, unparalleled expertise in deep
level mining and the largest English speaking mining school in the world20. In fact
the battle was lost with the formation of Mining Houses in the 1890s. Mining
Houses borrowed capital funds from banks and institutions in United Kingdom,
USA and Europe which effectively amounted to foreign ownership of South African
mines (Mawby, 2000). Furthermore Britain’s interest in the South African gold
mines was strategic. The Bank of England was used to regulate the sale of gold in
support of the British pound (Pogue, 2006a).
Local miners of that time felt left out of the bounty and cheated of the opportunity
to better their lives, a legacy that was transferred from British settlers to Afrikaners
20 Source: http://www.edumine.com/miningschools/school.asp?school=wits
45
and from the latter to historically disadvantaged South Africans (HDSA)21. In
recent times the government of South Africa has sought to empower the HDSA
through the promulgation of the Mineral and Petroleum Resources Development
Act (MRPDA) and institutionalisation of the Mining Charter (see section 3.7).
While technical competency of South Africans in mining is unquestionable, limited
local capital is a constant impediment to the creation of locally based mining
giants. For example Figure 3.2 ranks top 10 mining companies in terms of market
capitalisation in 2010 and it can be observed that none of the South African mining
companies were in the top 10 ranking globally. On the other hand it can be seen in
Table 3.4 that the highest ranking South African mining company globally in terms
of the value of output in 2009 was Anglogold Ashanti in thirteenth position.
Figure 3.2: Top 10 mining companies ranked according to their market value in 201022
21 HDSA is term designated to Blacks and White women in South Africa who were excluded from property
ownership and economic participation under the Apartheid laws.
22 Source: http://www.mineweb.com/mineweb/view/mineweb/en/page67?oid=95737&sn=Detail.
Accessed on 01 March 2011.
46
The action of mining giants such as AAC and Gencor of splitting their assets in an
apparent move to anticipate the actions of the incoming government did not help
the situation either. The self-preservation path followed by mining companies from
the mid-1980s right through 1990s had also a devastating effect on a collaborative
research that had been the hallmark the CMSA from its inception and later
COMRO as from 1965.
Table 3.4: The world’s largest mining companies ranked according to the value of mining
output in 2009
Rank Company Country % of total
1. Vale Brazil 5.6
2. BHP Billiton Australia 5.1
3. Anglo American United Kingdom 3.9
4. Rio Tinto United Kingdom 3.8
5. Freeport McMoRan United States 3.6
6. Norilsk Nickel Russia 3.3
7. Codelco Chile 2.9
8. Xstrata Switzerland 2.9
9. Barrick Gold Canada 1.6
10. Group Mexico Mexico 1.6
11. Teck Canada 1.1
12. Newmont Mining United States 1.0
13. Anglogold Ashanti South Africa 0.9
14. Glencore International Switzerland 0.8
15. KGHM Polska Miedz Poland 0.8
16. Antofagasta United Kingdom 0.8
17. Impala Platinum South Africa 0.7
18. Vedanta Resources United Kingdom 0.7
19. Gold Fields South Africa 0.7
20. Kazakhmys United Kingdom 0.7
Source: Humphreys (2009: p4)
47
In the mid-1980s support for COMRO started to wane due to a number of reasons
that included:
• falling gold prices in line with other non-oil commodities, hence the profitability
gold mines declined (see Figure 3.3);
• the end of COMRO’s ten year mechanisation programme in 1990 which had a
muted success;
• globalisation and divergent strategies of gold miners that led to the end of
collaborative research; and
• a threat of the imposition of a mine safety levy by the government due to its
increasing intolerant to high mine fatality rates.
Figure 3.3: Change in the average of real prices of all mineral commodities (excluding oil
and gas) from 1900 – 1992
Source: Wirtschaftsvereinigung Bergbau, 2000 in Wagner and Fettweis (2001)
48
The contemplated safety levy implied that mines would be expected to fund the
State’s safety research programme in addition to their voluntary COMRO
contributions. In anticipation of the safety levy, mines reduced their COMRO
contributions in the early 1990s which in turn reduced its research capacity
(Pogue, 2006a). Many mines thereafter opted to conduct their own research. The
unfortunate part was that the research by mines was more opportunistic, aiming
for incremental changes compared to the fundamental and ground-breaking
research by COMRO.
The promulgation of the Minerals Act in 1991, that eventually paved way for the
establishment of Safety in Mine Research Advisory Council (SIMRAC) in 1993,
and the decline in the gold sector profitability in the early 1990s were the last
blows to the financial viability of COMRO. The resultant safety levy prompted
mining companies to curtail COMRO funding to unsustainable level. In a bid to
retain COMRO’s intellectual property, a decision was made to bring it under the
control of the Council for Industrial and Scientific Research (Pogue, 2006a).
The fate of COMRO was not unique, many of the renowned research institutes
internationally were either closed or forced to change in the 1990s. For example
the National Coal Board in United Kingdom, the US Bureau of Mines in USA, and
research facilities of Charbonnages de France in France were disbanded. The
Bergbauforschung in Germany was reduced in size and turned into a commercial
entity. The Australians however bucked the trend to establish Cooperative
Research Centre for Mining Technology and Equipment in 1991. All these
changes in the global mining research coincided with a drop in a number of BSc
49
and MSc graduates in the North American universities from 700 to 150 in a period
from 1990 to 1997 (Wagner and Fettweis, 2001).
3.7. Politics and the mineral sector in South Africa
The ability of mines to create wealth has made them a target for nationalisation by
the African National Congress Youth League (ANCYL) in recent times (ANCYL,
2010). In retrospect, the association of mines with nationalisation in South Africa
started in the 1940s. Afrikaner nationalists back then, when mines were
overwhelmingly owned by English-speaking persons, pondered with the idea of
nationalising mines. This idea was pondered despite the Afrikaners being given an
opportunity to make inroads into the mining industry as both investors and workers
by the Union government23 through the establishment of Federale Mynbou
(Sanlam, n.d.).
Despite the pressure from its constituents, the Union government settled for
taxation policies aimed at creating mining employment for the Afrikaners while at
the same time invigorating industrial sector activities. During this time (late 1940s
to 1960s) the industrial sector was growing at a faster rate than the mining sector
(Freund, 1991).
When South Africa became a republic under the National Party (NP) in 1961,
mining and industrial sectors were largely in private hands. The NP regime used
mining exports (especially gold) as an important source of foreign income. There
was a general contentment in government to leave mining in private hands as long
23 South African government under British dominion from 1910 to 1961
50
as it was bringing in the necessary foreign revenue inflows to bolster the inward
looking industrial sector (Black, 1991).
To direct the country’s industrial development for the benefit of the Afrikaner
working class, the government strategically used parastatals such as SASOL,
ARMSCOR, TELKOM, ESKOM and ISCOR to compete with the private sector in
areas where these parastatals had a clear advantage (Aron et al, 2009). Many of
these parastatals became monopolies in their respective industries, the legacy that
still exists today. Few State owned mining companies such as SASOL (steam
coal), ISCOR (metallurgical coal) and FOSKOR (phosphate) have shown that
protected niche markets with strong beneficiation drive can be successful while
direct competition with private sector companies in areas where there is a lack of
downstream beneficiation can be unsuccessful as it is the case with Alexkor
(diamonds)24. The latter was established in 1925 as State Alluvial Diggings to mine
diamonds along the west coast of South Africa25.
During the 1970s, South Africa followed an import substitution policy as it was the
case with other resource-based countries of South America. This was contrary to
the outward looking export oriented policy of Asian countries (Gelb, 1991 and
Edwards et al, 2009). The import substitution and the limit on funds that could be
invested off-shore by South African companies led to some Mining Houses such
as AAC and Genmin to diversify into the industrial sector which grew from a GDP
contribution of less than 13% in 1946 to more than 23% by 1970 while direct
contribution of mining to the GDP declined (Black, 1991).
24 Sasol and Foskor were privatised while Alexkor is still a State owned enterprise (SOE)
25 Source: http://www.alexkor.co.za/NewsMiningWeekly01062003_Priv.asp
51
The diversification of Mining Houses into the industrial sector as well as strong
beneficiation focus of SASOL, ISCOR and FOSKOR gave impetus to the
development of the industrial sector and job opportunities for the growing white
population (especially Afrikaners) then.
According to Gelb (1991), 1974 marked the downturn in the South African
economy, a trend that persisted right through into the 1990s. The downturn
coincided with the 1973 oil crisis. This downturn period was marked by the rise in
inflation, drop in private sector investment, drop in personal saving, capital flight
due to sanctions against the NP government (because of Apartheid), depreciation
of the rand against the dollar and drop in employment opportunities (mainly
Africans). In the midst of all these economic problems, the oppressed black
majority intensified their revolt against the government’s repressive laws.
When the ANC was unbanned in 1990 there was a general expectation that it will
follow socialist or communist economic policies which included nationalisation
(largely stemming from the Freedom Charter). This did not happen due to a
number of factors that included the collapse of commandist economies during the
1980s, especially the USSR which supported the ANC in exile. The free market
system gained global prominence during this time and the only way that the ANC
government could attract capital inflows was to abandon any intentions to
nationalise the economy (Ceruti, 1996).
It should be noted that the South African democracy is a product of a negotiated
settlement. In negotiations concessions are made based on the strength of the
52
opponent and realities on the ground. The strength of the ANC’s opponent was in
its access to state machinery and financial resource (fiscal), while that of ANC was
vested in its mass support base and distant international opponents of apartheid
(Ceruti, 1996 and Aron et al, 2009).
During the negotiations (between 1992 and 1994) domestic debt was approaching
unsustainable levels and the budget deficit was at 8%. At the same time Kwazulu-
Natal was on the verge of a civil war and black South Africans in general were
becoming impatient with the winding negotiations. Given these situations and
others mentioned afore, the ANC saw it fitting to stick to the deadline of elections
by 1994 and in the process concessions were made lest the situation deteriorated
to undesired state (Ceruti, 1996).
It is therefore not surprising that the ANC government that emerged after 1994
elections opted for export-oriented economy supported by a steady private sector
investment. These were underpinned by privatisation of state assets, prudent
fiscal policy and responsible monetary policy. All these developments meant that
the nationalisation of mines policy was off the table for the time being (Aron et al,
2009).
Despite concessions and retraction on nationalisation policy, many South African
mining companies sought dual or multiple listing on JSE and others such as LSE
and New York Stock Exchange (NYSE). International assets were separated from
local assets in the process. Separation of assets and dual listings diluted
53
ownership of South Africans in companies mining mineral resources in South
Africa, leading to a loss of industry control.
Nonetheless political changes of the 1990s in South Africa opened up
opportunities for HDSA to own mines. Previously the HDSA were denied
ownership of mines under Apartheid laws. This new development led to the
accumulation of wealth among a handful of the HDSA. In 2004 the industry was
transformed further through the promulgation of the Mineral and Petroleum
Resources Development Act of 2002 (MPRDA) which made the State the
custodian of all mineral resources.
The combination of the MPRDA and the Mineral and Petroleum Resources
Development Royalty Act (Royalty Act) of 2008, with respect to State
custodianship on the country’s mineral resources, borders on indirect expropriation
or a process of creeping expropriation26 of mineral resources according to Leon
(2009). The custodianship basically translates into nationalisation on mineral
resources and not that of the mines.  But most importantly the MPDRA legislated
the creation of a Mining Charter under section 100(2)(a) in 2002, with the revised
version taking effect in 2010. The aims of the Mining Charter, among others, are to
facilitate economic participation of HDSA in the mining industry and promote
mineral beneficiation within the borders of South Africa (MPRDA, 2002 and Mining
Charter, 2010).
26 “The incremental encroachment of an investor’s ownership rights by a host state, which effectively
neutralises such investor’s rights” (Leon, 2009:p 597)
54
It is safe to say that the current South African mining legislation and policy seek to
empower HDSA through pseudo free market system as opposed to outright
nationalisation. This is in line with the action of the Union government where
nationalisation of mines was avoided in favour of the next best option.
That being the case, privately owned mining industry in South Africa has always
been part of the job creation agenda whether directly or indirectly. In line with this
characterisation of the mining industry, this report re-emphasises the ability of
mining within the mineral sector to create employment opportunities through
economic linkages provided there is political will to that effect.
3.8. Concluding remarks
The history of mining in South Africa dates as far as 1000 years ago when copper
was mined in Phalaborwa. There is also evidence of gold mining and trading
between the residents of Mapungubwe, Arabs and Orientals. Mining activities by
the locals persisted up to the dawn of modern history of mining in South Africa,
which can be said to have started in 1846 when the British took over copper
mining in Namaqualand from the Dutch.
Mining in South Africa was given impetus by the discovery of diamonds near
Kimberley in 1870 and the discovery of gold in the Witwatersrand basin. Both
discoveries were so large that they attracted many international professionals in
the mineral sector and entrepreneurs to South Africa. The arrival of professionals
and entrepreneurs in South Africa led to the formation of the Chambers of Mines
of South Africa in 1889 and Mining Houses in the 1890s.
55
From the humble beginnings in Kimberley, mining subsequently led to the
formation of many towns in South Africa which include Johannesburg,
Carletonville and Welkom. With towns, came other economic activities as people
flocked into these towns in search of employment. This economic and social
potential of mining has always fascinated politicians. It was then not surprising that
the nationalists among the Afrikaners sought to nationalise mines in the 1940s.
However the idea was thwarted in favour of the establishment and strengthening
of industrial parastatals such as ISCOR, SASOL, ARMSCOR and ESKOM.
Through these parastatals, including those in agriculture and transportation, many
employment opportunities were created for the Afrikaners. The idea of
nationalisation of mines rose again in 1990s when the ANC was preparing to
govern South Africa. This was again thwarted in favour of trade liberation and
privatisation of parastatals after 1994. In 2010 the ANCYL raised the issue of
nationalisation of mines again and the response was again to look for alternative
solutions.
