JOHANNESBURG (miningweekly.com) – Freight rates have dropped quite substantially since the iron-ore tailings dam tragedy in Brazil ,with more vessels becoming available, Assore CEO Charles Walters reports.

Since the Brumadinho dam disaster, some 30-million tonnes of iron-ore supply have been withdrawn from the market.

Speaking to Mining Weekly Online following yet another set of strong financial results in the six months to December 31, Walters, together with Assore CFO Ross Davies and Assore growth and strategic development executive director Kieran Daly, provided wide-ranging insight into the iron-ore, manganese ore, manganese alloy and chrome mining and marketing company, which is:

• looking to balance what it returns to shareholders and what it retains in the business for reinvestment, to keep the business as efficient as possible;
• spending capital on the Black Rock manganese mine expansion project and the Gloria manganese mine modernisation project in the Northern Cape, as well as investing in the Dwarsrivier chrome mine in Mpumalanga;
• continuing to work closely with State-owned rail company Transnet to improve iron-ore logistics and also the railing of chrome from Steelpoort to Richards Bay;
• benefitting from an increasing manganese intensity as China ramps up production of higher quality steels;
• continuing with ongoing brownfield exploration drilling around its Khumani and Beeshoek iron-ore mines;
• holding thumbs that its increased investment in greenfield exploration company IronRidge, which is drilling for metals and minerals in Ghana, Ivory Coast and Chad, will bear fruit; and
• looking to the hot sun of the Northern Cape to potentially provide cost-effective solar power to its strongly performing mines in the province.

Assore’s jointly controlled Assmang recorded headline earnings of R4.29-billion, an increase of 23% on a 100% basis, which made a R2.14-billion headline earnings contribution. Assore owns 50% of Assmang, which it controls jointly with Patrice Motsepe’s African Rainbow Minerals (ARM).

The six months to end December were dogged by inland logistical snags, but only affecting iron-ore and chrome and not manganese ore and manganese alloys, which enjoyed problem-free logistics.

The 4% fall in iron-ore production and sales in the period was linked to the Sishen–Saldanha iron-ore line coming to a halt in November after a truck carrying heavy equipment at excessive height on a public road smashed into one of the line’s bridges, damaging it beyond repair and preventing State-owned rail company Transnet from performing its required rail export operations.

However, intense collective action resulted in the 861 km line – which extends from mines in the Northern Cape to the Port of Saldanha, in the Western Cape – being back in action ahead of schedule, which allowed South Africa’s important iron-ore exporters to resume the earning of vital foreign exchange quicker than expected.

“It did impact production and sales in the period because our stockpiles at the mine were fairly full when the incident occurred but we’re back to steady state and we did give credit where credit was due on how quickly Transnet brought the line back up after the bridge incident,” was Walters’ comment to Mining Weekly Online.

On the other side was chrome, where transporting all the product from mine to market faced headwinds in what was a two-headed story.

“In November and December we struggled with congestion in the Maputo port and during the six months period there were some blockades of roads around the Steelpoort area which made getting the trucks in and out of the Dwarsrivier chrome mine a little difficult, so that’s why we refer to inland logistics challenges,” he said, adding that the company had been leaning heavily towards the use of the Maputo port after experiencing diminishing efficiency on the Richards Bay route. But then it ran into a constraint at Maputo as well, both at the border and at the port.

On keeping the dividend flat, Walters explained that last year’s 60% interim dividend uplift was a handsome reward for shareholders last year but that the company was this year funding significant ongoing capital expenditure (capex).

On the growth side, just short of R2-billion capex was expended in the six months at Black Rock, Gloria and Dwarsrivier, with Davies calculating that about R520-million of it was expansionary.

From a pricing point of view, manganese ore improved in price whereas manganese alloys came under downward price pressure in response to the ore business having a different supply-demand dynamic to the alloys.

“We’re seeing an increasing manganese intensity in steel generally. It’s an important alloying element in terms of producing higher quality steels and particularly as China ramps up the higher quality steels, the manganese intensity is increasing,” said Walters.

Though the emergence of the electric vehicle is good for manganese, it is fairly incremental in the scheme of things and certainly right now, not driving pricing.

“Going forward, yes, there’ll be more manganese used in batteries for electric vehicles and so on, but again it’s not the same kind growth or impact that you’d see in cobalt or lithium,” said Daly.

China’s environmental policies continue to be a plus for quality ores, with Assore somewhat surprised to see just how lump has held its premium to the lower grades.

“We’d normally say that 15% premium is sustainable in the long term, so it’s sitting slightly above that at the moment; again supply-demand playing itself out here as well,” said Walters.

