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New iron-ore mine showing profitability

27th July 2018

By: Paige Müller

Creamer Media Reporter

     

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Relative newcomer to the South African iron-ore industry, industrial minerals and construction materials group Afrimat states that its new Demaneng iron-ore mine, in the Northern Cape, is starting to show profitability, bolstering Afrimat’s diversification strategy into bulk commodities.

Afrimat acquired Demaneng – previously known as Diro Iron Ore – in 2016, as part of its ongoing market diversification and growth strategy. Afrimat now has 40 mines, including its industrial minerals and construction materials operations.

Afrimat business development and group strategy head Grant Dreyer explains that the company’s expansion into the iron-ore sector is a “natural progression from its existing business”, and is an attempt to leverage its unique skills in the bulk commodities space.

“The acquisition of an iron-ore mine complements and augments Afrimat’s product offering, leveraging its core competency into a new sector and diluting the company’s exposure to the cyclicality of the South African construction sector, while expanding its local footprint and providing a hedge against rand weakness.”

The Demaneng mine is expected to increase production from the current 600 000 t/y to about one-million tons a year by October. The mine started ore production and beneficiation after substantial revamping in July last year and shipped its first ore to China in August that same year.

Dreyer says that the R320-million investment was a well-calculated risk taken by Afrimat, despite the “tumultuous” local mining environment. The company considered the macro legislative and political aspects, concluding that the intrinsic value and potential return of entering the local iron-ore sector outweighed investment concerns, he explains.

Moreover, the quality of the ore – a 64%-plus product low in contaminants, which results in relatively low breakdown during handling and transportation and optimal reduction in blast furnaces resulting in improving efficiencies and productivity of furnaces – contributes to the ore commanding a high premium for its lump product. In addition, its prime geographical location and proximity to established infrastructure, such as Transnet rail infrastructure, made the Demaneng mine a particularly “attractive stepping stone” into the sector.

Dreyer adds that several members of Afrimat’s key leadership team are highly experienced in the iron-ore sector and have been instrumental in guiding the Afrimat team in the new environment.

The progress at Demaneng is also attributable to a strong operational team, which was instrumental “in turning the business around initially and aligning the existing workforce with the ‘Afrimat way’ and value system”, he adds.

Further, the company’s entrepreneurial culture and flexibility have enabled it to vertically integrate the operational value-add services required at Demaneng.

He states that Afrimat took responsibility for bulk mining, loading and hauling, reduction and beneficiation processing, quality control and the management of the load-out facility. Dreyer enthuses that the company’s broad range of skills has enabled it to control most of the mine’s operations and operational cost drivers with minimum errors and compatibility issues.

However, Dreyer concedes that the pathway to profitability was not without its challenges, as the company faced several initial hurdles, from motivating the disillusioned workforce left behind after Diro Iron Ore’s financial woes and negotiating business rescue complexities to perfecting operational logistics and handling iron-ore export channel glitches.

The company and its various stakeholders continue to investigate solutions to logistical challenges. Afrimat particularly values the newly formed relationship with Transnet, together with which it is working on the expansion of a rail load-out facility that will provide Demaneng and other smaller iron-ore mines in the region sustainable access to the Sishen-Saldanha rail system. Investment in infrastructure and transportation upgrades will ensure that mines have access to international and domestic markets, he adds.

Dreyer emphasises that Afrimat regards the Demaneng operation as a key initial platform for the company to further explore the bulk commodities space. Afrimat is assessing various opportunities in this sector to further expand the business and has engaged various local and international players to identify collaborative opportunities, he concludes.

Edited by Mia Breytenbach
Creamer Media Deputy Editor: Features

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