Times are tough in the sub-$100/t iron-ore project business so aspirant iron-ore miners are facing the future full of unusual business ideas.

Uttered repeatedly at last week’s International Mining and Metals’ third African Iron Ore conference, in Cape Town, were the words ‘clustering’, ‘collaboration’ and even a ‘commune approach’ in order to avoid balance sheets being overburdened by huge project and logistics costs at a time of poor commodity price outlook.

Both JSE-listed Exxaro Resources and its ASX-listed iron-ore-project neighbour in the Republic of Congo (RoC), Equatorial Resources, are adopting staged project approaches and beginning to look like the RoC’s tweedledum and tweedledee project developers, in a positive sense of the fictional-character metaphor.

Exxaro GM: Ferrous Brian van Rooyen likened attending the conference in the current depressed iron-ore market conditions to attending a funeral, but lightened up proceedings with a positive outlook for the commodity in the long term, and the news that Exxaro would be executing its first production from its Mayoko RoC project by year-end.

The Mayoko project, located in the Niari Prefecture, about 300 km north-east of Pointe-Noire, on the Atlantic Ocean, is a near-term development in an emerging iron-ore province with an existing underused, heavy-haulage mineral railway passing within 2 km of the main prospect and terminating at the Port of Pointe-Noire.

The project currently has a Joint Ore Reserves Committee-compliant mineral resource of 121-million tons of iron-ore, consisting of a hematite cap of direct shipping ore (DSO) at 55% iron and beneficiable DSO at 41% iron.

Production and export of ten-million tons a year of iron-ore by 2016 is envisaged.

“There’s little we can do about markets, there’s little we can do about pricing. However, for the markets that are available, cost will be the major contributing factor in survival.

“Clustering is an important phenomenon, specifically because of the cost involved in infrastructure. By developing project clusters, the possibility arises to share the cost of infrastructure development, thereby making it possible where one developer, who may not be able to get a project off the ground when acting alone, is able to do so when contributing within a cluster of project developers,” Van Rooyen said.

Equatorial CEO John Welborn, a former Australian rugby forward who used to lock down against Springbok scrums as a Wallaby, also opened his presentation with lamentations of considerable current negative Australian sentiment towards iron-ore and falling share prices, but then lightened up with comments on the prospects of steel consumption rising and news of his company being in a position to announce a scoping study for its Mayoko-Moussondji RoC project by month-end, which would provide the project’s capital expenditure, operating expenditure and timeline.

“Similar to Exxaro, we’re promoting a staged approach . . . derisking the project as we develop rail carrying capacity,” Welborn told the conference.

The orebodies of the two projects, with an existing rail line between them, are similar – Exxaro with a 650-million tons resource and Equatorial with 767-million tons.

“That rail corridor is worth its weight in gold,” Van Rooyen said, adding that Mayoko was an exceptionally high-quality resource and that the company had acquired a fantastic opportunity.

Van Rooyen said he had no doubt that it was one of the projects in the region that would launch successfully.

“We’re very excited to work with Exxaro and coming out of this conference is the necessity, really, for companies to collaborate, not just with government, but with each other,” said Welborn.

“It’s an easy thing to say; it’s a logical reality, but it’s much harder to do in practice.

“Hopefully, we can forge an alliance with Exxaro that makes sense for both companies in what are a number of challenges that we’re meant to face together,” Welborn said, adding that the company was also in discussions with a number of prospective project partners and financiers.

AFRICA'S PILBARA

The Cameroon-Congo-Gabon region, which is often likened to Australia’s iron-ore-rich Pilbara, is said to need a champion in the mould of Fortescue founder Andrew Forrest to assemble companies, governments, financiers and end-users in a region that could in time give the iron-ore top three of Vale, BHP Billiton and Rio Tinto more of a run for their money.

The ‘each company for itself’ approach of Rio Tinto and BHP Billiton with regard to Pilbara infrastructure is seen as how not to do it in Africa.

