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Stimulus, EV surge shaping diversification

Menar MD Vuslat Bayoglu interviewed by Engineering News & Mining Weekly’s Martin Creamer. Video: Darlene Creamer

19th March 2021

By: Martin Creamer

Creamer Media Editor

     

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Private investment and management company Menar is prioritising an iron-ore acquisition as well as a second sizeable manganese deal this year, while implementing a R7-billion thermal coal and anthracite expansion, in addition to developing its first manganese mine.

The East Manganese project is on schedule to produce its first manganese ore in May; Zululand Anthracite Colliery (ZAC) has reopened under strict Covid-19 protocols to meet returning domestic and international demand, especially from South America and Asia; and Kangra, which, similar to ZAC, was also shut temporarily owing to Covid, has resumed production as new demand from China arises for thermal coal.

Further, all approvals for the De Wittekrans thermal coal project have been obtained, final regulatory approval is awaited for the Bekezela Colliery project; and a new fourth replacement shaft at ZAC – to replace one of the existing three shafts and extend ZAC’s life-of-mine (LoM) – is all set to go ahead as soon as official approval is obtained.

All this has been taking place while Menar’s opencast and relatively low-cost Canyon Coal mines have been producing nonstop, which has coincided with the company devising strategies to grow in line with the global megatrends of global decarbonisation, government-sponsored economic stimulus packages and electric vehicle demand.

All three megatrends have a positive impact on the demand for input mineral resources that Menar produces or intends to produce in the future.

“Our strategy is linked to these megatrends and we’re looking at what we should diversify into and invest in so that we can supply into those megatrends,” Menar MD Vuslat Bayoglu told Mining Weekly during a Zoom interview.

“We’re working hard on a diverse pipeline of projects, and we’re busy with due diligences. We’re trying to find the right assets to acquire, and we’re hoping to be able to announce a major new acquisition in the first half of this year.

“I’d like to secure a sizeable manganese asset. That’s our priority at the moment, and we’re also serious about an iron-ore acquisition. “If we can do one iron-ore and one manganese asset acquisition this year, it’ll be great for us,” Bayoglu added.

What’s the outlook looking like within your company, taking into account the Covid-19 situation?

We remain optimistic about our group’s growth prospects in the short to long term. So far, our strategies have stood the test of domestic and international uncertainty. Example: after the first comprehensive lockdown last year, the market for our products – thermal coal and anthracite – collapsed. With the high risk of widespread infections by a virus that was relatively less understood at the time, we decided to put our underground mines – ZAC and Kangra – on care and maintenance. We fully honoured our legal obligations to workers in terms of retrenchment packages and other entitlements. We also signed recall agreements with the unions to give the retrenched workers first opportunity for employment when we returned to business after the market began opening up again. We kept our core, technical expertise intact to prepare for the reopening. However, our relatively low-cost opencast mines under Canyon Coal remained operational throughout, with the current coal price above $80/t supporting our operations.

Have your Covid-19 mitigation strategies worked to sustain your business?

They have worked very well. The market for our products has started to return as major industries started opening up in the second half of last year, owing to the confidence inspired by the rolling out of vaccines and the government-sponsored economic stimulus packages worldwide. With demand for anthracite product on track, we reopened ZAC and aim to have a smooth ramp-up back to full production. We see strength in local demand, in addition to the South American and Asian markets. ZAC intends to produce at the right cost to become market competitive and the preferred supplier of anthracite. We are projecting a production of 700 000 t/y of sellable product. We are looking at a production of 60 000 t a month run-of-mine and discard production of 50 000 t a month. ZAC’s products are a critical ingredient to a number of markets for manufactured products. These markets are electrode paste producers, calcium carbide producers, ferrochrome producers, local and export sinter pellet producers, iron-ore pellet producers and titanium dioxide smelters. We have also restarted Kangra, which is set to be a renewed operation when we get regulatory approvals for extending the LoM.

You have quite a sizeable portfolio of projects coming on stream. You had projected to spend over R7-billion in new investment until 2022. What’s the outlook now of your investment plans?

We are on target to complete our investment plans in South Africa. Three important and encouraging developments happened last year with regard to our investment and growth trajectory.

The first was the regulatory approval for De Wittekrans, in Hendrina. We project that we will invest R1.6-billion to develop it to produce an estimated 300 000 t/m for about 22 years. The second was our start on East Manganese in the middle of Covid-19 in September with the hope of producing ore by May. At steady state, we aim to mine 30 000 t a month for about three years and we’re investing over R250-million to develop the mine. Third was the clearing of the major legal hurdles for environmental authorisation in our Bekezela Colliery (Palmietkuilen) in Springs, where we are investing R1.5-billion. This project is awaiting final regulatory approval. Similar to De Wittekrans, it will provide very good quality, low-cost Eskom-suitable coal. We think that having competitive supply options and no complaints about a shortage of coal is good for Eskom.

