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Low-cost coal key driver of major Mozambique pig iron aspiration

10th June 2013

By: Martin Creamer

Creamer Media Editor

  

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JOHANNESBURG (miningweekly.com) – Nearby low-cost thermal coal is a key driver in a new move to produce mine-mouth pig iron in neighbouring Mozambique, where there is also access to clean, low-tariff hydroelectric power and water.

Developing higher value, higher demand products on site is expected to reduce exposure to market fluctuations and mitigates the requirement to compete for rail infrastructure.

Baobab Resources plc, which wholly owns company Capitol Resources of Mozambique, expects to be smelting from one-million to two-million mine-mouth tons of pig iron a year from its project in Tete province in three years time.

Located in the emerging Tete mining and industrial hub, where top-tier coal deposits are being developed by global majors, the London Aim-listed junior expects to be in the fortunate position of access to newly built rail, water and electricity infrastructure by the time the project becomes operational in the second half of 2016.

One of the company’s four development scenarios involves exploiting the entire deposit, which presents production scenarios of four-million tons a year for 35 years, which would put it in the number-one pig iron production spot, ahead of current leader, OJSC Tulachermet of Russia, which is some 2.5-million tons a year.

“That wouldn’t just be world class. This would be world first,” Baobab Resources MD Ben James told International Mining and Metals’ third African Iron Ore Conference in Cape Town.

An independent prefeasibility study (PFS) modelled one-million tons of pig iron production a year for 37 years, using up only 15% of the company’s total 727-million-ton 34%-iron resource.

Production of ferrovanadium alloy would produce a by-product credit of $75-million a year, equal to 14% of total revenues or a $65/t pig iron credit.

James flashed statistics on to a large overhead screen that showed pig iron – which is used alongside ferrous scrap in electric-arc-furnace steelmaking – selling at nearly three times the price of iron-ore and at a premium to scrap itself.

Expected initial financial exposure is $1-billion, which the study indicates will return a pretax net present value of $1.3-billion at an internal rate of return of 22%.

“The real key of our cost reduction is the thermal coal,” James said, adding that Baobab had carried out exhaustive testwork on neighbouring Rio Tinto’s and Vale’s middling coal, a by-product of the coal-washing process, which as available across the fence of the company’s licence boundary.

The company expects to be able to negotiate very competitive mine-gate prices for that coal, which is essentially waste that is having to be reburied to prevent spontaneous combustion and which is proving an environmental headache.

The vanadium slag has significant commercial value, particularly when upgraded to a ferrovanadium alloy.

The world consumes about 70-million tons of pig iron a year and some 350-million tons of scrap iron, with the seaborne pig iron market at a modest 15-million to 20-million tons a year.

The reason pig iron is favoured is that it is low in impurities and has a consistent density, which mitigates the deleterious components of scrap iron, highly alloyed modern versions of which have higher deleterious components.

Pig iron prices vary between markets, with North America typically reporting the lowest prices and Asia, particularly China, reporting the highest. Current pricing ranges from $425/t to $500/t.

Compared with the cost of production of about $385 for each free-on-board ton of the largest global pig iron producers – Russia, the Ukraine and Brazil – Baobab expects a cost of production of $225 for each free-on-board ton, owing to the low cost of producing the product at the mine mouth.

“This is a massive margin of opportunity for us,” James added.

The aim of the company is to begin producing in the shortest timeframe possible, while also developing the pig iron asset.

“We have been undertaking routine exploration on several other assets in Mozambique, some of which are yielding exciting results,” said James, who noted that Mozambique was a country richly endowed with both mineral and gas resources.

The province hosts some of the largest undeveloped coal reserves and appears to have the potential to produce up to 20% of the world’s seaborne coking coal within the next decade.

The International Finance Corporation, which has a 15% participatory interest in the project, supported the 2012 PFS with a pro-rata $1.9-million contribution.

One-million-ton-a-year pig iron production would result in 25 000 t/y of vanadium slag by-product, with 3 300 t/y contained vanadium or 5 900 t/y vanadium pentoxide.

Titanium from the slag is not considered an option at this stage of the project.

The modular character of the plant equipment supports a staged development model, limiting financial exposure.

Edited by Creamer Media Reporter

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