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Beyond-60Mt/y iron-ore study imminent – Kumba
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22nd July 2010
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JOHANNESBURG (miningweekly.com) – The external concept study that is expected to shed fresh light on the expansion of the Sishen-Saldanha rail capacity beyond 60-million tons a year should be available soon, Kumba Iron Ore (KIO) CEO Chris Griffith told Mining Weekly Online after KIO announced record operational and financial results on Thursday, as well as an interim price truce in its dispute with steelmaker ArcelorMittal South Africa (AMSA).

Current projects under development and the potential projects could bring KIO alone to a production capacity of 70-million tons of iron-ore a year by 2019.

Griffith, who announced a 90% increase in half-year headline earnings to R6,5-billion and a six-months operating profit of R11,2-billion, told Mining Weekly Online that there had been a progression in the private sector's discussion with the State-owned Transnet rail enterprise on the prospect of railing more than 60-million tons of iron-ore a year to south Africa's Saldanha export port.

He said that Transnet was no longer acting unilaterally on the line's expansions.

"We now have the iron-ore and manganese industry working together with Transnet on the next expansion beyond 60-million tons, on capital cost and how it can be done more efficiently, which is quite a significant difference to the approach that was taken before," he said.

"We now also have project management from outside of South Africa trying to bring new thinking into the port and the rail systems. We now have people dedicated to focusing on this," he said.

The private sector companies, KIO, Assmang and Samancor, were now represented on a steering committee, together with top Transnet management. Senior project personnel from all three companies were involved.

"We have a concept study that we should see in the next month that will indicate whether the external views are any different to the internal views. Whether or not the private sector will be able to be involved in some sort of participation in the eventual outcome of the expanded capacity will be, time will tell.

"This represents a significant difference to the way of development of future rail capacity. The pricing, and kind of partnerships, that will eventuate has still to be determined.

"But what we are interested in now, is ensuring that the next tranche of expansion coincides with the expansion of the iron-ore and manganese mines," he said.

Mining Weekly Online understands that the consulting engineering company Aurecon has been introduced to shed fresh light on how the Sishen-Saldanha corridor could be expanded efficiently.

Transnet is currently completing the execution of the expansion to 47-million tons a year, and is in the construction phase of the 
expansion from 47-million tons to 60-million tons a year.

Increasing the capacity beyond 60-million tons, for which plans have still to be drawn up, is scheduled to take place by 2013.

KIO's project pipeline could add 29% to its current production capacity by 2019.

In 2007, KIO promised that it would double exports five years down the line, which remains on track as the Sishen jig plant ramps up to its design capacity this year and the Kolomela project comes on stream in 2012.

By 2013, with domestic sales of six-million tons, KIO is targeting 47-million tons for the export market.

Post 2013, KIO will be looking to its potential projects in Limpopo province and Northern Cape, which are in different phases of study.

KIO is confident that the projects that the company has to offer will provide the company with the resources to continue production growth to 70-million tons.

KIO's record operational profit of R11,2-billion in the six months to June 30, was R3-billion higher than the previous best in 2008.

KIO CFO Vincent Uren said that rail and port tariffs were under five-yearly review with Transnet, with a financial model determining the rate.

"We are in discussions and hopefully we can be more explicit when the negotiations are over," Uren said.

Historically the prices have been in a combination of the rise in the consumer price index (CPI) and the producer price index (PPI) at a ratio of 80% CPI to 20% PPI.

But with input costs beyond the CPI/PPI inflation rates, it is anticipated that Transnet will seek to take that into account.

Production from the Sishen iron-ore mine increased another 17 % to 21,1-million tons in the six months to June 30, and costs were kept below inflation at below 4%, with an interim dividend of R13,50 a share declared.

KIO's Kolomela - formerly Sishen South - project, now 63% completed, is on budget and schedule to deliver its first production in 2012 and full production in 2013, when there is expected to be a global iron-ore production shortfall.

In the six months, 72% of KIO's exports were sold at a quarterly benchmark price, which increased 100% from the first quarter to the second quarter. Some 28% of KIO's exports were sold at an indexed price during this period, the 28% caming about from increased volumes produced.

Index prices were substantially above benchmark prices in both quarters, but particularly in the first quarter.

The average price received in the first quarter was $81/t and in the second quarter $136/t, which averaged $109/t for the first half of the year.

Most of the iron-ore sold in the first quarter was at the previous benchmark price and with more indexed pricing in the second quarter.

However, KIO does not expect the overall volume in the second half to equal the volume in the first half because of having drawn down on its stockpile.

"We have sufficient ore available and if Transnet exceeds our expectations, then we should be able to see another really good rail performance, and then a good export performance in the second half. But our caution is not to expect the same volume in the second half as in the first," Griffith said.

Of Sishen's 10% higher production of 21,1-milion tons, 19,9-million tons were railed by Transnet.

The volumes railed to the port increased by 8% year-on-year to 18,2-million tons.

Notwithstanding the increase in production, the overall performance was negatively impacted by the industrial action at Transnet and also by a derailment in April, which resulted in 1,2-million tons of lost rail volumes.

KIO increased stock at the Sishen mine because the growth in production outstripped the rail performance.

Of the 18,2-million tons railed to the coast on the Sishen-Saldanha export line, 0,6-million tons went to the Saldanha Steel plant, leaving 17,6-million tons for export.

But export sales increased by a further 10% to 18,8-million tons and 19,1-million tons that was actually shipped, which means that stock decreased by 1,5-million tons.

Of the 19,1-million tons shipped, 18,8-million tons were sold, which meant a small increase in KIO's stockpile in China.

Sales of iron-ore from the Thabazimbi mine to AMSA – with which KIO has struck an interim price accord – were flat at 0,9-million tons for the half year.

KIO has agreed to sell Sishen iron-ore to AMSA at $70/t for inland steel production and $50/t for coastal Saldanha Steel production for the next 12 months, to July 31, 2011. KIO will also not demand that AMSA pays for the iron-ore in advance.

AMSA's purchase ceiling for its inland steelworks at Vanderbjilpark and Newcastle is 520 000 t/m, with 125 000 t/m the maximum for Saldanha Steel, which AMSA will no longer take steps to close. Any additional tonnage must be procured at the prevailing spot price, based on export parity prices.

The arbitration between the two companies, still under way, is not about price but about who should have renewed mineral rights, and talks on a long-term pricing agreement are continuing.

On global iron-ore pricing, a degree of uncertainty remains around future pricing mechanisms for the seaborne iron-ore.

 

Edited by: Creamer Media Reporter

 

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Kumba Iron Ore CEO Chris Griffith tells Mining Weekly Online’s Martin Creamer that there is progression in the private-sector rail discussions with the State-owned Transnet. Cameraperson and Video editor: Darlene Creamer.
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Vincent Uren
 

Vincent Uren