Back in the 1980s when the political tension between blacks and whites reached
climax, and when it was evident that the communist-backed ANC will eventually
become the government in South Africa, Mining Houses reorganised themselves
for the possibility of the nationalisation of mines. For example Gencor and AAC
bought international mining assets and separate them from the South African
assets.
56
When the pro-capitalist ANC government allowed dual listing of big companies
after 1994, companies such as Billiton (a product of acquisition strategy of Gencor)
and AAC took the opportunity to relocate their primary listing to foreign countries.
This move resulted in South Africa not being a home to big international mining
companies despite a century of mining and innovation in underground mining.
The innovation in mining was mainly driven by COMRO, a research organisation
that existed in many forms since the 1890s and formerly established in 1965. The
fate of COMRO was sealed by the reorganisation of the mining industry and the
establishment of SIMRAC in the early 1990s. When COMRO closed down its
operations in 1993 and many scientists in its employment emigrated elsewhere,
many feared that this move will usher the death-knell to the resource-based
research in South Africa. However this was not the case as it will be shown in
section 5 of this report that research in mining continued beyond 1993, albeit not
as strong as during the pre-1993 era.
57
4. LINKAGES IN THE SOUTH AFRICAN MINING INDUSTRY
4.1. Introduction
The development of a new mine has the potential to stimulate regional economy
through creation of employment and collection of rent and taxes by regional
authorities and the central government. Employment created by a mine is either
direct or indirect. All those that are in direct employment generally derive their
primary income directly from the mine. Indirect employment on the other hand is
created in other sectors because of the demand for products and services
generated by the mine or local beneficiation of mine outputs.
The establishment of mines in South Africa has managed to stimulate regional
economies with varying levels of success. Undoubtedly Johannesburg and
surrounding towns have benefited enormously from the 120 years of gold mining.
Mining activities around Johannesburg have resulted in the aggregation of
manufacturing companies or their representatives in Ekurhuleni and financial
corporations, mining consultants, and mining analysts in Johannesburg.
The mining of gold and other commodities in South Africa was supported by
intensive R&D programmes of Mining Houses and CMSA in one hand and the
Science Councils on the other hand. At the dawn of the modern history of mining
in South Africa, engineers and scientists that participated in R&D programmes
came from European countries and USA. Over time, as technically oriented
58
universities and Science Councils were established by the government, South
Africans began to participate in research programmes.
R&D and ultimately the implementation of new technologies have the potential to
create linkages in the economy. This phenomenon can be explained better by
considering case studies such as those discussed in section 4.4. Notwithstanding,
research competency of South Africa such as those housed in Science Councils
and universities appear not to be adequately augmented by R&D capability and
the ability to translate research into commercial goods and/or services.
4.2. Mining related Science Councils in South Africa
Mining in South Africa has led to the formation of reputable research institutions
such as the Council for Mineral Technology (Mintek) in 193427 and the Chamber of
Mines Research Organization (COMRO) in 1965. Sadly COMRO was taken over
by the Council for Scientific and Industrial Research (CSIR) in 1993. The takeover
retarded the momentum of fundamental and applied mining research in South
Africa. The resultant unit under the CSIR had no option but to focus on niche
research projects in areas of safety and health while production related R&D was
taken up by original equipment manufacturers (OEM) in collaboration with mining
companies (Pogue, 2006a).
27 Source: http://www.mintek.co.za/
59
Mining is also directly responsible for the formation of the University of the
Witwatersrand (Wits) which started in Kimberley in 189628. Today the School of
Mining Engineering at Wits is recognised as the largest English speaking mining
school in the world.
4.2.1. The Council for Geoscience
The Council for Geoscience (CGS) is a public entity established under the
Geoscience Act of 1993. It is mandated “to gather, compile, interpret and
disseminate geoscience knowledge for South Africa, as provided for by the
Geoscience Act” (CGS, 2010).
The CGS undertakes work across various disciplines including mining. Some of
the work done during the reporting season of 2009 and 2010 included exploration
for rare earth minerals in South Africa. The rare earth minerals are becoming
valuable commodities due to the growth of high technology manufacturing and
green industry, one of the industries identified by BUSA (2010) as having the
potential to create meaningful jobs in South Africa.
Significant world deposits of rare earth minerals are known to be in China and
governments of developed countries (including China) are said to be building
strategic stockpiles of these minerals. If deposits of significant value were to be
found in South Africa, it is envisaged that new extraction techniques that are
28 Source: http://www.wits.ac.za/aboutwits/introducingwits/short-history-of-the-
university/3162/short_history_of_the_university.html
60
sensitive to their rarity and subsequent downstream industries will have to be
developed so that more value and job opportunities can be realised (CGS, 2010).
The CGS is also investigating underground carbon dioxide storage capabilities.
This is in line with carbon sequestration research by the coal industry. If
successful, both carbon dioxide storage and carbon sequestration will render coal
generated electricity and manufacturing of iron, steel, and petrochemicals
environmentally friendly to some extent. Most importantly carbon dioxide storage
and carbon sequestration will emerge as new industries with the potential to
absorb labour. Similarly the study by the CGS on the use of cost effective
polyurethane foam in sealing sinkholes in dolomitic areas and abandoned mine
shafts across the country could have the potential of creating jobs in the medium
term while rendering unsafe land safe (CGS, 2010).
Other exciting work undertaken by the CGS involves the exploration of new coal
resources with the view of extending the life of coalfields such as Waterberg,
Somkhele, Kangwane, Sasolburg-Vereeniging, Free State and Springbok Flats
(CGS, 2010).
4.2.2. Council for Scientific and Industrial Research
The Council for Scientific and Industrial Research (CSIR) is a multi-disciplinary
entity established in 1945 through the act of parliament to conduct R&D in South
61
Africa. The scope of the CSIR includes research in biosciences, defence and
security, manufacturing, materials development and mining29.
The CSIR absorbed COMRO in 1993, a move that was prompted by the
intolerance of government for high accidents rates on the mines and the waning
collaboration between Mining Houses insofar as research was concerned. After
absorbing COMRO, the CSIR began providing consultancy services in the field of
mine health and safety to the mining industry through SIMRAC (Pogue, 2006a).
Achievements of CSIR include the reduction of pneumoconiosis (silicosis) in gold
mines, the revamping of heat stress management in deep underground mines, the
introduction of borehole radar for accurate delineation of reef topography and the
implementation of preconditioning technique that reduced incidents of rock burst at
the stope face and subsequently enabled the mining of Ventersdorp Contact Reef
at great depths30.
Currently CSIR is conceptualising mechanised mining methods using equipment
as small as a bottle of wine in deep underground mines (the Nederburg miner). It
is envisaged that the final product will be automated or tele-operated with no
human beings in sight. CSIR is also looking into introducing supervisory, control
and data acquisition (SCADA) systems in underground mines. This system has
the potential of providing timely data, creating new knowledge faster than the
current system, and reducing operating costs31.
29 Source: http://www.csir.co.za/profile_of_csir.html
30 Source: http://www.csir.co.za/mineral_resources/pdfs/factsheet_mining.pdf
31 Source: http://www.csir.co.za/mineral_resources/macs.html
62
Apart from mining technologies, CSIR is actively involved in downstream mineral
beneficiation technologies. To this effect, CSIR has developed a hub for Titanium
Centre of Competence. The objective of the Titanium Centre is to develop the
South African competency in the beneficiation of titanium ore. South Africa has the
world’s second largest resource of titanium after Australia and yet it is not
producing titanium metal. It is projected that South Africa will have the capability of
producing 20 000tpa of titanium powder by 2020. In addition to the production of
titanium powder, the CSIR hopes to develop domestic capability of moulding
complex titanium shapes and thereby giving South Africa a competitive edge
(CSIR, 2010 and Venter, 2011).
In addition to the Titanium Centre of Competence, CSIR is spearheading the
entrance of South Africa into the light metal industry through the Light Metals
Development Network under the Advanced Metals Initiative. This initiative is
designed to give South Africa a unique competency in the light metal industry, a
feat that is supposed to give the country a competitive edge as well as creating
jobs (CSIR, 2010).
4.2.3. The Council for Mineral Technology
The Council for Mineral Technology (Mintek) was established by the government
of South Africa in 193432 as a research institution, which provides metallurgical
services and products to the extractive industry. The mandate of Mintek is
articulated in one of its key objectives as being to “develop efficient mineral
32 Source: http://www.mintek.co.za/
63
processing technologies and sustainable value added products and services”
(Mintek, 2010: p10). While being guided by its key objectives, Mintek has
diversified its portfolio to cover the entire mining value chain while retaining its
main focus on the metallurgical industry. Through the years the company has
managed to transform itself into a global player by exporting its technology and
collaborating with other international research institutions.
Some of the research projects that Mintek is currently looking at include finding
other uses of gold through its AuTek Project in collaboration with Anglogold
Ashanti, new uses of platinum, and enhancing the understanding
(characterisation) of PGMs. In addition, Mintek is focused on developing superior
extraction technology of titanium and iron (from magnetite) in the Bushveld
Complex given that they are believed to be among the largest deposits in the
world. Most importantly (in the context of high unemployment rate in South Africa)
Mintek, where possible, commercialises technologies through its subsidiary,
Mindev. For example Mindev in conjunction with Jubilee Platinum piloted the
ConRoast technology in treating PGM ore with high content of chrome (Mintek,
2010).
Mintek has also a division that capacitates artisanal miners with mining skills,
management of safety and health in the workplace, and environmental
management. In particular miners are taught to produce final products from their
mining operations. For example clay miners are taught how to produce bricks for
buildings and clay-pots for the decoration market (Mintek, 2010). The effect of this
approach is the creation of localised economic linkages.
64
4.3. Institutions of higher learning in mining engineering
There are four institutions of higher learning (tertiary) in South Africa that offer
junior degrees or diplomas in mining engineering, namely the University of the
Witwatersrand (Wits), University of Pretoria (UP), University of Johannesburg (UJ)
and Florida Campus of University of South Africa (UNISA). Only Wits and UP offer
post graduate degrees in mining engineering (see Table 4.1). Just like Science
Councils, all institutions of higher learning that offer mining tuition are located in
the Gauteng Province.
Wits was established in 1896 to provide formal mining education to officials
working in the mines of Kimberley. It was originally called the South African School
of Mines. As mining got stronger in the Witwatersrand, after the discovery of gold,
the School of Mines was moved to Johannesburg and renamed the Transvaal
Institute of Technology and the Transvaal University College (TUC) in 1904 and
1906 respectively. In 1908 the administration of TUC was split in two, one half
moved to Pretoria and was renamed the Transvaal Universiteit Kollege or TUK in
short. When TUK attained university status in 1930, it was officially renamed the
University of Pretoria (UP). The other half of the administration that remained in
Johannesburg was renamed the Transvaal School of Mines. In 1922 the Transvaal
School of Mines was given a university status and changed its name to the
University of the Witwatersrand (Wits)33,34.
33 Source: http://student.wits.ac.za/Residences/Mensres/History.htm
34 Source: http://web.up.ac.za/default.asp?ipkCategoryID=2
65
Table 4.1: Mining degrees and diplomas offered by South African universities
Institution Degree/Diploma
Undergraduate Postgraduate
University of the Witwatersrand
(Wits) BSc (Eng) GDE; MSc (Eng); & PhD
University of Pretoria (UP) BEng BEng (Hons); MEng;PhD
University of Johannesburg (UJ) BTech & HND -
University of South Africa
(UNISA) Diploma -
From the inception of Wits and UP, the number of students enrolling for mining
engineering degrees (at Wits and UP) has increased steadily. Historically mining
students were white males, principally stemming from the sections of Mines and
Works Act of 1911 that excluded Africans from being anything other than labourers
on the mines and women from working underground (Cruise, 2011).
While other racial groups were not explicitly excluded by the said act, it can be
inferred that it was not socially acceptable for them to be mining engineers. While
similarly nobody was excluded from studying mining engineering degree at Wits, it
is not far-fetched to conclude that conditions in South Africa then were not
conducive for other racial groups and women to practice as mining engineers
locally.
Nonetheless, racial transformation of the mining engineering degree at Wits began
with the enrolment of the first Asian student in 1978 and the first African student in
1983. Gender transformation of mining began in 1990 when Wits enrolled two
white female students.
66
Ultimately women were allowed to work underground after the provisions of the
Mines and Works Act and the Minerals Act of 1991 were repealed by Mine Health
and Safety Act of 1996. The growth in the number of students (both males and
females) enrolled for a mining engineering degree at Wits between 1985 and 2010
is shown in Table 4.2 (Cruise, 2011).
Table 4.2: Number of first year mining engineering students at Wits
Year Total HDSA % HDSA Female % Female
1985 32 6 19 - 0
1990 50 20 40 2 4
1995 52 34 65 - 0
2000 48 43 90 9 19
2005 103 102 99 28 27
2010 228 222 97 75 33
Source: Cruise (2011)
Table 4.3 shows the number of mining graduates from Wits and UP. It is notable
that the number of female mining graduates has been increasing over time. In
2010 there were 83 graduates from the two universities and 25 (30.1%) of them
were black females. Seven of the graduates or 8.4% were white males and there
were no white female graduates. This is a remarkable transformation when
considering that there were no black mining graduates before 1986 and females
before 1994 (Cruise, 2011).
While it is encouraging to see an increase in the number of blacks, and females in
particular, studying for the mining engineering degree, it is discouraging to know
that these numbers come from a limited pool of matriculants. In 2005
approximately 509 152 grade 12 learners registered to sit in for final examinations
67
and 455 460 of them were black. Only 31 269 (6.9%) and 48 647 (10.7%) black
learners wrote high grade papers in mathematics and physical science
respectively. Disappointingly 14 773 (3.2%) and 18 614 (4.1%) passed their
mathematics and physical science examinations respectively. If a total number of
509 152 (including whites and others) is taken into account, then a miserly 5.1%
and 5.8% of 2005 matriculants passed high grade mathematics and physical
science examinations (Breier, 2009). These learners are among those that
graduated in 2009 and 2010 as indicated in Table 4.3.
