JOHANNESBURG (miningweekly.com) - Vertically-integrated steel and vanadium producer Highveld was considering developing its Mapochs iron-ore mine into an "independent mining play", potentially releasing it to sell production to customers other than its Mpumalanga-based steel plant and Vanchem.

Evraz international operations head Pavel Tatyanin told Mining Weekly Online on Tuesday that, although Mapochs could never be a "sizeable" iron-ore supplier, the international group, which owns the majority of the shares in JSE-listed Highveld, was considering ways to further develop the mine's role.

Briefing the media in Johannesburg on Highveld's new management and board appointments, including the appointment of Alexander Scott MacDonald as Highveld's new CEO, Tatyanin stressed the strategic importance of vertical integration to both Highveld and the bigger Evraz group, which had similar mining/steelmaking balances in Russia and the Ukraine.

Highveld chairperson Bheki Shongwe indicated that the company, which is South Africa's second-largest steel producer and a leading global vanadium participant, had applied to convert the Mapochs mineral rights from the old to the new order, in line with the Mineral and Petroleum Resources Development Act.

He added that it was optimistic of a positive response from the Department of Mineral Resources, having made its submission, which included a black economic-empowerment component, some time back.

Highveld's Mapochs aspirations were signalled only days after it emerged that Kumba Iron Ore (KIO) had "cancelled" a supply agreement with ArcelorMittal South Africa from March 1, 2010, claiming that the steel group's failure to convert its 21,4% undivided share in the Sishen mine meant that the prevailing supply contract could no longer stand.

ArcelorMittal South Africa has mounted a legal defence, but had requested the JSE to suspend trading in its shares until March 3, 2010, when it would announce the details of its response.

Should KIO's position be sustained, however, the rights would revert to State ownership, and the steel group could face a steep $250-million rise in its yearly cost structure as it begins securing all its ore on commercial terms. Currently, it receives 6,25-million tons a year on a cost plus 3% basis, in line with what was thought to be an "evergreen" supply arrangement, struck during the 2001 unbundling of Iscor into separate steel and mining businesses.

Tatyanin said that Highveld's ownership of its iron-ore was key to its current and future competitiveness and that Mapochs had been a key attraction for Evraz when it moved to purchase Highveld from Anglo American nearly four years ago.

ELECTRICITY A KEY FOCUS

Highveld's management would also be giving renewed attention to the issue of electricity security, including possible cogeneration and energy reduction projects, in light of South Africa's sharply rising power tariffs.

The National Energy Regulator of South Africa has confirmed that the country's electricity tariffs would rise by around 25% a year between April 2010 and March 2013, which would place major cost pressures on energy intensive businesses, such as Highveld.

The JSE-listed company's power costs had risen from being a single digit contributor to 14% of total costs in 2009, and would continue to rise on the back of the approved increases.

Shongwe said that while the group had no firm cogeneration plans, it had noted Public Enterprises Minister Barbara Hogan's recent remarks, and would evaluate its options once the "full facts" emerge.

Tatyanin said that, while its energy plans had been placed on the backburner during the recent financial meltdown, they would now become a "top priority" as the recovery became more visible.

"The recently announced tariff increases mean it is an important item and one that will be a top priority for the new management team," he concluded.

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