JOHANNESBURG (miningweekly.com) – The black-controlled JSE-listed ferrochrome company Merafe Resources is lobbying for the South African government to impose restrictions on the export of raw chrome ore from South Africa this year.

Merafe, which posted a spectacular R278,7-million return to profit in the year to December 31, shares in 20,5% of the earnings before interest, taxation, depreciation and amortisation (ebitda) of the Xstrata-Merafe Chrome Venture, which has a capacity to produce 1,98-million tonnes of ferrochrome a year.

Merafe CEO Stuart Elliot says that chrome is high on the agenda of the government’s 2011 priorities to adopt beneficiation as a strategy in order to ensure that South Africa reaps the benefit of its mineral endowment.

Elliot tells Mining Weekly Online in a video interview that three million tons of unbeneficiated raw chrome ore left South Africa for China in 2010.

Merafe is continuing to lobby both the Department of Mineral Resources as well as National Treasury to restrict the export of chrome ore that has not been beneficiated.

“As long as everyone comes to the party, and they are not severely prejudiced, we believe that we can find a solution that is amicable to everyone,” Elliot tells Mining Weekly Online.

The three million tons a raw chrome ore that was exported from South Africa last year is sufficient to produce a million tons of ferrochrome.

In a global ferrochrome market of eight million tons, one million tons is a substantial amount.

Ferrochrome, currently selling at 125USc/lb, creates many times more value for South Africa than low-priced raw chrome.

“The most important aspect is that if we continue to export ore, South African ferrochrome producers are going to come under pressure from a cost point of view and we’re going to lose jobs,” he adds.

Besides prioritising minerals beneficiation in South Africa, President Jacob Zuma has declared 2011 and the next decade as a period of intense job creation.

Merafe is intent on supporting the President in his quest for jobs.

It is looking to investing in the second phase of the Xstrata-Merafe Chrome Venture’s R5-billion Lion project, Lion Two, which will create 1 000 permanent jobs, 6 000 indirect jobs and 1 800 construction jobs.

Merafe sees beneficiation and job creation as being inextricably linked. “You can’t look at them in isolation,” Elliot adds.

A replica of Lion One, Lion Two will continue to use proprietary Premus technology, which cuts electricity consumption by between 33% and 50%.

“We have signed an agreement with Eskom and that’s why we’re going ahead with building Lion Two,” Elliot says.

Merafe has an agreement to participate in 20,5% of Lion Two at cost, but it is in discussions with Xstrata to increase its stake in the venture to 26%.

In terms of the revised Mining Charter, Xstrata is required to have a black economic-empowerment partner that has 26% of the asset by 2014.

Merafe’s share at the current 20,5% will be R1-billion, but if it increases its stake in the venture to 26%, more than R1-billion will be required.

“That will be a combination of new equity, new debt and existing cash and future cash flows,” Elliot tells Mining Weekly Online.

One of the initiatives that assisted Merafe in containing its 2010 cost escalation to 10% was its ability to use far more anthracite than coke as a reductant in its new pelletising plants. The Premus technology is also an anthracite user.

“That’s been able to drive down our costs, despite the fact that power has gone up by 25%,” he adds.

Cutting costs further will be the 600 000 t/y R190-million Tswelepele pelletising and sintering plant for use at the Rustenburg plant from 2013, and the Lonmin upper group two (UG2) plant at Marikana, where the company will tap into UG2 tailings to extract chrome for pelletising.

REPLACEMENT MINES

The 480 000 t/y Horizon and 360 000 t/y Waterval mines have been developed as replacement mines at a cost of R60-million over three years.

Merafe’s earnings increased significantly from the prior year primarily as a result of an increase of 46% in the average European benchmark ferrochrome price from 85 USc/lb to 124 USc/lb year-on-year and an increase of 4% in Merafe’s share of sales tons from 281 000 in 2009 to 291 000 in 2010.

Merafe’s share of ebitda from the venture for the year ended December 31 was R563,5-million.

The Bafokeng community owns 29% of Merafe and the State-owned Industrial Development Corporation 22%.

To subscribe to Mining Weekly's print magazine email subscriptions@creamermedia.co.za or buy now.