Table 4.3: Number of mining graduates at Wits and UP
Year University of theWitwatersrand University of Pretoria
Female Male Female Male
1994 1 36 0 0
1996 1 17 0 0
2000 1 27 0 0
2001 1 21 0 0
2002 1 19 1 11
2003 2 20 0 16
2004 5 21 0 19
2005 7 26 1 9
2006 1 24 3 30
2007 16 41 6 18
2008 12 32 2 21
2009 16 37 7 21
2010 20 40 5 18
Source: Cruise (2011)
Mathematics, physical sciences and English (and to some extent Afrikaans) are
important subjects at school level for degrees in engineering, science and health
sciences at approximately 21 universities and universities of technology in South
Africa. All universities have their own attrition rates and this ultimately reduce the
68
number of graduates in the aforementioned degrees. It therefore turns out that a
low pass rate at matric level does very little to curb a skill shortage problem in
South Africa.
With little skills to go around, it becomes difficult for South African companies and
research institutions to undertake R&D programmes on a large scale. Sadly this
fact has the potential to limit a number of economic linkages that could otherwise
be unlocked by technology intensive companies (such as modern mines), as it will
be demonstrated in the case studies below.
4.4. Case studies in the mineral sector from 1890 to 2006
4.4.1. Case study 1: Dynamite in South Africa
The establishment of mines in the Witwatersrand basin in 1886 created a huge
demand for dynamite due to the nature and scale of mining. In response to this
growing demand, Paul Kruger (the then President of Transvaal) asked Alfred
Nobel to build a dynamite factory at Modderfontein. Alfred Noble responded by
establishing Zuid Afrikaansche Fabrieken voor Ontplofbare Stoffen Beperk or ‘The
Dynamite Company’ in 1895 at Modderfontein. Today this dynamite company is
known as African Explosives Limited (AEL), a global player in the manufacturing
and supply of explosives.
At the onset of its establishment, the Dynamite Company was the biggest
dynamite factory in the world until De Beers established its own dynamite factory
at Somerset West in the Northern Cape Province in 1903. These two factories
69
catapulted South Africa into the premier producer and consumer of dynamite in the
world at that time35.
In 1908 the Dynamite Company built a second plant in Umbogintwini in Kwazulu
Natal. In 1924 the Somerset West, Modderfontein and Umbogintwini plants
merged to form African Explosives & Industry, a company that was controlled by
the industrial division of De Beers and a forerunner of African Explosives and
Chemical Industries Limited (AECI) and AEL36. In 2004, eighty years after the
formation of African Explosives & Industry, AECI ventured into the electronic
detonation market through Denet37.
During the initial stages of explosive manufacturing, South Africa relied on
imported raw material. For example, low grade sulphuric acid produced from pyrite
was about the only local raw material used in manufacturing of explosives. Low
grade sulphuric acid was used to supplement high grade sulphuric acid imported
from Italy. Waxed paper used for wrapping dynamite cartridges was also from
Italy. Other imported valuable consumables were sourced from USA and other
European countries. However, with the passage of time more and more
consumables were sourced locally in line with the growth of the industrial sector.
4.4.2. Case study 2: Gold extraction technologies
When mining began in the Witwatersrand basin, it was easy to recover gold from
the oxidised gold bearing ore by using amalgamation treatment process. As mines
35 Sources: http://www.explosives.co.za/about-ael/our-history.html, accessed on 05 March 2011
36 Source: http://www.aeci.co.za/aa_history.asp, accessed on 05 March 2011
37 Detnet is a joint venture between AECI and Dyno Noble
70
went deeper, layers of sulphide were encountered which made it difficult to
recover gold with amalgamation treatment process and consequently yields
dropped by as much as 50%. The situation was made worse by low grades,
rendering many mines unviable. Subsequent closure of mines led to a recession
and exodus of labour out of the Johannesburg in search of better opportunities
elsewhere (Mawby, 2000 and Pogue, 2006a).
The solution to low yields initially came in the form of chlorination process
commissioned by Corner House at Robinson Mine in 1889. However due to its
high costs of implementation and maintenance, marginal mines were not able to
afford it. Many mines opted to rather continue with less efficient amalgamation
treatment process or stop operations altogether. The real solution, however, came
in the form of cyanidation treatment process under the MacArthur-Forrest patent.
The cyanidation process was developed in mid-1880 and although it was less
efficient than the chlorination process, it was affordable and it gave acceptable
levels of gold yields. These characteristics led to its quick and wide spread
acceptance (see Figure 4.1). In 1896 the MacArthur-Forrest patent was repealed
after the intervention of the CMSA on behalf of the gold mining industry in the
Witwatersrand basin (Pogue, 2006a). This resulted in a drop in treatment costs in
subsequent years.
Another challenge that the mining industry in the Witwatersrand basin faced was
the unsatisfactory crushing throughput rate of the stamp mills which was hindering
the increase in the underground production. Due to low grades, high production
volumes were imperative for the survival of the industry. The solution to the
71
crushing problem came in a form of tube mills, thanks to the collaboration of
metallurgists from different Mining Houses. The introduction of tube mills between
1904 and 1906 resulted in higher rates of production and drastic drop in operating
costs (Mawby, 2000).
Figure 4.1: Proliferation of extraction technologies in the early days of gold production in
the Witwatersrand basin38
Data sourced from Pogue (2006a)
Metallurgical challenges of the Witwatersrand basin ore, such as those mentioned
above, attracted many professionals around the world to South Africa. These
professionals held regular public discussions under the auspices of Chemical and
Metallurgical Society of South Africa39 with regard to work done on various mines.
It is from these public discussions and collaborations that the discipline of
extractive metallurgy was enriched (Pogue, 2006a).
38 Proliferation data was not available in 1898, and drop in production from 1899 to 1902 corresponds to
the South African War II (formerly Anglo-Boer War II)
39 Now called The South African Institute of Mining and Metallurgy
72
4.4.3. Case study 3: Portable Rock-drills
The introduction of tube mills between 1904 and 1906 increased the throughput
rate of treatment plants beyond the capacity of underground stopes. In addition,
labour shortage (African labourers in particular) after the South Africa War made
the situation worse. Underground drilling was literally a manual labour, executed
by men hammering chisels into the rock and spitting water now and then to allay
the dust. A drilling crew in those days consisted of 40 to 60 men and a target for
each driller and his assistant was a single one metre hole per day. An incentive
bonus was paid for exceeding this target (Pogue, 2006a).
When the South African War broke out in 1899 and later the First World War in
1914, many African labourers were taken away from the mines as general
assistants in the military and with the reconstruction that followed thereafter, many
did not return back to the mines. This turn of events put extreme pressure on the
efforts of mines to attain acceptable production rate in order to stay viable (Pogue,
2006a).
In 1903 there was a concerted effort by mining companies under the leadership of
the CMSA to introduce alternative technologies that could increase stope
production. The biggest drawback then was the amount of blast holes drilled per
day. The only viable solution to the problem was to introduce underground drilling
machines which were already being used in USA and South America. From the
options available then, the most qualified was the 1897 patented lightweight
portable rock-drill. This drilling machine used a hammer technology with a chisel
73
that had a centre hole along its length to effect pneumatic and/or hydraulic flushing
(Pogue, 2006a).
When the patent expired in 1914, the production of these particular portable rock-
drills increased rapidly as their demand increased in the mines around
Johannesburg. Flushing for these machines was achieved either through
hydraulics (water) or pneumatics (compressed air) depending on the
manufacturer. Like any other infant technology, these particular portable rock-drills
faced a number of challenges in the beginning. For example, their size resulted in
the increase in the stoping width which in turn increased dilution, much to the
disapproval of some mines. Labour also resisted their introduction fearing wide
spread redundancy. However through concerted effort of Mining Houses led by the
Corner House and the blessing of the Transvaal government, portable rock-drills
gradually became the premier stoping tools over the ensuing years. It took three
decades, from 1904 to 1933 for the lightweight rock-drill to have full acceptance as
the premier stoping tool as shown in Figure 4.2 (Pogue, 2006a).
The target for blast holes in the stopes before the era of portable rock-drills was a
one metre hole per day per operator using hammer and chisel. With the advent of
lightweight portable rock-drills, the target increased gradually from a single one
metre hole per day to 16.6 and 10.4 one metre holes per hour for hydraulic and
pneumatic rock-drills respectively by 1982 (CMSA, 1980). The productivity of rock-
drills was obviously a catalyst for their demand and with the demand, the need to
continually improve their performance arose.
74
Figure 4.2: Penetration rate of portable rock-drills in the Witwatersrand basin between
1913 and 1933
Source: Pogue (2006a)
When COMRO was established in 1965, it ushered a new era of portable rock-drill
development. This development came in two phases. The first phase distinctly
comprised of the development of emulsion hydraulic (EH) technology between
mid-1960s and late 1970s (Pogue 2006b).
Underground water or service water is highly corrosive and problematic to rock-
drills. COMRO together with rock-drill manufacturers such as Ingersoll-Rand
investigated the use of 95% to 5% ratio of water to oil (EH) respectively to provide
lubrication and prevent corrosion. Unfortunately cumulative amount of oil in water
presented an environmental hazard. Efforts were made to alleviate this problem by
progressively reducing the amount of oil in water used by rock-drills (Pogue
2006b).
75
Progressive reduction of oil in water eventually ushered in the second phase in the
development of rock-drills between 1980 and 1990. These rock-drills were
designed to work with 100% water and the technology became known as the HH
technology (Pogue, 2006b).
The development of the HH technology coincided with the development of hydro-
power technology which involved the delivery of chilled water from surface to
underground stopes for cooling purposes. The gravity head of the chilled water
delivered underground provided enough energy in the stopes to power rock-drills
and other equipment, a complete power solution for HH technology. The hydro-
power technology was explored at Kloof Gold Mine in collaboration with COMRO
in late 1970s and was eventually designed as a fully-fledged technology for
Northam Platinum Mine in 1990 (CMSA, 1982 and CMSA, 1990).
The successful combination of hydro-power and HH technology at Northam
Platinum ushered a new source of power for deep underground mines and the
need to produce compatible equipment. Ingersoll-Rand, Novatek and Sulzer,
which were invited to partner with COMRO in the development of both EH and HH
technologies, became market leaders in the manufacturing of HH portable rock-
drills. The need for other hydro-power equipment led to the formation of
companies such as Hydro Power Equipment (HPE) in South Africa.
76
4.4.4. Case study 4: Drill bits
The growing stockpile of boart diamonds, especially from the Democratic Republic
of the Congo40, at the Central Selling Organisation (now Diamond Trading
Company) of De Beers during the Great Depression precipitated a need for their
profitable disposal. This idea came into realisation when it became possible to use
boart diamonds as inserts in core-drilling bits, ideal for exploring the Witwatersrand
basin. The drill bits were the results of collaborative work between the subsidiary
of De Beers and AAC, Boart Products South Africa (Boart), and Materials
Research Institute of Wits. These drill bits were suitable for long-hole drilling by big
drill rigs and also gave high penetration rates (Robinson and von Below, 1990).
This was however not a new idea, Longyear used similar drill bits with
‘carbodanos’ diamonds41 inserts from Brazil approximately 45 years earlier, except
that smaller drill machines were used. New drill bits by Boart enabled AAC to
undertake extensive exploration of the Witwatersrand basin and the Zambian
copper belt in the 1940s (Robinson and von Below, 1990).
The harsh conditions of underground stopes in the Witwatersrand basin presented
further opportunities for Boart in the 1940s. The company developed drill bits with
tungsten carbide manufactured in a factory in Springs, one of the biggest in the
southern hemisphere despite South Africa not having large resources of scheelite
and wolframite ore deposits (Robinson and von Below, 1990).
40 The country was called Belgium Congo from 1908 to 1960. The name changed to Republic of Zaire in 1971
and in 1997 it was renamed the Democratic Republic of the Congo.
41 Source: http://www.fundinguniverse.com/company-histories/Boart-Longyear-Company-Company-
History.html
77
When Boart entered the international mining and civil engineering market, it
changed its name to Boart International to signify its organic growth. In 1974,
Boart International took over Longyear and changed its name to Boart Longyear
with manufacturing facilities in major mining and civil engineering centres
worldwide and head office in Johannesburg42.
4.4.5. Case study 5: Ferrosilicon (FeSi)
The establishment of ISCOR in the early 1930s and later its incorporation in 1937
led to the development of a ferro-metal industry in South Africa. In 1942 ISCOR
produced FeSi, a product that later became a solution to the recovery of diamonds
at Premier Diamond Mine (now called Cullinan Mine).
A slump in the diamond market precipitated by the Great Depression in the early
1930s led to the closure of a number of diamond mines including the Premier
Diamond Mine. In the 1940s when De Beers was planning to re-open the mine, it
came to know of the properties of FeSi as a dense medium separator (DMS). The
pilot test on the DMS process at Premier Diamond Mine was so impressive that it
justified the reopening of the mine and complete replacement of the jigging
process43. The successful implementation of DMS process at Premier Mine led to
its full acceptance across De Beers operations (Robinson and von Below, 1990
and Basson et al, 2007).
42 Source: http://www.fundinguniverse.com/company-histories/Boart-Longyear-Company-Company-
History.html
43 Primordial technology used in the treatment plant to recovery diamonds
78
The adoption of DMS by De Beers led to the establishment of a FeSi plant by
African Minerals Corporation (Armco) at Meyerton (approximately 50 km outside
Johannesburg) in 1950. Armco’s FeSi division was later merged with Samancor in
1967 to become one of the global leaders in the production of FeSi. Samancor
later became a division of BHP Billiton and the FeSi unit became an independent
company in 2006 trading under the name of Dense Medium Separation Powders
(Pty) Ltd, domiciled in the old premises of Armco in Meyerton, South Africa44.
