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Jul 27, 2011

Mittal expects to make N Cape iron-ore mine call by end Aug

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ArcelorMittal South Africa CEO Nonkululeko Nyembezi-Heita on the group's iron-ore mining aspirations. Camera Work: Nicholas Boyd. Editing: Darlene Creamer.
Steel
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Steel group ArcelorMittal South Africa (Mittal) expects to complete its due diligence of a modest-sized iron-ore prospect in the Northern Cape by the end of August and has indicated that such small-scale developments are likely to be central to its aspiration of closing a backward-integration gap in its sources of iron-ore supply.

CEO Nonkululeko Nyembezi-Heita said that the assessment of the as-yet unnamed project was "progressing well", but required some additional drilling.

Should the campaign prove successful, it could lead to the development of a mine able to produce between one-million and two-million tons of the steelmaking material yearly.

But she also stressed that the project would only prove feasible should it also be able to access a reliable rail logistics network, which was not a certainty. In fact, she indicated that the JSE-listed group was having ongoing difficulties in securing a reliable service from Transnet Freight Rail, the State-owned utility.

The project would also require black economic-empowerment (BEE) participation in line with South Africa’s Mineral and Petroleum Resources Development Act, which stipulates 26% ownership in mines by previously disadvantaged individuals.

Mittal itself currently had no BEE equity partner, and its proposed empowerment deal was currently being held up by a legal review of the awarding of an exploration right by the Department of Mineral Resources to Imperial Crown Trading 289, which could participate in the BEE deal should it proceed.

Nyembezi-Heita indicated that the property could emerge as a hub for a cluster of smaller mining operations in the region, which together could eventually produce at a yearly rate of around three-million tons.

Should the project proceed and Mittal prove successful in its arbitration with Kumba Iron Ore (Kumba) over the validity of a supply agreement involving 6.25-million tons Sishen iron-ore, the group would be more or less self-sufficient.

At full production, the steel group consumed some 10.5-million tons of iron-ore yearly, 90% of which was sourced from Sishen (6.25-million tons) and Thabazimbi (2.5-million tons), with the 10% balance purchased from Assmang’s Beeshoek mine, also in the Northern Cape.

Nyembezi-Heita said that Mittal had also not discounted possible participation in Kumba’s ‘Project Phoenix’, which would extend the life of the nearly depleted Thabazimbi mine, in Limpopo province. However, Kumba indicated previously that they did not anticipate that Mittal would participate in the project, which could be developed from 2016.

“We have reopened this particular issue [with Kumba] and want to reach some kind of an understanding about our participation in Phoenix. We believe that we do retain the right . . . to participate.”

COAL OPTIONS

The group is also considering coking coal alternatives, arising from Mozambique in particular, in a bid to improve the logistics of its imports, which currently account for 66% of supply and arise mainly from Australia.

It would test material from the Riversdale mine in Mozambique and was also optimistic of eventually receiving material for Coal of Africa Limited’s (CoAL’s) Vele project, in Limpopo, which had recently secured environmental permits to proceed.

It would also test a bulk sample for CoAL’s Makhado project, which was also located in the Limpopo province. Should the test prove successful, it could lead to an offtake agreement.

Mittal held nearly 16% of the shares in CoAL.

During the interim period, Mittal’s raw material costs rose sharply, with year-on-year coking coal costs increasing 59%, while iron-ore and electricity increased by 23% and 28% respectively.

In the third quarter, the group would bear the full brunt of the higher coking coal prices, which had surged to over $300/t on the back of supply disruptions associated with the flooding in Queensland, Australia. Prices jumped 98% from $170/t in June last year to R334/t in January.

ArcelorMittal South Africa CEO Nonkululeko Nyembezi-Heita on the group's iron-ore mining aspirations. Camera Work: Nicholas Boyd. Editing: Darlene Creamer.
 

Edited by: Creamer Media Reporter
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