The new Khumani iron ore mine in the northern Cape, in the process of having its production expanded from an original 8.4 million tonnes per annum (mtpa) to 10 mtpa from 2012, is already preparing for the possibility of more than doubling its new output to 22 mtpa three years later.
This latest development has been revealed in an interview with Mining Review Africa by ARM Ferrous chief executive Jan Steenkamp. The Khumani mine is being developed by Assmang, which is a 50/50 joint venture owned and controlled by African Rainbow Minerals (ARM) and Assore.
“In our first phase Assmang was committed to an 8.4 mtpa export mine, as that was the allocation available from Transnet on the Sishen to Saldanha export line,” he explains. “I am happy to report that the 24 month construction operation was completed on time and within budget by June 2008. Total cost of the project was R4 billion.”
By this time Assmang was preparing for phase two, which involves building the infrastructure to take the mine from 8.4 to 10 mtpa. “This phase is scheduled for completion by February/March 2009 at a cost of an additional R300 million,” Steenkamp says.
The second phase resulted from the fact that when Transnet decided to expand its total ore channel capacity to 47 mtpa from mid-2009 onwards, Assmang’s annual allocation from that date was boosted to 10 mtpa. “We have signed a contract with Transnet for the transport of 10 mtpa for 20 years from 1st July 2009. In the current financial year to 30 June 2009 we are targeting transport of 7.2 million tonnes from the new Khumani mine, supplemented by about 1.2 million tonnes from our old Beeshoek mine,” he says.
“In the meantime Transnet has committed to expanding the total ore channel from 47 mtpa to 60 mtpa. Working in close contact with Transnet we are completing a feasibility study for the expansion of Khumani to a total capacity of 18 mtpa, or possibly 22 mtpa, to allow for further increases in allocations.
“We need to ramp up from 1st July 2012 to the additional total of four mtpa. This would involve the original 10 mtpa plus the additional four mtpa we are being allocated out of Transnet’s extra 13 mtpa. We will be back on site at Khumani in February 2009 to start building that phase. We are also building a local siding to supply the domestic market with two mtpa, so we are designing a 16 mtpa mine to supply the above needs for the export and local markets.”
Steenkamp says that the pre-feasibility has been completed, and board approval has been given for startup capital of R1.2 billion, basically to ensure that the company was in time with long lead items, some of which involve lead times of 18 to 36 months.
“The big question is, will Transnet decide on an increase to 78 or 93 mtpa for the ore channel,” Steenkamp observes. “It is obviously all a question of market demand, financials and whether it makes business sense.”
“Rough timing, whether for 78 or 93 mtpa, is 1st July 2015 for actual production. If it is 78 mtpa, we believe we will be allocated another two mtpa – so we will design an 18 mtpa mine as well. But if it’s a 93 mtpa channel capacity, our mine capacity will have to be 22 mtpa (20 mtpa export and two mtpa local).
Steenkamp notes that all the feasibilities (both Transnet and Assmang) will have been completed by April 2009, which becomes the key date when significant decisions will have to be taken on what happens after achieving16 mtpa.
Finalising design for the next phase is the key issue, whether to expand the existing mine to 14 mtpa export plus two mtpa local, or simply to build a mirror-image second 10 mtpa mine alongside the first one if the company’s allocation increases to 22 mtpa export plus local supply. “Fact of the matter is we could be doubling the size of Khumani by 2015, and everything must be in place by then. We don’t really have a choice because of the time issue. We sign contracts and then we have to build by 2015 or lose our allocation.”
Looking at the numbers, Assmang will face two scenarios.
Construct a 16 mtpa mine at an estimated (pre-feasibility level) capital cost of R7 billion, or a 22 mtpa mine at a capital cost of at least R10 billion.
Steenkamp says these key decisions will have to be made in April 2009 the moment the official word was out on whether Transnet was boosting its overall ore channel capacity from 60 mtpa to either 78 or 90 mtpa.
Assmang’s original submission to the Department of Minerals and Energy was for a 30 year life of mine at a very high grade iron ore, but two factors will play a significant role in terms of future life of mine. There are still substantial resources to be converted by exploration drilling, and the quality in terms of world demand seems to be dropping.
“I am convinced that life of mine at Khumani, even at an increased output of 20 mtpa, will be at least 25 years at the current high grades, and a reduction of only 1% in iron content would extend life of mine by five to ten years,” Steenkamp says.
“As I predicted, we have seen an increase in seaborne trade from 700,000 to over 1.2 billion tonnes a year over the past year, and this trend is likely to continue, although I believe that we are going to see a slowdown in the next two years.”
Steenkamp concludes by insisting there is a definite place for South African iron ore in the growing international market. “This is for two reasons. First, because of the growth in world demand for steel, driven primarily by China. And second, because South Africa has an exceptionally good quality product in terms of iron ore content, low impurities and good hard lumpy.
“But we cannot sit back and hope that the quality of our ore will ensure our customer base. It is going to be a challenging time because of the cost and scarcity of the capital resources we work with while having to meet contracts stipulating exact delivery deadlines. If we can establish our capacity and our customer base, we will be in a much stronger position to make sure we have longterm customer relationships.”