Over the years DMS technology found acceptance outside the diamond recovery
into other forms of minerals such as coal, nickel, and iron ore. As a consequence,
the market attracted other South African manufactures such as Kumba Iron Ore,
Silicon Smelters, Magberg and Nimag. However the global market is dominated by
companies from China and Brazil.
4.5. Concluding remarks
The mining industry has faced many challenging problems over the years. Most
importantly these problems brought about innovative solutions. These solutions in
turn became significant economic activities that created employment opportunities.
Some of these significant economic activities were the large scale manufacturing
of explosives; the development of cyanidation treatment process which not only
rescued gold mining in the Witwatersrand basin at its infancy stage, but also
increased the production of gold; the use of portable rock-drills and subsequent
developments especially in the 1970s and 1980s; and the use of ferrosilicon in the
recovery of diamonds.
44 Source: http://www.dmspowders.com/
79
Solutions to the mining industry problems came about due to the collaboration and
strive for common objectives by various Mining Houses, glued together by the
CMSA. Most significantly COMRO, a research organisation under the CMSA, was
instrumental in finding wide ranging solutions to problems afflicting the mining
industry. COMRO was funded by mining companies (mostly gold and coal mines)
but when their support waned in the early 1990s, it was absorbed by the CSIR.
The lesson learnt from COMRO is that a scientific-based initiative with adequate
level of funding can be beneficial to the health of the industry. While it is unlikely
that South Africa will ever see the level of collaboration between mining
companies that existed prior the 1990s, the government can still create an
environment where science can be used to realise more value from mines and
mining products. In the absence of COMRO, Science Councils and universities
can be used to undertake scientific research. To reach adequate level of research
output and to sustain that output, South Africa will have to improve its basic
education system such that more learners can pass mathematics and physical
science at matric level.
80
5. MINERAL RESEARCH AND DEVELOPMENT IN SOUTH AFRICA
5.1. Introduction
Research and development has been a force behind innovative solutions that
emerged from the South African mining industry. When the support for COMRO
waned in the early 1990s and eventually absorbed by CSIR in 1993, there was a
fear that resource-based research in South Africa will cease. Fortunately common
problems that the mining industry faced and unique problems that afflicted
individual mines compelled them to look for research-based solutions.
To this effect, some mines in the gold mining sector collaborated in the DeepMine
project to find effective ways of mining beyond 3km below surface. Similarly
platinum mines and coal mines collaborated in the PlatMin and CoalTech 2020
projects to find solutions unique to their respective sectors.
5.2. Nature of mining research and development in South Africa
To understand the nature of mining R&D in South Africa, it will be best to have an
overview of the nature of mining globally. The globalised nature of mining dictates
that mining companies must search for solutions on a global scale. This global
perspective unfortunately influences their procurement patterns. In many respects
the procurement pattern of mining companies in developing and least developed
countries has the potential to undermine the development of domestic
81
manufacturing capacity and thereby nullifying the effects of local economic
linkages postulated by Hirschman (1958).
5.2.1. Nature of mining
Factors that affect global mining community, affect the South African mining
industry alike, which in most cases come into conflict with developmental agenda
of governments. All mining countries generally seek to attract investors and
professionals to their own industries; employ technologies that will attain high
levels of efficiency; promote mineral beneficiation; and promote higher levels of
economic activity in other local industries. The above are relatively easier to attain
when mining takes place on a large scale in a developed country.
In general, large scale mining globally is a capital intensive business venture
where the main asset is depleted and land is polluted in order to generate value.
To top it all, the easy to reach and high grade deposits have virtually been
depleted and those that remain generally have low grades or are in far flung areas
in developing countries or regions. In such countries or regions, often local
developments are not adequate to support mining. The remedy, almost
exclusively, is to import inputs and export outputs, thanks to the low cost of
international transportation.
Naturally mining is a risky business and there are primarily four types of risks that
have to be mitigated, namely geological, political, commercial, and environmental.
The latter is on the increase in developing countries but not yet at the level of
developed countries (Emel and Huber, 2008).
82
Geological risk is an inherent risk in mining and it includes changes in grade, rock-
mass strength, and metallurgical properties. Variations of these factors generally
occur both horizontally and vertically within few centimetres to several metres
across the mineralised rock mass. To this effect, there is an inherent uncertainty in
every tonne of ore mined. Variation of factors mentioned above is a daily
occurrence and demand constant attention lest they lead to financial losses or
fatalities.
Alongside geological risks, there is political risk. All mines, particularly those in
developing countries, face constant political risk especially when new political
leadership comes into power. Political risk includes “the unmanageability of
politicians, the possibility of terrorism or sabotage, the possibility of contract
breach or frustration, or the chance of expropriation of assets” (Emel and Huber,
2008: p1397). In South Africa the ANCYL and some trade unions are calling for
nationalisation of mines, a move that has unsettled investors and possibly leading
to a situation where economic contribution of the mineral sector going forward
could be undermined.
Political risk can also precipitate commercial risk, especially in a country where the
rule of law is weak. Other than that, commercial risk in its pure form arises
because of internal dynamics of mining companies (governance) and external
market forces. One of the biggest factors in the external market is the cyclic nature
of mineral prices. The combination of fluctuation in mineral prices and the long
lead time between initial investment and the recoupment of capital exacerbates
the commercial risk (Emel and Huber, 2008). In addition, commodity price cycles
83
can be detrimental to the extent that “the instability, and ultimate collapse, of
commodity prices in 1920s was seen as one of the major factors that caused the
Great Depression, contributing to political turmoil and the growth of international
tensions in the process” (Oxfam International, p149).
While it appears that there is a relationship between commodity price cycles
(business cycle) and their duration, it is difficult though to determine the turning
points of commodity price trends. The uncertainty in metal price movements going
forward affects the quality of investment decisions. Notwithstanding, it has been
observed that the duration of price contractions tended to be longer than the
duration of price expansions prior 2000 (Roberts, 2009). However, with the
emergence of China in the early 2000s as an important consumer of mineral
commodities, the reverse could be true.
The collapse of metal prices can lead to companies being unable to honour their
commitment to environmental rehabilitation and end up facing lawsuits. It is for this
reason, among others, that mining companies are not fond of strong
environmental laws (Emel and Huber, 2008).
In the past, strict environmental laws in developed countries and falling transport
costs encouraged mining companies to relocate their operations to developing
countries where environmental laws were benign to foreign direct investment at
the expense of environmental degradation. With time, the world has awakened to
the destructive nature of unregulated mining and subsequent environmental costs
that host governments have to bear. In South Africa, mining companies are
84
required to make financial provision for the rehabilitation of the environment in
their Environmental Management Plan. In addition, companies have to comply
with the following legislations (DMR, 2009a: p6):
• The Constitution of South Africa (Act 108 of 1996);
• National Environmental Management Act, 1998 (Act No 107 of 1998);
• National Water Act, 1998 (Act No 38 of 1998); and
• National Environmental Management Act: Air Quality Act (Act 39 of 2004).
The abovementioned legislations empower interest groups to challenge (and
sometimes frustrate) mining companies and the State if there are perceived
transgressions, a feat that can delay new projects or demand the attention of
senior managers.
The risks outlined above can be mitigated effectively by investment in research.
However investment in research attracts its own risk with very little guarantees that
it will yield the required results. In most cases mining companies limit the risk by
partnering with knowledgeable and reputable organisations. In a globalised world
the comfort of lowering the risk associated with R&D comes from choosing
specialist partners from developed countries with a long history of success. This
logic invariably leads to an import oriented procurement pattern in developing and
least developed countries.
85
5.2.2. The procurement pattern of South African mining industry
Ideally procurement policies of South African mining companies should lead to an
environment where there is buoyant local economy that is sustainable beyond
mining. In reality former mining towns (perhaps with the exception of
Johannesburg) find it difficult to provide sufficient employment for their residents
when mining activities decline or stop altogether.
Take for example the economies of Virginia and Odendaalsrus. The economies of
these two mining towns adjacent to Welkom, declined drastically when the gold
mining declined in the Free State Province. While investments are starting to
trickle into Welkom after a decade of stagnation, the two towns continue to wait for
their turn. Similarly the economy of Stilfontein in the Northwest Province collapsed
when gold mining ceased and residents were forced to look for jobs in
neighbouring towns of Klerksdorp and Potchefstroom.
A study by Lombard and Stadler (1980) showed that gold mining in the 1970s was
so important in the economy to the extent that its multiplier effect contributed 42%
to the GDP in 1978 while its direct contribution to the GDP was 18.7%. The mining
industry, in particular gold mining sector, sourced as much as 95% of its input from
the domestic market in the late 1970s. However the import component of these
inputs was very high. That is, domestic suppliers sourced their input from
international markets in order to supply the domestic mining industry. Similarly
large quantities of mining output by value were sold internationally with very little
left for local beneficiation. Basically it meant that the local mining sector, in so far
86
as high valued inputs were concern, was linked to the domestic market through
international markets (Lombard and Stadler, 1980).
The importance of gold as the premier foreign exchange earner in South Africa
diminished in the early 2000s while at the same time the PGM sector emerged as
a premier foreign exchange earner (see Figure 5.1).  In a similar manner as the
gold sector thirty years earlier, the PGM sector is sourcing 95% to 100% of its
inputs from local manufacturers, distributors, and agents. However a closer look
revealed that products and services consumed by the local PGM sector have high
import component (Lydall, 2009).
Figure 5.1: Annual revenue of gold, PGMs and coal between 1980 and 2007
Source: Stats SA (2010)
According to Lydall (2009), a general tendency in the PGM sector, and possibly
the entire South African mining industry as hinted by Tregenna (2007), is to use
local agencies for tendering purposes and local labour to assemble or install final
0
10 000
20 000
30 000
40 000
50 000
60 000
70 000
80 000
90 000
80 82 84 86 88 90 92 94 96 98 00 02 04 06
R M
illi
om
Mineral Revenue
Gold PGM Coal
87
products. In most cases capital equipment and delicate instruments are pre-
assembled in the country of their origin. The use of local agencies and labour gave
the appearance of a high consumption of local products and services whereas the
actual local consumption was estimated to be between 5% and 20%. Many of the
input products and services are sourced from USA and Europe.
In 2009 the total expenditure of the South African mining industry was R399 billion
against an income of R332 billion, incurring a deficit of R67 billion (see Figure 5.2).
A total of R193 billion or 48% of the total expenditure was spent on procurement of
goods and services (CMSA, 2010). The implication is that between R154 billion
and R183 billion was procured internationally, undermining local manufacturing
capacity in the process.
Figure 5.2: Total expenditure of South African mining industry in 2009
Source: CMSA (2010)
88
According to Lydall (2009: p116), South African mines depended on foreign
suppliers in “aerial mapping, mine design, environmental assessment, borehole
drilling, radar processing, remote sensing, geological assaying, drilling
consumables and replacement items, opencast and underground bulk materials
handling and haulage equipment, electrical equipment, comminution (crushers,
mills, cyclones) and concentration equipment (flotation cells, filters, pumps),
metallurgical testing, chemicals and reagents, driers, converting equipment,
smelting and tapping equipment, environmental/gas-treatment and refining
equipment”.
This situation presents a challenge and opportunity at the same time. It is a
challenge because the know-how lies with foreign companies and institutions. It is
an opportunity because it is an indication of the presence of local demand which
local companies (if given the right support) should take advantage thereof.
Notwithstanding, South African enterprises are not just bystanders in the mineral
sector. In addition to unparalleled expertise in deep underground mining, Lydall,
(2009: p117) stated that South African companies have competitive edge in “mine
design and development, construction and structural engineering, ventilation and
cooling, contract mining, shaft sinking, mineral processing, tailings treatment,
process control, metallurgical testing, and smelting and refining. Local
competencies have also been developed around the design and manufacture of
niche systems and components (hoisting, winding, hydropower drills, filters,
pumps, pinch valves) and strategic consumables (cement, shotcrete, explosives,
grinding balls)”.
89
Products and services mentioned above present an opportunity for South African
companies to capture international market share using local labour and expertise.
Meanwhile, the rest of the African continent remains the biggest market outside
South Africa for these companies despite the continent being notorious for low
levels of intra-trading.
5.2.3. Research environment in mining post COMRO
The curtailment of COMRO’s budget between 1980s and 1990s led to a reduction
of its labour complement from 673 to approximately 200 (Pogue, 2006b). Many of
those that left the employment of COMRO were foreign scientists, researchers and
technicians attracted to South Africa because of its mining research programmes.
Australia, which was beginning to intensify its mining research programme in the
early 1990s, became their next destination.
Despite this setback, the CSIR (after taking over COMRO in 1993) continued with
mining related research. To this effected, the CSIR collaborated with the mining
industry, labour organisations, universities and other government institutions in
initiatives such as DeepMine, FutureMine, CoalTech 2020, and PlatMine projects
(Bluhm et al, 2010). The collaboration model between CSIR and other
stakeholders was developed by Dr Güner Gürtunca of the CSIR and Prof. Huw
Phillips of Wits in 1996 (Durrheim and Diering, 2002).
The DeepMine project was launched in 1998 and ended in 2002. Its objective “was
to develop expertise and technology to mine gold safely and profitably at ultra-
depth (3 to 5km) in the Witwatersrand basin of South Africa” (Bluhm et al, 2010:
90
p428). Over 250 researchers across various fields of study were involved in the
DeepMine project (Durrheim and Diering, 2002).
The success of the DeepMine project led to the birth of the FutureMine and
CoalTech 2020 in 2002. The FutureMine project focused on reducing costs and
improving productivity under four main themes namely, rock engineering and
seismicity; mining engineering and mineral resource management; information
technology; and cooling and refrigeration. Technologies such as the Disc Sampler
and the Drill Samper emerged from the FutureMine project and went into proto
type stage in 2004 (Venter, 2004). However there is very little evidence of the
uptake of these technologies in the mining industry on a large scale.
