JOHANNESBURG (miningweekly.com) - The underperforming zinc business of the JSE-listed Exxaro will improve towards the end of 2010 or early 2011, Exxaro CEO Sipho Nkosi says.

The black-controlled South African diversified mining company suffered a loss in its zinc business in 2008, but is intent on reviewing it rather than disposing of it.

This is because the company "truly believes" that zinc's fortunes will improve. The company exercised similar judgement with it once-depressed mineral-sands business, which is now contracyclically buoyant and adding to the company's bottom line.

By the same token, however, the company forecasts that the zinc business will be "depressed" for the "greater part" of 2009.

Nkosi says that the zinc business has "contributed massively" to Exxaro in the past.

But the reality is that, in 2008, it has been a loss maker that has raised the eyebrows of analysts and fund managers who are beginning to question its strategic fit within Exxaro.

JP Morgan analyst Steve Shepherd describes Exxaro as a nascent coal powerhouse in which the hobbling zinc business, Exxaro, inherited from the old State-owned steelmaking enterprise, Iscor, seems misplaced.

But what makes Nkosi comfortable that the zinc business will survive the company's review of it is that Zincor is South Africa's only zinc refiner and that there is a market for refined zinc in South Africa that has to be supplied.

"As Exxaro, we have taken the view that we will continue supplying this market," Nkosi says.

The purpose of the review will be to ensure that the zinc business works for Exxaro, is sustainable and is not cramping the style of the coal business and the mineral-sands business.

Considerable capital has been spent on the No 1 and the No 2 roasters at Zincor in Springs and there is also likely to be greater availability of Zincor's acid plant in 2009, because availability was reduced in 2008 because of a major shutdown in the second quarter.

The electricity crisis of the first quarter of 2008 resulted in a loss of production, but power availability is now up.

But that does not mean, Nkosi says, that Exxaro will retain its zinc business forever, but the strategy is to control costs in the zinc business so that the company is able to make money when the zinc market turns up, which the company believes it will.
"It might surprise that in two year's time, zinc becomes a massive contributor," Nkosi conjectures.

The price that Exxaro received for its zinc declined 42% in 2008 owing to market oversupply.

To watch a video of Exxaro CEO Sipho Nkosi on the zinc business, go to www.miningweekly.com and click on ‘Multimedia' and then on ‘Video Clips'.

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