How well-positioned are you to take advantage of the new global megatrends?

The three global megatrends are shaping our investment strategy and outlook because they have an impact on commodities. The megatrends are all unfolding simultaneously. The energy transition to decarbonised renewable energy sources is still at its infancy, but is likely to affect the market structure of several mineral resources. Many resource analysts are predicting increase in demand for steel which is critical for the manufacture of wind turbines and support systems for solar panels. Although the construction of solar energy sites is less steel intensive, compared with wind turbines, the reality is that the global aggregate demand for both wind turbines and solar systems is set to increase. This megatrend has a positive impact on the demand for all the input mineral resources: copper, aluminium, nickel and manganese. We have a nickel operation under care and maintenance, in Turkey, that is waiting for the right market prices to restart. In South Africa, our investment in East Manganese, in the Northern Cape, is just a start and we are looking at a few greenfield possibilities and acquisitions. Manganese is critical for the manufacture of steel and our investment in anthracite production is also key because it is a replacement for coke, which is critical in ferromanganese and ferrochrome alloys.

Government economic stimulus packages worldwide and the construction of infrastructure support demand for steel, iron-ore, manganese, chrome and aluminium, among other products. With South Africa being responsible for about 60% (South Africa has more than 60% of world’s global reserves and 33% of the global production) of international market supplies of manganese and being endowed with the world’s largest known deposits, we believe that our entry into manganese came at the right time. China, the biggest and most cost-effective steelmaker, is likely to continue to be the biggest consumer, at a time when South Africa’s steelmaking capacity is being hampered by electricity supply constraints. Construction projects will lead to demand for cement and steel which, in turn, will require more energy and minerals. Our investment in coal, anthracite and our search for acquisitions in the manganese, iron-ore and chrome sectors is therefore in line with the long-term structure of markets.

The third global megatrend of the expanding market for electric vehicles has triggered the need for expanding capacity for battery production. The global electric vehicle sales for 2020 are predicted to rise by about 35% year-on-year to just under three million units. If the prediction is correct and the trend continues apace in the next ten years, then we will see sustained demand for certain minerals that are crucial for battery manufacturing, such as nickel, lithium, cobalt and copper, as well a number of minerals within the platinum group metals sector. This is a pointer to the investment opportunities which we are exploring.

What makes you confident that Menar is ready to take part in these global megatrends?

A number of factors work in our favour. Firstly, we are a nimble and flexible investor and manager of projects. Secondly, we are very prudent in the allocation of capital. Thirdly, we prefer to plough back the return on our investments.

This strategy has seen us grow from a single coal mine pit to an investor and operator of several collieries and processing plants across three minerals: thermal coal, anthracite and manganese, in South Africa, as well as nickel, in Turkey. We want to maintain this growth trajectory. Our focus this year is to start operations in our existing project portfolio while looking for potential investments in manganese, copper, chrome and iron-ore to take advantage of the global megatrends.

Are you about to close any major deal?

We get approached by many potential partners who see value in our business and the way we do things. We also approach others. From these cross-approaches you can expect something to come out of it. We aren’t ready to announce any potential acquisitions we are looking at, but we are engaged in a number of discussions with various potential partners to enable us to achieve our diversification goal in the medium term.

In what geography is such an acquisition likely to be?

We’re focusing on South Africa because we find the country stable and one in which the rule-of-law applies, which is great for any investor. In the Southern African geography, what is happening in Zambia is a big worry to us. We are carrying on with our gold exploration in Kyrgyzstan. We’ve drilled about 3 700 m last year and we’ll drill about 12 000 m this year. Our first result indicates that we might have a sizeable opencast deposit and good grade, and we’ll keep on investing in Kyrgyzstan. But what we’re looking at in terms of iron-ore, copper and chrome is in South Africa.

Do you want to acquire operating mines? Are you also prepared to enter at the exploration level?

We’re very much interested getting on at the exploration level because we believe that is the way to go to get assets at the right value and price. It depends on if we can find suitable prospecting right holders, or secure prospecting rights in the right places that have the potential to be drilled. If so, then we’ll definitely go in and drill and be happy to invest risk capital.

What is your immediate priority to move the company forward this year?

I would like to secure a sizeable manganese asset. It’s our priority at the moment, and we are serious also about an iron-ore acquisition. If we can do one iron-ore and one manganese asset acquisition this year, that will be great for us.

 

Edited by Creamer Media Reporter

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