Currently the mining industry (in particular coal and platinum miners) and CSIR are
collaborating in initiatives such as CoalTech 2020 and PlatMine projects to
develop new mining and processing technologies. Among other things, the
PlatMine project is looking into safety and mine environmental issues as the sector
is preparing to go deeper underground than before, as well as cheaper methods of
treating the UG2 reef. In the case of the CoalTech 2020 project, researchers are
looking at methods of mining the Waterberg coalfield which is touted as the
replacement of the Witbank coalfield when the latter is depleted.
Another significant research initiative that came after COMRO was taken over by
CSIR was the collaboration of Anglogold Ashanti and Hilti Corporation to develop
portable electric rock-drills in 1996. The prototype of Hilti electric drill, TE MD20,
was developed in 2001 and trials were undertaken at Moab Khotsong Mine. The
91
development and implementation of the Hilti TE MD20 took almost ten years with
the biggest obstacles being the quantification of benefits and the buying-in from
workers. The use of portable electric rock-drill technology is currently in its infancy
stage in the deep hard rock mining in South Africa and is competing with well
established brands of pneumatic and hydraulic portable rock-drills (Coutts et al,
2009).
5.2.4. South African mining research and development in perspective
Despite the large volume of research that came out of the South African mining
industry since the 1890s, local mining companies currently rely significantly on
foreign companies to develop mining equipment and computer software. This
situation has led to foreign ownership of solutions to problems identified locally.
For example Hilti Corporation has developed electric rock drill for local
underground mines in collaboration with Anglogold Ashanti; Sandvik has
developed extra low profile equipment for local narrow reef stopes in collaboration
with platinum mines (Pickering and Leon, 2008); and Israeli Desalination
Engineering has developed vacuum ice plants for deep and hot underground
mines in collaboration with Anglogold Ashanti45.
Vogt and van Schoor (2010) have noted that the reliance on foreign companies to
convert local research into commercial equipment and services have the effect of
delaying the infusion of technology on local mines. Many of imported equipment
loaded with cutting edge technologies cannot be supported locally. Consequently
45 Source:
http://www.anglogold.co.za/subwebs/informationforinvestors/reports07/reporttosociety07/energy-
mponeng.htm
92
broken units are sent overseas for repairs or modifications with long turnaround
times, resulting in a loss of acceptance momentum in local mines. This is also
complicated by a lack of knowledgeable staff on mine level and head office to
advocate for, support and use new technologies.
The lack of local expertise to develop equipment post research influences the
procurement pattern of South African mines which is currently biased significantly
towards imported goods. The consequence thereof is the low rate of creating local
employment opportunities.
5.3. Concluding remarks
Mining in South Africa is part of a global mining community with a number of
multinational mining companies currently exploiting local resources. Being part of
the global mining community puts pressure on companies to mine safely, healthy,
and efficiently in order to increase production, lower costs, and retain a social
license to mine. One way of achieving the above is to invest in R&D.
There have been many mining research initiatives in South Africa after 1993.
Some of these initiatives included DeepMine, FutureMine, CoalTech 2020 and
PlatMine projects. These projects have generated a large pool of knowledge about
the nature of orebodies and mining conditions in South Africa. They have also
identified potential areas for improvement. However, very few products came out
of such research initiatives, pointing to a lack of capacity to develop and
manufacture products.
93
Nonetheless there have been some notable developments, for example the
SIMRAC research led to local development and manufacturing of underground
safety nets by a local company that have other markets outside the mining
industry. Similarly a research into rapid yielding underground hydraulic props was
converted into a commercial proposition by a South African company. Even a
research about the use of roofbolts in narrow reef mines was converted into a
commercial proposition by a local company.
However the rate and the scale of converting mining research into commercial
products and services in South Africa is very low by world standards. For example
a quick search on the internet (on 19 November 2011) reveals that there is only
one company from South Africa listed as a manufacturer of hydraulic props
whereas there are over 100 such companies in China. While the Chinese quality is
questionable, the point is that Chinese companies have developed a culture of
manufacturing and marketing products in large quantities internationally.
The mass production strategy of China probably forces South African companies
to look into targeting niche markets. The niche market strategy is appropriate
considering that South Africa has the smallest local market compared to other
BRICS countries. However, low levels of product development and manufacturing
are an obstacle to the efforts of efficiently targeting niche markets. A solution to
this problem is imperative though due to the pressing issues of poverty,
unemployment and inequality.
94
Some mining companies opted to partner with foreign companies to develop
products that could solve their problems. For example, when Anglogold Ashanti
was facing problems of compressed air reticulation on its mines in the mid-1990s,
it partnered with a Liechtenstein based Hilti Corporation to develop portable
electric rock-drills. Similarly the Automine concept of Finsch Mine was developed
by De Beers in partnership with a Swedish based Sandvik in the early 2000s.
Even during the times of COMRO, portable rock drills were developed in
partnership with foreign companies as Sulzer and Novatek. Ideally it would be
preferable if development and manufacturing partnership contracts were entered
into with first and second tier local companies. This would ensure a vibrant local
economy with the potential of lateral technology and benefits migration.
The problem of low capacity to develop and manufacture products and services
following a research is fundamental, structural and endemic in the South African
mining industry. The solution to this national problem should be a multi-pronged
approach with an overarching goal to converge towards a single solution. One of
the plausible solutions to this problem is the Linkage Model discussed in section 6
of this report.
95
6. THE LINKAGE MODEL
6.1. Introduction
The point of view taken in this report is that mining will continue to be a critical
contributor to the South African economy in the current century. To contribute
meaningfully, mining must position itself such that it is able to create sustainable
job opportunities in other sectors of the economy through its connectedness,
particularly in the industrial sector. It is the view of the author that an appropriate
vehicle to achieve meaningful contribution of mining in the South African economy
going forward is through the Resource-based Research and Enterprise
Development Model or the Linkage Model in short. The outcome of the Linkage
Model, once it is adopted and put into operation will be known as the Linkage
Initiative or Resource-based Research and Enterprise Development Initiative.
The Linkage Model aims to develop new mining technologies, products and
services through R&D while simultaneously promoting domestic mineral
beneficiation. It is envisaged that new mining technologies, products and services
and mineral beneficiation will result in the creation of new enterprises or expansion
of existing enterprises into other industries through economic linkages. The
Linkage Model discussion is premised on the mining industry being a strong
primary industry capable of generating growth in existing industries or creating
new local industries horizontally and vertically along the mining value chain as
shown in Figure 6.1.
96
Figure 6.1: The economic activity due to a strong primary industry
The Linkage Model as discussed in this report will thrive under conditions that
enable the creation of new or expansion of existing enterprises which are
underpinned by thoroughly researched products and services. The implication will
then be that the conversion of research into products and services will rely on high
entrepreneurial activity in the niche technology and manufacturing sectors as
hinted by Lydall (2009). A vibrant entrepreneurial culture is very important if mining
and other industries are to be used as appropriate vehicles to combat the
problems of poverty, unemployment and inequality in South Africa. In short, the
envisaged environment of the Linkage Model is the one where there is a symbiotic
relationship between researchers and entrepreneurs.
6.2. The nature of business development in South Africa
For businesses to flourish, adequate legislative and regulatory framework has to
be in place. In general South Africa has a progressive Constitution and robust
legislation with adequate mechanisms to collect taxes and levies. There is a rule
97
of law and respect for the Constitution. In addition, institutions such as the Public
Protector, six institutional Ombudsmen, Competition Tribunal, Consumer
Protection Board, and National Economic Development and Labour Council
(Nedlac) have been established to protect the rights of individuals and
organisations.
Nedlac, established in 1994, is a framework of tripartite engagement between
government, business and labour. It was founded with the appreciation of
inequality in South Africa despite mineral endowment, sizeable arable land, strong
banking and financial systems, and relatively good national infrastructure. In the
past Nedlac managed to harmonise the relationship between business and
labour, but recently tripartite members have been at loggerheads over a number
of draft labour bills. Business perceives proposed labour bills and amendments as
onerous and moving against job creation efforts. Unions on the other hand are
split; some are in favour of proposed labour bills and amendments while others
would prefer a moderate tone (Bleby, 2011).
Despite the noises coming out of Nedlac, the government of South Africa
fundamentally supports private sector investment. This was evident when the new
government that emerged after 1994 created an investor friendly environment and
opted to privatise some of the parastatals such as ISCOR, and SASOL (Aron et al,
2009).
South Africa is also fortunate in that it has many private and public business
development agencies. Public development agencies operate on a national,
98
provincial and regional level (see Table 6.1). The unfortunate part is that these
public agencies are controlled by different government ministries, leading to
duplication of resources and lack of clear holistic policy on enterprise
development. These ministries work in silos and this prevents the free flow of
information and timely or directed interventions for small and medium enterprise
development (see Figure 6.2). Another weakness is that those that are controlled
on a national level compete with those that are controlled on provincial or regional
level for funding opportunities, resulting in wastage of funds and opportunity for
abuse and corruption.
Table 6.1: Public business development agencies in South Africa
Agency* Jurisdiction Department
National Development Agency National Social Development
National Youth Development Agency National Presidency
Small Enterprise Development Agency National Trade and Industry
Khula Enterprise Finance Ltd National Economic Development
National Empowerment Fund National Trade and Industry
Development Bank of Southern Africa National National Treasury
Land Bank National Agriculture and Land Affairs
Gauteng Economic Development Agency Provincial Finance and Economic Affairs
Eastern Cape Development Agency
Corporation
Provincial Economic, Development and
Environmental Affairs
Free State Development Corporation Provincial Tourism, Economic And Environmental
Affairs
Trade and Investment KwaZulu-Natal Provincial Economic, Development and Tourism
Mpumalanga Economic Growth Agency Provincial Economic, Development, Environment
and Tourism
Trade & Investment Limpopo Provincial Economic, Development, Environment
and Tourism
Northern Cape Economic Development
Agency
Provincial Finance, Economic Development and
Tourism
Invest North West Provincial Economic Development & Tourism
Mpumalanga Economic Growth Agency Provincial Economic Development, Environment
and Tourism
Cape Agency for Sustainable Integrated
Development in Rural Areas
Provincial Economic Development, Environment
and Tourism
*The list is not exhaustive
99
Figure 6.2: South African State funded business development agencies on national level
Adapted from Timm (2011)
In comparison, Brazil and India have only one ministry in charge of small and
medium enterprise development. In the case of Brazil the Ministry of
Development, Industry and Foreign Trade is responsible for enterprise
development and in India the Ministry of Micro, Small and Medium Enterprises is
the responsible authority (Timm, 2011).
Perhaps the low entrepreneurial activity in South Africa compared to its BRICS
peers, despite the presence of a number of development agencies, is an
indication of a lack of a holistic policy on enterprise development. Timm (2011)
stated that uncoordinated activities of public business development agencies and
100
BEE legislation that undermines entrepreneurial skills among HDSAs by
promoting rent seeking behaviour are some of the obstacles that inhibit the
creation of sustainable enterprises. A research by Virgin Unite (2011) on the other
hand revealed that prospective entrepreneurs and youth believe that a lengthy
process of registering companies put unnecessary strain on the efforts to start
new companies.
In the interest of efficiency and to ensure proper coordination, Timm (2011)
suggested that the government should consider establishing a single development
agency. However the author believes that this may not be feasible given the
diverse nature of enterprises in South Africa. A plausible solution could be the
formation of two specialist avenues under the DTI and DED (see Figure 6.3). For
example the DTI through IDC and NEF could focus on large enterprise
development (see Table 6.2 for the distinction between large, medium and large
enterprises) whereas DED through SEDA and Khula could focus on small and
medium enterprise development. SAMAF, NSBAC, NYDA and NDA should be
brought under the fold of SEDA or Khula depending on whether they provide
mentoring service or funding. TIA under the DST should continue to help small
and medium enterprises with their technology or innovation requirements and
lastly the Development Bank of Southern Africa and the Land Bank under the
National Treasury could provide financial and other related support to all
enterprises in conjunction with IDC, NEF and Khula.
101
Figure 6.3: Proposed simplified structure of public enterprise development agencies in
South Africa
The development and support of small and medium enterprises is important. In
the second quarter of 2011 small and medium enterprises contributed 23% and
9.3% respectively towards the GDP of South Africa (see Table 6.3). In general
small enterprises in South Africa have a higher contribution to GDP than medium
size enterprises, but in mining the reverse is true. Perhaps the capital intensive
nature of mining in South Africa and the generally poor support for small scale
miners creates barriers for entry into mining (for example tertiary institutions such
as Wits, UP, UJ and UNISA are not currently offering courses to capacitate small
and medium enterprises in mining).
102
Table 6.2: Classification of large, medium and small businesses in South Africa based on
annual turnover
Industry Large(million)
Medium
(million)
Small
(million)
Mining and Quarrying > R234 R60 to R234 R2 to R60
Manufacturing > R306 R78 to R306 R2 to R78
Electricity, gas and water
supply > R306 R78 to R306 R2 to R78
Construction > R156 R36 to R156 R2 to R36
Transport > R156 R78 to R156 R2 to R78
Real estate and other
business services > R156 R78 to R156 R2 to R78
Community, social and
personal services > R78 R36 to R78 R2 to R36
Source: StatsSa (2011)
Table 6.3: Selected contribution of economic sectors to GDP in the second quarter of
2012 according to company size
Large Medium Small
All industries 67.6% 9.3% 23.0%
Mining & Quarrying 7.3% 0.3% 0.2%
Manufacturing* 23% 3.4% 5.5%
*Incudes companies involved in mineral beneficiation. Source: StatsSa (2011)
Interestingly, 8.9% contribution by small and medium enterprises in the
manufacturing industry to the GDP in the second quarter of 2011 was higher than
the contribution of the entire mining industry (7.8%) in the same quarter. Perhaps
this demonstrates of the importance of the manufacturing sector in job creation
efforts.