Glencore is now merged with Xstrata, which intended producing 100-million tons of iron-ore a year by the end of the decade from its 88%-owned Sphere Minerals, in Mauritania, and the Zanaga joint venture, in southern RoC.

The entry of a major player in the region, and the infrastructure it would initiate, could then provide the impetus to kick-start development of the region as a whole.

Hatch South Africa managing consultant Peter Raymond said logistics costs were generally two-thirds of total project cost, on the rule-of-thumb basis of a R2-billion mine needing R4-billion worth of rail and port.

“Generally, the cost of logistics is too high, even for the majors,” Raymond said.

Exxaro was, meanwhile, in the favourable position of being able to send small quantities of Mayoko iron-ore along the existing line while steps were being taken to upgrade it for larger loads, allowing quicker start-up.

The sheer scale of infrastructure in many of the projects being studied was too high for any one company to be involved, and needed was a collaborative approach by all stake-holders, including government in public– private partnerships.

“Lenders have become very wary of risky projects because too many people have lost their shirts,” Raymond said, adding that infrastructure was only going to be developed on the back of mining projects.

USER CONCESSION CONCEPT

Independent South African mineral policy analyst Paul Jourdan, the adviser to the Minister of Transport in Mozambique and who is working with South Africa’s departments of Mineral Resources, Science and Technology and the State-owned Industrial Development Corporation (IDC) to develop mineral value chains, said he was a great fan of mining infrastructure catalysing national development but there was a threefold problem.

Firstly, mining companies did not like other cargoes on their line, because they were seen as interfering with scheduling.

Secondly, where third-party access was built in, excessively high tariffs were imposed to keep outside users at bay.

Thirdly, when anti-price-discrimination clauses were built in, third-party users were kept off the line on the grounds that the line’s capacity was fully taken up, which meant that a percentage had to be reserved for third parties in advance.

Jourdan made the point that collaboration was not part of the natural instincts of mining companies, the core business of which was mining and not railing, which was perceived as having hassle factors.

He favoured the user-concession concept applied at the private-sector-owned Richards Bay Coal Terminal (RBCT), regarding this as the only way a State was able to obtain utility return from the private sector.

“When the rest of the nation uses the RBCT, they get the benefit of private-sector efficiencies and capital, but at a utility tariff, not a commercial tariff,” Jourdan explained.

SOUTH AFRICAN COMMUNE APPROACH

Tata Steel Minerals Southern Africa, which has had a project in the Northern Cape in the pipeline for the last nine years, would like to change even more paradigms for emerging junior iron-ore miners in South Africa.

Tata MD Somdeb Banerjee told the con- ference that a lot more out-of-the-box thinking was needed, including consideration being given to the adoption of a commune-type approach of junior miners working together, as well as collaboration on beneficiation infrastructure.

Steps needed to be taken to make projects viable at iron-ore prices of even $70/t.

He believed there could well be tonnages of ore that could be mined at costs of less than $50/t and could be at port at less than $70/t.

It was then worth the challenge to lower that further to $65/t because its was the large miners that had developed the cost bases that now needed to be challenged.

Iron-ore miners in the hot Northern Cape should look to self-generation of solar power and wind power.

Banerjee mooted a commune-type approach, where, for example, one facility was established for the processing of the ore of many different producers.

The group of juniors believed that they might be able to take iron-ore downstream and produce intermediary steel products like slabs, hot-rolled coil or bars and route them through places where there was a requirement for finished product.

New capacities would arise that would be competitive and it was something the Southern African region should see as an opportunity to make produce at least the intermediate products, if not the finished product.

While the sector was going through a rough time, participants needed to put their heads together to elevate the sector.

“It’s important to look at the critical success factors required to make this industry a sunshine industry again.
“If we all work together, we can probably make a lot of things change and that’s the aspiration of the emerging miners,” Banerjee said, adding that, this year, the emerging miners would produce close to a million tons of product.