The premium is affected on the top side by pellet premiums and on the bottom side by the actual underlying iron-ore price.

While its growth from its current level is not expected, maintenance of a decent premium over the fines benchmark is virtually assured.

South Africa is in a particularly strong sweet spot when it comes to lump and grade: “We’re very blessed to have very high quality ores in iron-ore,” said Daly.

Outside of South Africa, most are looking to high grade to produce pellets, which is what Brazilian company Vale, hit by the Brumadinho dam that killed 300 people, does.

Is there a chance of a similar tailings dam catastrophe in the Northern Cape? Firstly, the ore is not as fine and secondly, there is not the same level of moisture in the Northern Cape. Also, local slimes dams are different in nature and more solid. The other aspect is the relative flatness of the Northern Cape compared with the undulation of the site where the collapse took place.

“I’m not saying it can’t happen and we’re obviously hard at work just going back to our own dams to do our own risk assessments because this is a wake-up call across the industry, and we don't want to take anything for granted, but the circumstances are very different in terms of the nature of the tailings themselves. We do have tailings but nothing to the same extent in terms of either volume or the liquid nature of those Brazilian tailings dams,” was Walters’ comment to Mining Weekly Online.

METAL PRICES

Iron-ore prices in China are lowering and the grade differential between the lower grade 58% iron content and the 62% iron content is narrowing, with the 58% iron content coming back into favour.

An oversupply of ferrochrome and a drop in the ferrochrome price caused the chrome price to come off in the six months to end December. Even though it has bottomed out and turned up since then, no major price improvement is expected against the backdrop of an abundance of chrome ore stock in the Chinese ports that is putting downward pressure on any upward price movement.

A fairly conservative chrome price is expected in the next six months, with the mining of chrome-yielding upper group two reef by platinum mining companies not to blame for the lower chrome price, but also playing a role.

Assmang’s Cato Ridge ferromanganese smelter in KwaZulu-Natal had a decent six months helped by the favourable pricing formula of manganese ore from Black Rock.

Similar benefit was not enjoyed by the Sakura ferromanganese smelters in Malaysia, which buy manganese ore at the market price.

Cato Ridge did okay despite the definite squeeze between manganese ore pricing that was elevated and manganese alloy pricing that came off.

But negatives persist around all local smelting businesses owing to Eskom issues and carbon tax prospects. With Eskom it is not only pricing but also availability. Steady state availability is crucial for energy-intensive smelters that are averse to inconsistent electricity supply, which lowers productivity.

It is a tricky one for Assore, which benefits from the Assmang alloy business contributing only 3% to 4% of the total profits, but the downstream knock-on impacts of the Eskom matter is of obvious concern to South Africa as a whole.

As smelters are extremely energy intensive with no standby generator set big enough to provide the huge amperage required by the furnace, Eskom’s recent step down from stage two to stage four load-shedding dealt a big blow, because the normal warnings and communication protocols were not observed. However, if load-shedding is scheduled in advance, maintenance plans can be put in place to lower the negative impact.

Does Assore have any plans to self-generate electricity for its operations? While there is nothing specific at this stage, the hot Northern Cape could in the future play a role in generating solar power to its mines in the province.

“It’s something we need to discuss with our partners. There’s a business case and payback becomes sweeter and sweeter. The technology is also improving, so it’s certainly something we’ll look at,” said Walters.

When it comes to smelters, carbon tax is another concern and a full report on the impact of carbon tax will be sought from ARM, which manages the smelting operation.

Meanwhile, Sakura, in which Assmang holds a 54.36% shareholding, is producing 240 000 t to 250 000 t of high-carbon ferromanganese a year –­ but it has had a difficult six months.

EXPLORATION

Brownfield exploration drilling is continuing around the Khumani and Beeshoek iron-ore mines, to define the resource bases around them and extend mine life.

Greenfield exploration is being undertaken in Africa by Australian minerals exploration company IronRidge, in which Assore has a 31.27% shareholding. IronRidge’s main focus at the moment is on lithium and gold in mainly Ghana, Ivory Coast and Chad.

“It’s really just a risk-adjusted bet for us backing the entrepreneurial talent of the geologists in IronRidge. Our interest is not gold, for sure, but lithium and how the electric vehicle (EV) macro trend plays out in the commodity space is of interest. Obviously, the manganese will overlap between steel and the EV side and we’ll look at other similar commodities,” Walters told Mining Weekly Online.

Assore is a completely debt-free business. Strong cash generation resulted in group net cash increasing by 16% to R7.65-billion as at December 31. The board’s declaration of a R10-a-share interim dividend matched that of the previous corresponding period.