Even though the direct contribution of mining in the economy is smaller than that
of manufacturing sector, the greatest value lies in its mining multipliers. According
to CMSA (2010) the value of mining multipliers (backward, forward and lateral
103
linkages) in 2009 contributed 10.2% to the GDP compared to 8.8% direct
contribution of mining to the GDP.
The author makes an assertion that the diversion of a portion of mining multipliers
(employment and capital formation) through procurement to small and medium
enterprises synergizes with the Linkage Model, especially in the context of
technology intensive mines as discussed in section 6.3.6. Given that small and
medium enterprises in the manufacturing sector are larger than the mining sector
in terms contribution to the GDP, it is logical to infer that there is a critical mass
within this sub-sector to provide mining companies or tier 1 companies with low
risk products and services based on the findings of Lydall (2009) as shown in
Figure 6.1.
There is also an opportunity to incentivise medium size companies in the
manufacturing sector to undertake mineral beneficiation where possible (the
mineral sector). For example, apart from chrome ore, phosphate rock, coal,
copper and zinc, a large portion of South African minerals was exported after the
first stage of beneficiation, leaving small quantities for local beneficiation in 2008
(see Table 6.4). Similarly large quantities of fabricated metals were exported in
2008, leaving very little for higher stages of beneficiation in the local economy
(see Table 6.5).
According to Figure 1.2, higher stages of mineral beneficiation are labour
absorptive. Therefore South Africa should be encouraging companies to
participate in the second, third and fourth stages of mineral beneficiation with
104
principally two objectives, namely value creation and job creation. Similarly
extraction efficiencies of companies operating within the first stage of mineral
beneficiation should be encouraged.
Table 6.4: South African production of selected minerals and metals in 2008
Mineral/metal
Global
Resource
Base
Ranking
Production
(t)
Export
Quantity
(t)
Local usage
(t)
Export
(%)
Local
(%)
Chrome Ore 1 9 683 000 762 000 8 921 000 8 92
Manganese 1 5 589 000 3 572 000 2 017 000 64 36
PGMs 1 276 223 53 81 19
Gold 1 213 190 23 89 11
Fluorspar 2 299 000 276 000 23 000 92 8
Vanadium 2 20 300 12 100 8 200 60 40
Vermiculite 2 200 000 205 000 - 103 0
Titanium
minerals
2 1 211 000 1 211 000 - 100 0
Phosphate Rock 4 2 287 000 - 2 287 000 0 100
Nickel 5 32 000 22 200 9 800 69 31
Coal 8 250 200 000 57 900 000 192 300 000 23 77
Zinc 8 31 400 - 31 400 0 100
Iron Ore 9 41 300 000 3 300 000 1 000 000 73 27
Copper 14 93 000 27 000 66 000 29 71
Source: DMR (2009a)
The gap between export quantities and local usage in Table 6.4 and Table 6.5
represent opportunities that can be filled by increased participation of small,
medium and large enterprises within the mineral sector. A probable vehicle to
capacitate these enterprises is the Linkage Model.
105
Table 6.5: South African production of selected beneficiated metals in 2008
Mineral/metal Production(kt)
Export
Quantity
(kt)
Local
usage
(kt)
Export
(%)
Local
(%)
Ferrochromium 3 269 2 525 744 77 23
Ferro-alloys of manganese 704 626 78 89 11
Ferro-silicon 134 44.2 89.8 33 67
Silicon metal 51.7 53.5 - 103 0
Source: DMR (2009a)
6.3. The components of the Linkage Model
The proposed Linkage Model consists of the following components:
• government support;
• funding scheme for mining and mineral beneficiation research;
• development of skilled personnel to generate and support new technologies;
• involvement of Science Councils and universities in resource-based
research;
• mining and mineral beneficiation research output; and
• commercialisation of mining and beneficiation research findings.
In simple terms the Linkage Model is primarily concerned with resource-based
research and enterprise development. The two combine to create a symbiotic
relationship between the mining industry as the primary industry, the downstream
beneficiation industries and the resultant first and second tier companies. The
Linkage Model, with resource-based research at its centre and enterprise
development as its ultimate output is shown in Figure 6.4.
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Figure 6.4: The Linkage Model
The force behind the Linkage Model should be a strong culture of resource-based
research supported by coordinated activities of enterprise development agencies
and capability to commercialise research findings on a continuous basis.
Fortunately the culture of resource-based research in South Africa is not new; it
was one of the critical success factors of economic growth in the previous century
and its remnants are still evident within the Science Councils today. The
envisaged Linkage Model is based on six components or pillars as discussed
below.
6.3.1. Government support
The first component of the Linkage Model is the support from the government
through its various departments. The strategic nature of the Linkage Model
warrants the attention of the highest office in the country. For this reason, it should
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be on the radar screen of the Office of the Presidency, in particular the Planning
Commission. Currently the Planning Commission is considering a number of
issues (economic, social, environmental and political) with a view to shape the
future of South Africa.
One of the issues that the Planning Commission is looking at is to increase the
social and economic value of the South African mineral endowment. It is in this
respect that the Linkage Model should be regarded as one of the tools that could
be used to create a stronger mineral sector characterised by profitable mines,
fervent enterprise development and significant mineral beneficiation in line with the
government’s Mineral Beneficiation Strategy. To achieve this feat, there has to be
a synergy of policies from various government departments under the guidance of
the Planning Commission in the Office of the Presidency (see Figure 6.4).
In this regard, the role of the Department of Mineral Resources (DMR) will be to
create an environment where there is sufficient space and adequate number of
mines to undertake mining and metallurgical (first stage of mineral beneficiation)
research with the view of developing usable technologies. The DMR should also
ensure that there are sufficient quantities of mined minerals in the country for local
beneficiation.
In the long term, the DMR should use African Exploration Mining & Finance
Corporation (AEMFC), the State mining company, to support research in mining
and metallurgy. In this instance, the DMR will have to allocate mineral resources
with high Ricardian rents to AEMFC, similar to Luossavaara-Kiirunavaara
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Aktiebolag (LKAB) in Sweden. AEMFC will then reciprocate by opening its doors
to Science Councils and universities to undertake R&D on its mines. Part of the
Ricardian rent can be used to fund R&D while the economic rent will be used for
the normal operation of the company. However there is always a risk that
Ricardian rents could be abused by political elites, therefore the National Treasury
should put in place mechanisms that will ensure that such rents are directed to
their rightful recipients or are disburse for research in the mineral sector.
With regard to the industrial sector, the Department of Trade and Industry (DTI)
will have to take the lead in ensuring the attainment of appropriated research
outputs with regard to second, third and fourth stages of mineral beneficiation. In
addition, measures should be put in place to ensure that the level of import
component of capital goods in the mines is progressively reduced. However the
government and public will have to safeguard against the stealth introduction of
import substitution policies.
The roles of DMR and DTI within the Linkage Model will be supported by the
Department of Science and Technology (DST) since it is charged with the
mandate to ensure sufficient level of R&D in South Africa. Successful execution of
this mandate depends on the creation and maintenance of knowledge banks,
coordination of various research aspects (scientific, social and economic),
provision of research facilities, and provision of funding through the National
Research Foundation (NRF).
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In addition, the National Treasury in conjunction with the DST and other
government departments must embark on a campaign to inform the public about
various trade incentives46 and the provisions of the Income Tax of 1962 that
stipulates that companies which have registered their R&D with DST are eligible
for a tax rebate of up to 150% with respect to their R&D expenditure. In Australia
there were 5 630 companies in 2004 that were using R&D tax concessions, which
varied between 125% and 175% of R&D expenditure (Australian Government,
2007). In comparison, only 301 South African companies applied to be on R&D tax
incentive programme by the end of 2009 (DST, 2010).
The force behind R&D is human capital. To ensure a long term sustainability of the
Linkage Model, the country will have to produce adequate number of skilled
people. To achieve this, the education system under the auspices of the
Department of Basic Education (DBE) and the Department of Higher Education
and Training (DHET) will have to produce the right quantity and quality of
graduates. In particular the education system under DBE will have to put
measures in place to improve mathematics and physical science pass rates at
matric level from a low base of 5.1% and 5.8% respectively in 2005.
6.3.2. Resource-based research funding
Funding in research is very important. While the government through NRF under
the DST provides grants for research in general, it will be in the interest of South
Africa to increase the total research fund pool. Currently the government aims to
46 Some of these incentives are mentioned in the Industrial Policy Action Plan (IPAP) 2012/2013 –
2014/2015 document.
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increase the research budget from the base level of 0.93% of GDP in 2010 to
1.5% and 2% of GDP by 2014 and 2018 respectively. This is noteworthy because
according to the DST, the 2010 level of R&D funding does not support economic
growth in South Africa (DST, 2010).
The mandate of the DST is very broad and cuts across all sectors of the economy.
To secure adequate level of funding for the Linkage Model, authorities will have to
look elsewhere for funds. Other than the National Research Budget, there are
other potential sources of research funds such as the National Skill Fund, private
sector funding and tax rebates.
The National Skills Fund is made up of the money from skill development levy
collected under the Skill Development Act (SDA) of 1998 by the South African
Revenue Service (SARS). According to SDA, companies with annual turnover of
more than R0.5 million are supposed to pay 1% of their payroll to Sector
Education and Training Authority (SETA) in their respective industries while
employees contribute another 1% to make a total of 2%. A 20% of the SDA levy
collected by SARS is paid into the National Skills Fund while the 80% is disbursed
equitably to the respective SETAs.
Regrettably money paid into the National Skills Fund grew to R5 billion between
2005 and 2010 despite South Africa suffering from chronic shortage of skills and
high unemployment (Pressly, 2010). Nonetheless, SDA presents an ideal
opportunity to fund the Linkage Model in two ways. Firstly part of the money
accumulated in the National Skills Fund could be used as a seed-fund for the
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Linkage Model. Secondly 20% of the skills development levy collected by Mining
Qualification Authority (a mining industry SETA) could be used to fund subsequent
activities within the Linkage Model. Furthermore other SETAs in the industrial
sector could divert anything between 0% and 20% of their National Skill Fund
portion into the Linkage Model depending on their involvement.
As part of their social responsibility, private sector companies may contribute
funds to towards the activities of the Linkage Model in exchange for discounted
rates on solutions and technologies therefrom. This is not unique though;
established mining companies tend to provide funds for R&D from time to time.
For example De Beers in conjunction with ISCOR developed DMS technology for
recovering diamonds in the 1940s; Jubilee Platinum collaborated with Mintek in
developing ConRoast furnaces to treat PGM ores with high chromite content;
Anglogold Ashanti is collaborating with Mintek in the AuTek Project in search for
new uses of gold; and Gold Fields have donated money to build Mine Design
Laboratory at Wits.
Business chambers can also play a role in encouraging their members to
participate in the Linkage Model activities. In the past the CMSA, through
COMRO, was central to the development of mining technologies such as the
underground refrigeration, underground ventilation systems, portable rock-drills,
and hydro-power. In the early 1990s when COMRO reduced its staff complement,
some of those retrenched staff started their own companies using the knowledge
accumulated within the COMRO over the years. To this effect, companies such as
Hydro Power Equipment (hydro-power), Joules Technology (hydro-power), Turgis
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(hydro-power and mining services), TLC Software (hydro-power software and
instrumentation), and Bluhm Burton Engineering (cooling and ventilation) were
established (Pogue, 2008). A move that is beneficial to the economy and
membership roll of business chambers.
The government can also incentivise companies through tax rebates and public
funding to undertake R&D outside formal programmes of the Linkage Model
provided such technologies are in the national interest (e.g. employment creation
or more corporate taxes in the future). However care should be taken to develop
appropriate policies as it has been found that tax rebates and public funding can
counter each other’s effectiveness if one of them is too attractive. To this effect, it
was found that the government funding of R&D in private companies was effective
if pegged between 10% and 20% of the overall R&D fund. The government
funding below 10% was found to be discouraging to R&D initiatives while the
funding above 20% was found to have an effect of replacing private sector funding
or creating dependency on public money (Guellec and Van Pottelsberghe De La
Potterie, 2003).
6.3.3. Skills supply
Availability of adequate quantity and quality of skills to undertake research,
product and service development, and business development (including
entrepreneurship) is very important for the success of the Linkage Model. The
preparation for such skills starts from basic education and goes all the way to
tertiary education.
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It was shown earlier that the South African education system is not producing
enough learners with mathematics and physical sciences at matric level. These
two subjects are a prerequisite for learners intending to study science and
engineering which in turn are core disciplines in the Linkage Model. Even more
alarming is the fact that South Africa is producing doctorate degrees at a slower
rate than its competitors in the mineral sector (see Table 6.6), a factor that
reinforces the status of South Africa as the net importer of technology in the
mineral sector.
Table 6.6: Number of doctoral graduates in 2007
Country Graduates per
1 000 000* Population**
2007
Graduates
Chile 13 16 600 000 216
South Africa 26 47 900 000 1 274
Mexico 28 106 500 000 2 982
Turkey 48 74 000 000 3 552
Brazil 52 189 300 000 9 844
Japan 132 127 700 000 16 856
Canada 140 32 900 000 4 606
France 172 61 700 000 10 612
New Zealand 179 4 200 000 752
USA 201 302 200 000 60 742
Norway 208 4 700 000 978
Australia 264 21 000 000 5 544
UK 288 61 000 000 17 568
Germany 297 82 300 000 24 443
Finland 375 5 300 000 1 988
Sweden 427 9 100 000 3 886
Source: *ASSAf (2010); **2007 World Population Data Sheet
In 2007 South Africa produced 1 274 doctorates compared to an estimated figure
of 60 742 in USA, 24 443 in Germany, 16 856 in Japan, 5 544 in Australia, etc. as
shown in Table 6.6. Among the countries shown in Table 6.6, South Africa had the
second of smallest doctorate ratio per one million people. Apart from Mexico,
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Turkey and New Zealand, the rest of the countries listed in Table 6.6 are direct or
potential competitors of South Africa in supplying goods and services to the
mineral sector. Up to 2007 the South African production of doctorates was not
enough to start changing the procurement pattern of the mining industry
highlighted by Lombard and Stadler (1980), Tregenna (2007), and Lydall (2009).
