Even though it supplies less than 10% of the international iron ore seaborne trade, South Africa definitely still has a place in this international market.
“The South African product is of exceptionally good quality in terms of ore content, low impurities and good hard lumpy, and is primarily used as a blend ore,” ARM Ferrous chief executive Jan Steenkamp explains in an interview with Mining Review Africa.
He says that even if the country’s iron ore exports rose to the proposed level of 93 million tonnes a year by 2015, this would still be well below 10% of international seaborne trade, which has dropped from 1.2 to 1.0 billion tonnes per annum (tpa) in the wake of the global economic slowdown. This is expected to improve soon though.
“Many of the big steel producers do not want to put all their eggs in one basket; and the fundamentals of the steel industry have not changed in terms of demand. Industry still needs steel and the producers still require iron ore.”
Against this background Assmang, a 50/50% joint venture owned and controlled by African Rainbow Minerals (ARM) and Assore, is busy with two new expansion projects to ensure its ability to supply both the export and local iron ore markets up to and beyond 2015.
First of the two is the expansion to 16 million tonne per annum (mtpa) of the company’s new Khumani iron ore mine in the Northern Cape, which was upgraded to 10 mtpa in February this year, and is contracted to supply Transnet with 10 mtpa from July this year for 20 years. Second is the extension of the life of mine of the company’s Beeshoek mine for at least another five years to supply the domestic market.
With Transnet having committed to upgrading its full ore channel capacity from 47 to 60 mtpa by 2012, Assmang received approval from its board for R1.2 billion of start-up capital for the next phase of Khumani expansion from a 10 mtpa to a 16 mtpa mine. “Of this, 14 mtpa will be our allocated export tonnage, and we are also building a local siding to supply the domestic market with 2.0 mtpa,” Steenkamp says.
“The construction phase of the 16 mtpa Khumani mine is scheduled to be fully commissioned by January/February 2012. Our increased 14 mtpa supply contract to help meet Transnet’s 60 mtpa capacity is scheduled to commence on 1st July 2012, allowing us close to six months in case unforeseen problems arise.”
All the feasibility work for the 16 mtpa mine has been completed. “It has become a very attractive project, particularly with the required capital expenditure dropping substantially. Going back to the board with a figure of between R6 and R7 billion, almost R1 billion below the original estimate of R7.6 billion it saw when it approved our R1.2 billion start-up capital, is a huge plus for the overall project,” Steenkamp enthuses.
“Looking further ahead, the big question is, will Transnet decide on an increase to 78 or 93 mtpa for its ore channel’s next phase of expansion,” he points out. “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 2.0 mtpa and will design an 18 mtpa mine. But if it’s a 93 mtpa channel capacity, our mine capacity will have to be 22 mtpa (20 mtpa export and 2.0 mtpa local),” Steenkamp says.
“If you look at the capital expansion beyond the 60 mtpa model, whether its 78 or 90 mtpa, that’s significant capital, and if you relate that capital directly back to a tariff, with the cost of our logistics we might not be competitive in the world market. So between the stakeholders we need to find a solution on how to fund a project like that so that it is financially practical. It’s going to be challenging,” he says.
“I believe that decision on the ramp-up from 60 mtpa must be made in the next 12 months – that’s the key decision, and then the whole programme starts. But I really don’t think we have the luxury of more than 12 months to make that decision. And I don’t think it’s going to be a Transnet decision; it’s going to be a joint decision by Transnet and the producers, driven by demand and resource.”
Assmang had not gone any further with a feasibility study for the 22 mtpa mine for the simple reason that it would be time and money wasted until there was certainty on the further expansion of the total channel.
Life of mine at Khumani is at 25-plus years, based on a 65% iron ore grade (66% lumpy at 16 mtpa still gives greater than 25 years). The life drops below 25 years at 22 mtpa unless the grade is dropped. “But if you look at world trends iron ore grades are declining, so at some stage we will review our life of mine models with the lower grade, and then the life of mine will extend. A drop of 1% in grade would add five to ten years to the life of mine.
Thus Khumani, to all intents and purposes, has a life of mine of at least 30 years today,” Steenkamp predicts.
The measured resource at Khumani is 340 million tonnes, the indicated resource 307 million tonnes and the inferred resource 41 million tonnes.
“We are doing no further exploration in terms of the Northern Cape or elsewhere as far as iron ore is concerned,” Steenkamp says. “But within the greater ARM organisation, we have established an Exploration Africa leg which is looking at the possibilities for some other commodities,” he reveals.
As far as the Beeshoek mine is concerned, Assmang has finalised feasibilities to determine the life of mine in terms of its resources. “It is clear that Beeshoek has a life of at least another five years, based on current remaining resources, as well as stockpiles and dumps which we have built up over the years,” Steenkamp says. “Beeshoek will continue producing and supplying between 400,000 and 500,000 tpa to the local market. The mine could easily supply up to 2.0 mtpa of product if demand is there,” he adds.
“By 2012 the Khumani mine would also be in a position to supply into the local market, so at that stage it will become a question of what makes best business sense.”
The Beeshoek mine also has significantly more resources which are sterilised because they are under the town, and the company is currently busy with feasibility work to determine whether it will make business sense to demolish the town and mine the resource.
The resource at Beeshoek is made up of three different aspects: some mineable resource in situ, quite significant stockpiles, and dumps. These three, plus the village area where the town is above iron ore deposits, offer a combined resource of about 200 million tonnes.
“Beeshoek produced its first iron ore in 1965, and it had a mine life of 30 to 35 years, so on paper that mine should have come to an end in about 2000,” Steenkamp points out. “Now we are in 2009, and the mine still has at least another five years to go.”
“I am very bullish about ARM if we talk specifically ferrous, although I think we are going to have challenges in terms of the demand curve in the next year or two,” he says.
“We are positive that we are beginning to see the bottom of the global economic downturn, but what the recovery is going to look like is anybody’s guess,” Steenkamp admits. “However, iron ore has – in terms of volume – been a lot more successful in maintaining our sales forecasts than some of the other commodities.”