Iron ore is arguably the commodity of the moment. Case in point is multi-commodity group Exxaro, which sees itself as not only a coal dominated business. While Exxaro is exiting the zinc sector and monitoring the titanium sands industry with less enthusiasm than it once did, it is looking at iron ore projects as a route for diversification.

Certainly opportunity exists for new players. Concerned major global buyers of iron ore are unhappy about the dominance of the sector by a few large suppliers, and will be watching developments across Africa with a degree of pleasure. In spite of some good orebodies, new iron ore developments in many parts of the continent were once viewed as non-starters due to the large amount of infrastructure required. Such barriers are falling away in some regions.

Exploration is underway for iron ore in Namibia and the Tete province of Mozambique, as project developers see sufficient movement and potential for infrastructure developments for investors to be willing to buy into their stories. Baobab is looking to its Tete project to benefit from the infrastructure upgrades being brought about as a result of Vale’s Moatize project and Riversdale’s Benga venture. There are projects such as Tonkolili in Sierra Leone, where tenders have been awarded, and Putu in Liberia where a pre-feasibility study is underway.

In South Africa we have seen the successful development of the new Khumani iron ore mine, and we have also seen the explosion of the controversy regarding the pricing of Sishen iron ore from Kumba to Arcelor Mittal. It is related to a failure to obtain new order mineral rights conversions, which apparently provides a loophole to nullify Kumba’s requirement to supply iron ore to Arcelor Mittal at a cost plus pricing that is well below current market rates. That issue raised three interesting points.

Firstly, speaking of promising iron ore projects in West Africa, it was a tale of what goes around comes around. Kumba believed it had the rights to develop the Faleme iron ore project in Senegal, having signed an agreement with the Senegalese government in 2004. In 2007, it was ordered to withdraw by the Senegalese state owned company, Miferso, which then gave the exploration rights to Arcelor Mittal. In Kumba circles there will no doubt be a sense of justice having been done if Kumba wins its case to supply iron ore to Arcelor Mittal at commercial or near commercial rates.

Secondly, the incident has been a reminder to the market of the low prices Arcelor Mittal has been paying for iron ore, which raises the following question. With Kumba supplying iron ore to Arcelor Mittal at well below market rates, why have customers not received comparable steel price benefits? Mining group Harmony took Arcelor Mittal to court a few years ago based on what it saw as unfair pricing of steel, and industries across South Africa have long complained about steel produced in South Africa being priced at near import parity levels.

The third point of interest that came out of the whole issue was the appearance of some third party claiming exploration rights to an area already being mined. It brought to light the depressingly widespread practice of awarding mineral rights, suddenly deemed relevant, and in this case rather ignorantly, to politically connected cronies and family. It brings some healthy exposure to what is parasitical behaviour, and hopefully it will lead to some positive action for the sake of the mining industry, and a country which still relies on that industry to a larger extent than it often cares to admit.

Still in the ferrous metals sector, but looking beyond iron ore, it is at one level pleasing to see BHP Billiton and Eskom entering negotiations regarding the pricing of electricity to the Mozal and Alusaf aluminium smelters. These smelters in Mozambique and South Africa together consume some 2,000 MW of Eskom power, equivalent to almost half the output of one of South Africa’s larger power stations.

While BHP insists on revealing very little about the pricing mechanisms, it seems clear there is a derivative link of the price paid for electricity to the price of aluminium. On some occasions it could be profitable for Eskom to carry the risk, but now in a weakened position it is unable to carry the losses. Thus, my impression is that while BHP Billiton is spinning it to make it look like it is entering negotiations because it accepts the need to be a good corporate citizen, the Eskom negotiators must ensure the utility does not broker a deal the people of South Africa will once again regret later.