For example in 2007 there were 1 274 doctoral graduates in South Africa and only
92 of them graduated in the category of engineering sciences, materials and
technologies. Out of the 92 graduates, 28 and 17 of them were in the field of
electrical and electronic engineering, and mechanical engineering respectively.
These two fields of study consistently produce a large number of doctoral
graduates (ASSAf 2010). In the corresponding period, Wits produced only 1
doctoral graduate in mining engineering (see Table 6.7), pointing to a possible
capacity problem with respect to the envisaged resource-based research.
Table 6.7: Mining engineering doctoral statistics at Wits University
Year Registered PhD PhD Graduates
2005 10 1
2006 16 2
2007 16 1
2008 14 2
2009 14 0
2010 16 2
Source: Wits University School of Mining Engineering (2011)
ASSAf (2010) provided a number of recommendations to overcome the problem of
low numbers of PhD graduates. One of the recommendations was to increase the
number of full-time doctorate students by increasing annual allowances to a level
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that will not adversely affect their financial well-being while undertaking full-time
studies. With limited funds available, it will be the issue of how authorities can
increase the research fund pool for the resource-based research. Failure to do
this, the country will not be able to competitively increase the level of home grown
research, leading to the reinforcement of the problem of high import capital
component in the South African mining industry.
To create a sustainable pipeline of resource-based researchers, product and
service developers, and entrepreneurs in South Africa schools, colleges,
universities, and SETAs will have to produce graduates with the right set of skills.
Colleges and SETAs are important in the sense that they are supposed to produce
artisans and technicians who are supposed to support technology used in
research and subsequently in enterprises. SETAs in particular are established,
among others, to formalise training and recognise years of experience in the
workplace.
The downside is that very few SETAs function optimally, while the pass rate at
colleges is very low. There are approximately 50 public colleges in South Africa
where candidates sit for the National Certificate examinations at level two and
three. The pass rate of the National Certificate examinations at level three in 2008
and 2009 was 9.56% and 12.4% respectively. Similarly the pass rate of the
National Certificate examinations at level two in 2007, 2008, and 2009 was
11.39%, 7.59% and 9.6% respectively (Blaine, 2011). This situation exacerbates
the skill shortage problem, particularly those of artisans and technicians that are
supposed to support the development and maintenance of technology.
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In addition to technicians and artisans, another requisite skill is that of researchers.
Primarily universities are responsible for producing researchers. In South Africa,
the onus mainly falls on Wits and UP to produce relevant doctoral, masters and
first degree graduates for the South African mining industry. Naturally this pool of
graduates is a lot smaller than that of technicians and artisans and has to be
shared between R&D, technical, and management streams in the mining industry.
Because of the economics, many first degree graduates would rather be in
management positions with few enrolling for masters and doctoral programmes in
technical fields. The problem with this situation is that the number of people with
doctorate degrees in the country correlates well with the economic growth (ASSAf,
2010). For South Africa to be competitive in the mineral sector, it will need to
produce enough people with technical masters and doctoral degrees to work in the
mineral sector industries, universities and Science Councils.
6.3.4. Research authorities
Science Councils, universities and private research institutions have a crucial role
to play in the Linkage Model. South Africa has some of the best universities in
Africa and Science Councils capable of undertaking resource-based research on a
large scale. Work done by Science Councils is discussed elsewhere in this report.
Despite the success of Science Councils in the past, there is a lot that has to be
done if the reliance of mining on imported goods is to be reduced and meaningful
job opportunities are to be created. The gap between the status quo and the
desired state where ample jobs would be created because of the research in the
mineral sector creates an opportunity for tripartite collaboration between private
117
sector, universities and Science Councils. Close collaboration between Science
Councils and universities will lead to young graduates appreciating the value and
benefits of choosing careers in research. Through the Linkage Model, the salaries
of young researchers could be supplemented in order to bring them in line with
their counterparts on the mines or in factories.
Science Councils must also be refocused to undertake more fundamental
research and less of commercial projects. For this to happen, the government
must increase the research budget allocation for Science Councils. Currently
these institutions are undertaking commercial projects in private and public sectors
to stay viable. Figure 6.5 shows a split between government funding and income
due to commercial activity of Science Councils from 2007 to 2010. The author is of
the view that fundamental research will lead to breakthrough technologies that
could put South Africa in a good light internationally.
With respect to private research institutions, their participation in the resource-
based research is not new though. COMRO was actively engaged in various
research projects between 1965 and 1992 in all areas that impacted on gold and
coal mining. While it is acknowledged that knowledge created in the private sector
is private, some form of knowledge exchange between public and private research
organisations should be encouraged. This is crucial when it is considered that the
private sector is more likely to commercialise research outputs than public
institutions.
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Figure 6.5: Split between government funding and commercial income of Science
Councils from 2007 to 2010
Sources: Annual reports of Mintek, CGS and CSIR
6.3.5. Mining research and beneficiation
The ability to develop and eventually commercialise research findings is important.
To be competitive, South Africa needs safe and healthy, profitable and efficient
mines and strong downstream industries, a feat that can be achieved through long
term investment in research.
A well-executed mineral-based research project should lead to the creation of new
jobs. Fortunately all the building blocks for mineral-based research are in place in
South Africa. For example there are established Science Councils, universities,
and development agencies which can be used to support the Linkage Model. What
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seem to be lacking is adequate skills, appropriate research policy, and public and
private sector willingness to invest in fundamental and exploratory research.
The resource-based research envisaged in this report should lead to development
of new technologies that will unlock the potential within the South African mineral
resources. A point in case is the South African gold mining sector. While
production has been declining to the extent that countries such as China and
Australia have overtaken South Africa as the leading producers of gold, the
country still has the largest known gold resources in the world (Brown, 2010).
Unmined gold resources in South Africa are locked in underground pillars;
unmined marginal ground that fell below the cut-off grade at some stage in the
past; deep deposits (beyond 3km deep) in the Witwatersrand basin; unprocessed
slimes dams; and in the deposits of the Bushveld Complex. These resources can
be converted into mineable reserves through investments into new mining and
metallurgical methods, including new industrial applications of gold (new demand),
subject to commodity price movement and risk adjusted price of capital.
Currently gold is used almost exclusively for investment and jewellery purposes,
but work is underway to find alternative large scale application of gold. Mintek has
been collaborating with Anglogold Ashanti (and Harmony in the past) in the AuTek
project to find new industrial applications of gold in areas of catalysis,
nanotechnology and biomedical science (Mintek, 2010).
Recently Anglogold Ashanti has embarked on a five year project to develop an
automated continuous mining process aimed at unlocking gold resources as deep
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as 5km below surface. To achieve the terms of the project, Anglogold Ashanti has
assembled a group of innovators, researchers and academics around the world. It
is envisaged that this project will replace the cyclic operation of underground gold
mining and the need for people to work in dangerous stopes, with a continuous
automated mining technology (Creamer, 2011).
Similarly there had been development in the PGM front. For example Mintek and
DTI were instrumental in the development of auto-catalysis industry in South
Africa.
The capacity of South Africa to undertake research in the mineral sector is
notable. However there is an ever present risk of falling further behind the leading
countries based on the country’s inadequate administration of the basic education
and low production of doctorates. In addition, South Africa has established a
number of public development agencies but has failed to inculcate high rate of
entrepreneurial activity among its citizens compared to other BRICS countries
despite having an environment where it is easier to establish and close businesses
compared to India and Brazil (Timm, 2011).
To take mining and mineral beneficiation research to a level where $2.5 trillion
worth of unmined mineral resources can benefit South African citizens, the above
mentioned deficiencies will have to be addressed.
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6.3.6. Commercialisation of research findings
The research findings should naturally bring an improvement in the way people do
things and generally there is a monetary value attached to such improvement. To
realise the monetary value of the improvement, research findings have to be
commercialised. Failure to commercialise research findings could lead to a loss of
future revenues. For example, many of the novel mechanisation technologies used
in coal mines today originated in the commandist countries (mainly USSR).
However, lack of commercialisation capacity in the commandist countries led to
Western companies seizing the opportunity to commercialise their mechanisation
research findings. The consequences of this action were that Western economies
benefited substantially more than commandist economies despite the latter being
responsible for the ideas in the first place (Wagner and Fettweis, 2001).
To avoid repeating mistakes of the commandist countries, it is important to
establish a bridge between R&D and commerce through enterprise linkage such
that viable economic clusters around the mineral sector are created. In a free
market world, meaningful job opportunities will arise if research findings are
commercialised cost effectively.
Factors of production such as land, labour, capital and entrepreneurship are
crucial in the commercialisation of research findings. To transform research
findings into commercial technology, funding, enterprise development and
requisite business skills have to be in place. Development agencies, SETAs and
institutions of higher learning are best suited in this regard to impart the necessary
technical and business skills.
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A suitable model for start-up enterprises wishing to develop new technologies or
improve existing technologies is business incubation. The business incubation
model, particularly the one that focuses on technology, started in the late 1950s at
the Massachusetts Institute of Technology (MIT) in USA. The survival rate of start-
up businesses that went through the MIT business incubator model in USA was
over 90% compared to 3% survival rate of start-up businesses within the first five
years of their operation globally. Business incubators were also successful in
Norway and Japan. In South Africa, although not used extensively, business
incubators achieved 78% survival rate in start-up businesses after three years of
operation (Leeuw, 2005).
The business incubation model entails start-up companies entering the three to
four year incubation programme with only a viable business concept and exiting
(graduating) as fully fledged companies. In the context of the Linkage Model, the
same model could be used to commercialise research outputs of university
graduates. For example the School of Mining Engineering at Wits could
collaborate with Wits University Business School (WBS) and one of the Science
Councils in a manner that a PhD graduate in mining could be given business skills
or be linked with other WBS graduates to commercialise his/her research findings.
Through TIA, a Science Council concern could be used to convert research
findings into functional technologies. The seed funds for the incubated entities
could be provided by Khula for which both WBS and Khula would take equity in
the incubated entities and upon graduation (exiting the programme) the equity
could be sold for profit.
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While the majority of small and medium enterprises in South Africa are not
technology enterprises, there are clear advantages of focusing on technology-
based business incubators or similar programmes in the Linkage Model. According
to Hirschman (1958), the intensity of linkages (IL) within the economy is
proportional to the technology usage (TU) in the primary industry (PI), giving rise
to the following expression:
∝
It therefore follows that the technology usage ratio in a particular period can be
determined by the following equation:
= ∑∑ .
Where: CT is the cost of technology or the annual procurement
expenditure relating to a particular technology; and
PE is the industry total annual procurement expenditure;
The TUratio value of one (1) is an indication of a shear dominance of a particular
technology in the market, whereas the value of zero (0) is an indication of a
technology not in use47.
Take a case of portable rock-drills in gold mines. The value of TUratio between
1900 and 1933 increased as more mines accepted the use of rock-drills, with full
47 Note that the appropriate level TUratiohas not been quantified scientifically
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acceptance achieved in 1933. There is a likelihood that rock-drill TUratio continued
to increase beyond full acceptance as production and safety pressures demanded
better models. Similarly the TUratio of individual components of a rock-drill can be
assessed in much the same way if rock-drill OEMs were to be regarded as an
industry.
The increase in TUratio is generally accompanied by an increase in the number of
job opportunities. According to Walker and Minnitt (2006), the number of
companies involved per unit component increases exponentially as one moves
from the mines (primary industry) to first tier companies and then to second tier
companies, pointing to a case of job creation potential due to technology intensive
primary industries that require more components to function than less technology
intensive primary industries.
Handel (2003) in Figure 6.6 shows employment growth in USA between 1948 and
2000. The growth in employment coincided with the rise in productivity,
mechanisation and proliferation of computers in USA, suggesting that there is a
close correlation between employment growth and technology in the workplace.
However Handel warned against making such conclusions.
125
Figure 6.6:  Employment growth in USA between 1948 and 2000
Source: Handel (2003)
Jared Bernstein48, in line with Handel (2003), produced graph shown in Figure 6.7
that depicts the relationship between productivity and employment. There has
been a strong positive correlation between productivity growth and employment
growth in USA from 1947 until about 2000. Thereafter the two graphs have
diverged with productivity continuing on the growth trajectory while employment
growth plateaued.
According to Bernstein, the divergence between employment and productivity as
from 2000 is due to USA firms importing cheaper input goods and outsourcing
production activities (particularly manufacturing) to countries with cheaper labour.
This act has undermined local employment opportunities while at same
maintaining growth in productivity of local firms.
48 http://jaredbernsteinblog.com/about/
126
Figure 6.7: Relationship between productivity and employment in USA from 1947 to
201049
Another possible explanation is the type of technology that has emerged after
2000. Before 2000 the focus was significantly on mechanisation and automation.
After 2000 there was a significant shift among OEDC50 countries towards the
services sector driven by growth in the information, technology and communication
(ICT) sector (OECD, 2007).
In contrary, the focus of this report is on the mining and industrial technologies
characterised by mechanisation and automation. Based on Walker and Minnitt
(2006) and Lydall (2009), the implication is that mines with high technology
intensity (high-tech mines) have a greater potential of creating external job
opportunities than conventional mines. A typical underground section of a PGM
mine has a higher technology intensity than a typical underground section of a
49 Source: http://jaredbernsteinblog.com/another-explanation-for-the-productivityemployment-split/.
Accessed on 01 May 2012
50 Organisation for Economic Co-operation and Development
127
gold mine but less technologically intensive than a typical underground section of
a coal mine. The intensity of technology becomes even more pronounced in
metallurgical sections, with PGM mines being more complex because of the
extraction of typically four platinum group elements (PGEs) and other metals.
