South Africa has a long habit of digging minerals out, sending them abroad to be processed and buying back the finished goods at a higher price. That was President Cyril Ramaphosa's description in Aggeneys on Friday. He was there to open the second phase of Vedanta Zinc International's Gamsberg mine, and he used the occasion to welcome the company's plan to build a zinc smelter in the Northern Cape.
The expansion doubles the ore the mine can handle each year, lifting its output to about 500,000 tonnes of zinc concentrate. It cost more than first planned: chief executive Vijay Kumar told Miningmx the bill came to "roughly 10 odd billion rands", against earlier estimates of around R7 billion. More than 1,500 people worked on its construction, and it should keep between 800 and 1,000 employed once it is running.
From concentrate to metal
A smelter is the step that turns concentrate into refined zinc metal, which is where the higher price Ramaphosa described gets earned. He said such an investment would move South Africa further along the zinc value chain, and asked why the minerals beneath South African soil should create more industrial opportunity elsewhere than at home. Vedanta's longer plan, as Priya Agarwal-Hebbar described it at the event, is an integrated zinc business of about a million tonnes a year, supported by future smelters, downstream manufacturing and the Namakwa special economic zone.
None of that is decided. A few days before the opening, Kumar told Miningmx that the company had not yet taken a final investment decision on the smelter, though design work was under way. Vedanta has previously estimated it would need about $1.5 billion.
The price of power
The decision comes down to electricity. Vedanta has said before that it needs power at around 60c a kilowatt-hour for a smelter to be competitive. Ramaphosa chose his words carefully: an investment this size needs commercially viable electricity, he said, and government must work with Vedanta and its partners to get there. He named no tariff.
His electricity minister went further. "We are going to make their dream of building a smelter possible," Kgosientsho Ramokgopa said, according to Business Day.
The nearest comparison is ferrochrome. In April, Eskom asked the energy regulator, Nersa, to approve a 62c/kWh tariff for ferrochrome smelters, and Nersa signed off amended price deals with Samancor and with Glencore-Merafe, which then withdrew its retrenchment process. That rate sits within a few cents of what Vedanta says it needs, and Kumar told Miningmx the gap is small enough for both sides to bridge.
