Geoffrey Qhena: The first three-million-ton phase is expected to be completed by 2017
The detailed feasibility study into a $4.5- billion, two-phase steel project planned for development by Hebei Iron & Steel Group, of China, and South Africa’s Industrial Development Corporation (IDC) should be completed in the first quarter of 2015, IDC CEO Geoffrey Qhena reported at the development finance institution’s annual results presentation in Johannesburg.
He confirmed that the project would be developed in the Limpopo province and would draw its iron-ore resources from the magnetite tailings in the Phalaborwa area.
The first three-million-ton phase was expected to be completed by 2017 at a cost of $2.8-billion, with the second two-million-ton phase to be introduced by 2020 at a cost of $1.7-billion.
Mining and Manufacturing divisional executive Abel Malinga said the initial phase would produce flat and long products similar to those already available on the South African market. However, the intention during the second phase was to produce steel products and grades not currently manufactured domestically.
Qhena also stressed that the output would not be destined exclusively for the domestic market, where there was prevailing excess capacity. Instead, the mill would also be targeting regional markets.
In fact, he acknowledged that the project could not be justified on South Africa’s steel demand alone. But the IDC was convinced that the infrastructure plans of South Africa, together with rising demand in the rest of the region, were sufficient to provide a commercial case for the investment.
Malinga estimated that the yearly demand for steel in sub-Saharan Africa would rise to 31-million tons by 2020.
Qhena added that the IDC did not want to build the plant “too late” to capture a share of that market.
However, he added that the project should also add competitive pressures domestically, where government believes steel prices remain too high to be supportive of downstream investment.
The IDC was also relatively sanguine about the ability of the facility to access its electricity requirement, with Malinga stressing that both energy efficiency and cogeneration were being integrated into the mill’s design.
Earlier this month, Hebei and the IDC signed a memorandum of understanding outlining the Chinese steel group’s intention to take a 51% stake in the mill, construction of which was scheduled to begin in 2015.
It was expected that the plant would also be part-financed by the China-Africa Development Fund.
Hebei already owns iron-ore and copper mining assets in South Africa, having participated in a consortium established to buy Rio Tinto’s 57.7% interest in Palabora Mining Company for $373-million.
For its part, the IDC, which was also part of that consortium, was keen to add value to the large stockpile of iron-bearing magnetite material on surface alongside the mine.