To illustrate the importance of technology intensive mines in the economy, Lydall
(2009) has estimated that a single PGM mine with a capacity of 200 000 tons per
month can consume up to 100 000 assemblies from 2 000 to 5 000 firms. It can
therefore be stated that the number of employment opportunities in the mining and
supporting industries is proportional to the level of technology usage by individual
mines. Employment opportunities (EO) in the economy can be estimated by the
following equation:
= × + ± .
Where: PPI is the annual production of the primary industry;
UPT is the unit price of a specific technology;
EOinitial is employment opportunities due to initial capital
investment;
OEPI is the change in employment opportunities in the primary
industry; and
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k is the average cost of creating one employment opportunity
to produce additional unit of technology after the initial capital
investment.
According to Derby (2011), the cost of creating one employment in the industrial
sector in the large enterprise category in South Africa varies from R260 000 to R3
million, depending on the nature of investment, i.e. marginal increases or new
capital investments. It is however unclear about the cost of creating one
employment in the small and medium enterprise category in South Africa51.
It should be noted though that there is a high likelihood that the number of
employment opportunities (OEPI) in the primary industry could decrease as new
technologies are assimilated into work routines. The relationship between job
opportunities and technology is not linear as there are a number of factors that
impact on the intensity of usage of technology in the mines. Some of these factors
are discussed briefly below.
• Depth of a mine
Deep mines face a different set of geotechnical and logistical challenges
compared to shallow mines. The challenges of deep mining generally
compel mines to rely on proven low-tech conventional mining methods as
opposed to shallow mines which seek to achieve higher level of efficiencies
through the use of new technologies. In South Africa, gold mines are
generally deeper than PGM mines.
51 Potential area of research in the future
129
• Geology of a mine
The hardness, corrosive levels, abrasiveness, dip and discontinuity of
underground reefs and surrounding strata, especially in gold mines, have in
the past discouraged attempts to introduce higher levels of mechanisation.
The CMSA in the 1980s championed a ten year mechanisation research
project in gold mines which failed to revolutionise underground gold mining
methods. Nonetheless the research gave mine operators a better
understanding of the ambient underground environment.
PGM mines, although prone to discontinuities, generally have dips and
corrosive levels that are amenable to mechanisation, although not yet to the
level of coal and base metal mines. Particular advantages of coal and base
metals mines are, firstly, production largely takes place inside the orebody
and thereby limiting the amount of waste mined. Secondly, the thickness of
the orebody places less restriction on the size of equipment used. It should
be noted that manufacturing of smaller mechanised units for mining
application demand higher developmental capital. Thirdly, ore mined tends
to be softer, especially coal, compared to mineralised rock strata in gold
and PGM mines, thereby prolonging the life of equipment and components
used.
• Social factors
Social factors can facilitate or discourage the use of technology in
organisations. Organisational social factors are made up of “skill
130
requirements, job assignments, task design, structure, work integration,
information flow, decision-making processes, and reward systems” (Lin and
Chen, 2000: p43). They are also influenced by individual’s character, and
horizontal and vertical relationships within the organisation. The individual’s
character is influenced by attitude, skills level, education and beliefs,
whereas vertical relationships are influenced by the attitude of management
and supervisors, and horizontal relationships are influenced by peer
pressure (Lin and Chen, 2000).
The complex nature of organisational social factors plays a significant role
in the successful assimilation of technology in the work place. In particular,
the attitude of senior management and the age of a firm are critical success
factors in so far as the implementation of technology is concerned (Lin and
Chen, 2000).
While it appears as if there is no significant difference between the attitudes
of senior managers of gold and PGM mines, the age difference does
however come into play between these two mining sectors.
• Union attitude towards technology
According to Peitchinis (1983, p116), attitudes of trade unions towards
technological innovation vary based on circumstances, that is “positive
attitudes exist in industries which have recorded expanding employment,
even though significant technological changes take place in them; the
attitudes are negative in industries which experience declining employment,
131
even though technological changes in them may be sporadic and minimal;
and an attitude of indifference prevails amongst unions whose members
have not been affected by technological or any other changes”.
In line with Peitchinis, Dowrick and Spencer (1994) analysed the attitudes
of trade unions based on the level on which they operate and concluded
that national level unions tend to view technology in the workplace in much
more favourable terms than industry level unions provided it leads to the
creation of employment across industries. Industry level unions, on the
other hand tend to disdain technologies that will lead to retrenchment of its
members even if more employment is created elsewhere in the economy,
but they would support technologies that create employment within their
own industries.
In the South African context, National Union of Mineworkers (NUM) is a
mining industry union. Based on the conclusion of Dowrick and Spencer
(1994), it would be expected that NUM would resist attempts to introduce a
job-shedding technologies in the mines and support those that create
employment. Indeed according to Baleni (2009) NUM views technical
innovations in metallurgy in a positive light because they render previously
unprofitable deposits payable, whereas mechanisation (especially
underground) is viewed negatively because of its tendency to reduce labour
in mining. Furthermore NUM does not “…believe that it is the absence of
technology that has failed mineworkers but rather the prevalent attitudes
and mind-set that mining is inherently a risky and dangerous industry”
132
(Baleni, 2009). The implication is that trade unions, in particular NUM,
prefer labour intensive mining environment as opposed to high usage of
technology that would adversely affect its membership.
In conclusion it can be said that the repercussion of commercialising research
findings is likely to be the reduction of employment opportunities in the mines and
related beneficiation factories. On the other hand the upside of commercialising
research findings is the potential increase in production and creation of
employment opportunities in supporting industries. In addition there is also a
possibility that new technologies developed for the mineral sectors can find their
way into other sectors of the economy, resulting in organic and quantitative growth
of companies. However the biggest hurdles are, firstly the creation of enabling
environment to develop and nurture the requisite skill to research, develop and
commercialise research findings, and secondly the willingness to implement the
Linkage Model.
6.4. The implementation of the Linkage Model
Government departments and other stakeholders mentioned or implied in Figure
6.4 will primarily form the core of a team that will look into the best way of
translating the Linkage Model into a resource-based research and enterprise
development institution in South Africa. The institutionalised Linkage Model will be
known as the Linkage Initiative.
The successful implementation of the Linkage Initiative will rest on the
effectiveness of its steering committee outlined in Figure 6.8. Due to the envisaged
133
strategic and multi-disciplinary nature of the Linkage Initiative, stemming from the
Linkage Model, it will be ideal if its operations could be coordinated by the
Planning Commission. Ideally the chairperson of the steering committee should be
a senior official at the Director General level in the office of the Planning
Commission. This is appropriate because one of the issues that the Planning
Commission is looking at is to increase the social and economic value of the South
African mineral endowment.
Figure 6.8: Proposed composition of the steering committee responsible for the Linkage
Initiative
The steering committee will be made up of senior officials from the government,
business and labour sectors. The steering committee will be divided into the
following clusters:
• Education, Training, Science and Technology;
• Finance and Trade;
• Minerals and Energy; and
134
• Business and Labour
All government departments identified under different clusters will not necessarily
be required right from the inception of the steering committee. For example, the
Department of Energy may not participate at the beginning but as the coverage of
the Linkage Model expands to include research and beneficiation of oil and gas, it
may be prudent for it to become a member of the steering committee. Similarly
other departments may be included or excluded when the need arises.
All appointed public servants under different clusters serving in the steering
committee will be senior officials at the Director General level. Similarly business
and labour representatives will have to be on a level where they are able to take
decisions on behalf of their constituents. Most importantly business
representatives should be biased towards entrepreneurship. This is to ensure that
the focus is turned towards enterprise development, which is required for
commercialisation of research findings.
While the steering committee will be providing direction in so far as resource-
based R&D is concerned, the real activities of the Linkage Initiative will be
executed by representatives of agents identified in Figure 6.4.
6.5. Concluding remarks
The economy of South Africa was built on the strength of its mining industry and
going forward, the economy could be enlarged on the basis of its mineral
endowment given that it has the largest known mineral resources (excluding oil
135
and gas) by value. Currently nations of mining regions which include Australia,
Chile, Zimbabwe and Zambia want to get more from their minerals. This global
situation represents an ideal opportunity for South Africa to come up with its own
brand of harnessing more value from its mineral endowment. This plausible brand
for South Africa could be the Linkage Model.
The aim of the Linkage Model is to develop new mining technologies, products
and services through R&D while simultaneously promoting local beneficiation of
mined minerals. The envisaged Linkage Model will consist of six components
which are political and administrative support from the government; adequate
funding for resource-based research activities; availability of skilled personnel to
undertake R&D and commercialisation of research findings; adequately resourced
research agencies which include universities and Science Councils; mining and
mineral beneficiation research output; and the ability to commercialise research
findings through enterprise development models.
Due to the strategic nature of the Linkage Model, it is proposed that the
implementation thereof be driven by a steering committee comprised of
government departments, labour representatives and business representatives. In
particular, the latter should be biased towards representatives of entrepreneurship
organisations due to the emphasis on the commercialisation of research findings
as the ultimate output of the Linkage Model.
Members of the steering committee must comprise of government officials at the
Director General level with the Director General of the Planning Commission as
136
the head, particularly considering how well the Linkage Model resonates with the
National Development Plan of 2011. In the same manner, representatives of
business and labour cluster should be leaders from their respective formations
with the mandate to make strategic decisions.
Ultimately the success of the Linkage Model will be measured by the global
competitiveness of the mineral sector and the number of employment
opportunities created in the economy with the view of reducing poverty,
unemployment and inequality in South Africa.
137
7. CONCLUSION
South Africa is endowed with abundant minerals. In 2008 there were 53 different
minerals mined from approximately 1 515 mines in the country. This is despite a
long history of mining dating as far back as 1000 years ago when copper was
mined in Phalaborwa and residents of Mapungubwe trading with other civilisations
in iron, copper and gold. Notwithstanding, the modern history of mining in South
Africa can be regarded as having started in 1846 when the British introduced the
modern European style of mining at Koperberg in Namaqualand.
The first significant interest of Europeans in South Africa as a mining destination
came in 1870 when diamond bearing kimberlite pipes were discovered in
Kimberley. This discovery was so significant that South Africa replaced Brazil as
an important source of diamonds for the Europeans. The discovery of gold in the
Witwatersrand basin in 1886 cemented the status of South Africa as a mining
destination. Gold from South Africa was also used by the Bank of England to
support the value of the pound.
Gold in the Witwatersrand basin was instrumental for the economic growth of
South Africa. Unfortunately Africans and other races (except Europeans) were
excluded from this economic growth. The legacy of this exclusion and subsequent
Apartheid policies precipitated one of the highest unequal societies in the world
with the average gini coefficient of 0.578 between 2000 and 2010. Social grants
were singled out as a factor that has kept the gini coefficient of South Africa from
138
reaching embarrassing levels. In addition South Africa had unemployment rate
that hovered at approximately 25% in the past decade.
One of the solutions to bridge the inequality gap and reduce the high
unemployment rate is to use the connectedness of the mining industry in the
economy to create employment opportunities. The vehicle proposed in this
document is the Resource-based Research and Enterprise Development Model or
the Linkage Model in short. The Linkage Model is based on the 1958 backward
and forward linkage theory of Hirschman. The premise of the Linkage Model is that
the mining industry is strong enough to induce job opportunities in other industries.
This is not farfetched because in the past mining led to the establishment of towns
and cities, the Johannesburg Stock Exchange, and factories to manufacture
explosives, rock-drills, drilling bits, ferrosilicon and hydro-power equipment among
others.
The envisaged Linkage Model is based on six components, namely government
support; funding for mining and beneficiation research; research authorities; skills
supply; mining and mineral beneficiation research; and commercialisation of
research findings. The aim of the Linkage Model is not only to create competitive
industries in South Africa, it also aims to reduce poverty, unemployment and
inequality..
To create significant employment opportunities, mines and other industries in the
mineral sector will have to be technologically intensive. The downside of this
approach is that jobs could be lost in the mining and other primary industries due
139
to the incorporation of technology in work routines. However, technology intensive
primary industries like mines tend to demand a large quantity of different
components from other industries compared to low technology intensive primary
industries. As it is, the South African mining industry procures most of its capital
goods internationally. Should South Africa manage to change this procurement
pattern, the combination of domestic procurement and technology intensive
primary industries could lead to significant employment opportunities.
Given that mines are capital intensive, the hope of many jobs being created in the
mining industry going forward is misplaced. A plausible solution is to focus on
creating job opportunities in the labour absorptive industrial and services sectors.
This can be achieved by implementing the Linkage Model in totality. The
government through its various departments must be fully committed to the
success of the Linkage Model. There has to be enough funding from the
government and private sector to make the model work. In addition, there has to
be enough researchers and research facilities that can be used for mining and
beneficiation research. This can be achieved through the cooperation of Science
Councils, universities and private sector.
Ultimately, the Linkage Model must lead to the commercialisation of research
findings. Commercialisation can be achieved by using development agencies in
conjunction with other models such as business incubation. The advantage of
business incubation is that it gives a researcher/entrepreneur time to perfect
his/her invention and business model while it provides the necessary support
during the early days of a business.
140
The relevance of the Linkage Model does not only lie in its resonance with the
National Development Plan of 2011 produced by the Planning Commission, it also
provides a plausible alternative solution to the call for nationalisation of mines. The
solution entails remedying structural problems in the South African economy such
as the poor administration of basic and post matric education; low number of
doctorates per capita in South Africa compared to its international competitors; low
research output in mining; low capacity to develop and manufacture products
based on research findings; and low entrepreneurial activity. The endemic nature
of these structural problems requires long term political and corporate
commitment.
The Linkage Model is not unique though. There are other mineral sector based
initiatives that seek to address issues of poverty, unemployment and inequality in
South Africa and the Linkage Model should be regarded as part of these initiatives.
141
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