Iron-ore producer Kumba Iron Ore’s presentation on creating a growing and sustainable iron-ore and steel value chain in South Africa reports that iron-ore mining presents exciting growth opportunities and could double to about 100-million tons a year between 2015 and 2020, up from 48-million tons a year in 2008.
The South African iron-ore mining industry can be of significant benefit to the country’s overall economy. Growth prospects in the industry are to be found within exploration, extraction, mining beneficiation and the development of three iron-ore hubs in the country.
Exploration, extraction and mining beneficiation have the potential to create about 7 000 direct jobs and about 7 000 indirect jobs. These figures exclude potential jobs from new black economic-empowerment (BEE) mining companies.
New BEE companies will further double the number of employees currently involved in the production of iron-ore in South Africa.
Benefits of the iron-ore industry centre around economic growth, as the industry has the potential to increase the contribution of iron-ore producers to the country’s gross domestic product, from R15.6-billion in 2008 to about R36-billion between 2015 and 2020.
It has the potential to contribute about R19-billion between 2015 and 2020 to the fiscus, compared with R8.1-billion in 2008. Foreign exchange (forex) earnings could increase from $2-billion in 2008 to about $5-billion between 2015 and 2020.
In these areas, employment would increase and training and skills development, medical and commercial infrastructure would improve.
Further, the presentation points to the fact that increased investment in the iron-ore industry would assist in the development and commercialisation of technologies to beneficiate iron-ore sources previously considered as stranded or waste material, increasing production and generating forex earnings through exports.
The presentation also states that there are three main iron-ore hubs, which can be developed through expansion projects. One is a Limpopo inland hub, which would supply iron-ore to domestic inland steel producers; the second is a Limpopo export hub, which would export iron-ore from Palabora through Maputo, Mozambique; and the third is a Northern Cape export hub.
The Limpopo inland hub consists of several potential growth projects,
Including Kumba’s Phoenix mine, steel producer Arcelor-Mittal South Africa and Kumba’s Zandrivierspoort mine and various junior BEE ventures, such as Capricorn mine and Vanmag mine, could produce between 10-million tons and 20-million tons of iron-ore a year.
These mines would be developed to supply domestic steel producers, which are located predominantly in Gauteng. This hub could supply all steel producers located in Gauteng.
Further, the development of the Limpopo reserves presents an exciting opportunity to increase value for domestic steel producers. A large portion of the Limpopo iron-ore supply would result in higher value-in-use, owing to the high-quality characteristics of the Limpopo iron-ore.
This could result in a reduction in the costs of producing steel and increase the levels of production at the inland steel plants.
However, development of this growth opportunity would require investments in new sintering and pelletising capacity, owing to the iron-ore from the Limpopo region having a different set of characteristics to iron-ore from the Northern Cape.
Investments in additional infrastructure would be required to deliver increased iron-ore volumes from Limpopo to the domestic market. This infrastructure could be developed privately or in a public–private partnership.
A further investment of about R100-million would be necessary to tackle congestion of the railway lines in Gauteng. These investments translate into expected increases in rail tariffs of between R120/t and R150/t. The project would be economically viable at tariffs at the lower end of this range.
Long-term market prices for iron-ore would be required, since the projects in Limpopo are only marginally viable from a financial perspective.
A collaborative approach between government, mining companies and steel producers would be required to realise the growth opportunities in the Limpopo inland hub.
Meanwhile, a Limpopo export hub could include the Palabora mine, which is located in the eastern part of Limpopo province, close to the Port of Maputo.
About one-million tons a year of magnetite iron-ore is cur- rently exported through Maputo. A stockpile of more than 200- million tons of low-grade
magnetite iron-ore is available at the Palabora mine, and could provide extra potential exports of iron-ore.
However, the presentation points to the lack of infrastructure and demand for this low-grade iron-ore, which is magnetite with an iron content of only 58%. It is also relatively high in impurities, which is the biggest challenge to expanding export volumes from the Pala-bora mine through Maputo.
Improved operational efficiency at the South African and Mozambiquan borders could facilitate an increase in exports of iron-ore of up to seven-million tons a year. New rail rolling stock would be required to transport extra volumes of iron-ore from Palabora to Maputo at an estimated cost of about R2-billion. The implied rail tariffs are between R120/t and R160/t.
Further, it is expected that Palabora should be able to export iron-ore profitably at tariffs of this magnitude in the short term. In the long term, the development of an export hub based at Palabora could give rise to further benefits by adding critical mass to permit the construction of a combined
Zandrivierspoort and Palabora export pipeline for iron-ore concentrate.
Meanwhile, the Northern Cape region is expected to grow its mining activities substantially (by more than 100%) within the next five to ten years. The expansions at Kumba’s Sishen mine could result in increased production of iron-ore of up to 40-million tons a year.
Contract miner Sedibeng Mining also plans to develop a mine at Postmasburg, which would produce about one-million tons a year. Raw material supplier Assmang is ramping up its Khumani mine to produce ten-million tons a year, with further potential to increase the volume of iron-ore produced at this mine to 20-million tons a year.
These mines would export iron-ore at the Port of Saldanha through the iron-ore export channel (IOEC) rail and port system. However, these expansion projects would require State-owned transport utility Transnet to undertake more upgrades of the IOEC.
Current expansion plans include upgrading capacity from 45-million tons a year to 60-million tons a year, at a cost of about R4.2-billion. However, to reach the region’s full potential of exporting more than 100-million tons a year, further upgrades to the IOEC (including all rail and port facilities) would be required. This would require significant capital expenditure and the resulting rail and port tariffs would need to be similar to the current tariffs which are levied to ensure the proposed expansion in production at these mines is financially viable.