BHP Billiton has a 60% share in Samancor manganese, with Anglo American owning the balance. The chrome aspect of the business was sold some time ago to Kermas. Samancor is the biggest global producer of the black metal, as well as being one of the biggest manganese alloy producers. The company owns three manganese mines, of which two are at its Hotazel complex in the Northern Cape, and the other on a island called Groote Eylandt in the Gulf of Carpentaria, 50 km north of Australia's Northern Territory.
Responding to a Mining Weekly Online question as to what was constraining the group's South African expansion, manganese president Peter Beaven said that, while the resource base was available in South Africa, extraction and logistics costs were a challenge. “The question is the cost of extracting the resource and shipping it to the coast.”
Beaven said that Spoornet's inefficiencies were hampering the company's own expansion plans, as was the port situation.
For example, he said that of the 1 300 km the company's product must travel to Port Elizabeth, as much as two-thirds of the cost were attributable to Spoornet tariffs. He said that BHP Billiton was keen to understand Transnet's long-term plans for the Port Elizabeth harbour and the manganese stockpiles. It had been suggested on several occasions that the stockpile would be relocated to the Port of Ngqura, which is currently under construction.
He said that the industry and Transnet should work together to deal with the problems.
Beaven was addressing media and analysts during BHP Billiton's carbon-steel materials briefing on Wednesday.
Speaking from Sydney, he said that Spoornet's recent cost increases had been above inflation as the State-owned utility was catching up on a maintenance backlog. He also expressed concerns about other utility costs, mentioning Eskom by name, as well as rising fuel and labour costs.
He said that, while BHP Billiton had little control over many of these costs, it did have a plan designed at cooling the heated cost environment. For example, at its Hotazel mine, it had moved to open-cut mining instead of underground mining, which requires 250 fewer people.
BHP was targeting interventions into all of its key cost areas. It revealed that, on ore, labour comprised 15% of its costs, while distribution made up 32%. Its key alloy costs related to ore, which made up 25% of the cost, electricity is at 14%, and distribution, which adds 15%.
Beaven said that underlying demand growth in the ore was strong, however, supply response was vigorous.
As such, market conditions were likely to remain 'challenging' in the foreseeable future.
BHP seeks to enhance its geographical spread, and two areas that it aims to do this in are Africa and Australia.
Moreover, it sees global manganese-ore supply growth coming from capacity expansions in Gabon, Australia, Brazil and 'possibly', South Africa.
Its competitors are already increasing capacity, and smaller players are also appearing in the market place.
In addition, overcapacity already exists in the seaborne market, a situation it sees remaining until at least 2010.
The entry of new participants in the market place has seen the four biggest producers, among them CVRD, losing market share over the last few years.
In 1995, BHP had a 68% market share, which had dropped to 53% by 2005.
Despite this, Beaven says that the global outlook for manganese alloy supply and demand remains strong, mostly as a result of strong growth in steel production, which is being driven by China's red-hot economy.
As such, the demand for manganese ore continues to grow strongly, but will remain oversupplied for some time, putting prices under pressure.
The manganese alloy market returned to balance after a period of oversupply and the material difference in prices being seen across regions is driven by ongoing excess capacity in China.
For the company's 2006 financial year, which closes in two days, it expects that ore and alloy prices will be materially weaker than those for last year.
In addition, the unit saw a stronger rand and higher input costs, and carried out maintenance that was deferred last year.