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Scaw mulling big cogen project as part of R3.4bn investment plan

15th July 2013

By: Terence Creamer

Creamer Media Editor

  

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Steel and steel products manufacturer Scaw Metals is considering investments collectively valued at R3.4-billion over the coming three years, including a possible R1-billion investment into a cogeneration electricity plant at its Germiston facility, on Gauteng’s East Rand.

Acting CEO Markus Hannemann reports that group, which is currently majority owned by the State-owned Industrial Development Corporation (IDC), has advanced a cogeneration project plan that is able to generate up to 68 MW. The project can be implemented in phases and the various investment options are being evaluated. 

The facility would be developed to convert waste heat and gases into electricity at Scaw’s Union Junction complex, in Ekurhuleni, where it operates Directly Reduced Iron (DRI) kilns to convert iron-ore. The plant will cater for up to 60%  of the site’s power demand and Scaw will also seek an arrangement with Eskom to enable it to feed any excess power that may be generated at times back into the grid.

Hannemann indicates that a number of independent power producers have also expressed interest in taking full ownership of the project, but that the group will make a decision on its approach to the investment in the coming six months.

Meanwhile, Scaw is also weighing up a range of other expansions geared towards servicing the growing African mining market, as well as those that could supply product into infrastructure projects being pursued by South Africa’s State-owned enterprises.

All of these investments, some of which are already under way, relate to the value-added products, rather than any expansion of primary steel output. Primary steel still accounts for about 50% of the company’s sales by volume and is being negatively affected by the prevailing downturn in the steel cycle.

Scaw produces grinding media for the mining industry, wire rod and chain for a range of sectors, including mining and oil and gas, cast products for railways and mining clients and rolled products for the construction sector.

Hannemann describes the IDC as being supportive of its expansion ambitions, owing partly to the long-term view it is taking of the business and its prospects. But he also stresses that each project is being analysed on its commercial merits rather than any strategic imperatives.

Until late last year, Scaw’s main shareholder was Anglo American, which sold its 74% interest to the IDC for R3.4-billion as part of an ongoing restructuring exercise. The balance of the shares are owned by a black economic–empowerment consortium comprising Izingwe Holdings, Shanduka Resources and the Southern Palace Group of Companies, which hold 21%, and an employee share ownership scheme, which owns the 5% balance.

The IDC has indicated that it stepped in as a majority shareholder primarily because the business is strongly aligned with the IDC’s mandate of promoting the deepening of industrialisation and the strengthening of the country’s manufacturing abilities.

It has also indicated that it will support Scaw, which employs over 7 000 people, to capture a growing share of the opportunities arising from South Africa’s infrastructure programme.

The company is particularly excited by prospects arising in the South African railways market, with both Transnet and the Passenger Rail Agency of South Africa making sizeable rolling-stock investments.

It already makes wagon frames for local and export customers, as well as couplers and yokes and producers 5 000 wagon wheels every month.

“We have already made some investments to positions ourselves for the opportunities, but are keen for the contracts to be firmed up so that we can align out investments and operations to these large rail projects,” Hannemann concludes.

Edited by Creamer Media Reporter

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