Manganese will recover after a rough few years – UMK

4th October 2011 By: Martin Creamer - Creamer Media Editor

JOHANNESBURG (miningweekly.com) – Manganese will recover in the next two to three years after having a rough ride, says new South African manganese miner United Manganese of the Kalahari (UMK).

UMK CEO Johan Kriek expects the 12-million tons of additional manganese mining capacity that is currently being created in South Africa’s Kalahari manganese field eventually to be taken up.

But in the short term, those 12-million additional tons - which equal the volume of manganese that China currently imports - are weighing heavily on the current manganese price, which, as a result, is failing to track the buoyancy of its steel-feed stablemates, iron-ore and coking coal.

However, Kriek, a veteran of the manganese business, foresees and eventual recovery in the price, based on the contention that the declining quality of China’s manganese ore, which requires more energy and which generates more emissions, will result in China ultimately substituting low-quality domestic ore with the better-quality imported ore that South Africa produces.

“While I still believe that manganese is a fantastic business, and that it will recover in time, I think that for the next two or three years, we’re in for a rough ride,” he tells Mining Weekly Online in a video interview.

While the manganese content of some Chinese ore can be as low as 14% and 15%, South Africa’s medium-grade Kalahari ore has a manganese content of 37% and 38% and its high-grade ore has a content of 44% and 48%, which requires less energy to process.

“It will become uneconomical for the Chinese to use their ore and that will create additional demand, which will be good for the manganese mining industry,” says Kriek, who headed BHP Billiton’s Samancor prior to handing over the reins to Marius Kloppers, who later went on to be appointed CEO of the entire BHP Billiton group.

In 2007 the manganese price attracted much attention when it rose to $18/dry manganese ton unit, which led to the creation of the additional mining capacity.

Since 2008, South Africa has been producing more manganese than anticipated. Still to come on stream fully is UMK’s own R1.25-billion opencast operation, which will produce 2.1-million tons of manganese ore this year and probably 2.7-million tons next year, when the Kalahari’s new Tshipi Borwa and Kalagadi mines are also due to be commissioned.

The R1.7-billion Tshipi opencast operation is expected to produce 2.4-million tons of manganese ore a year, and the three-million-ton-a-year Kalagadi mine will provide the ore for the production of 2.4-million tons a year of sinter, 700 000 t of which will be sent for smelting into high-carbon ferromanganese alloy and 1.7-million tons a year of which will be marketed. The planned smelter has a nameplate capacity of 320 000 t of ferromanganese a year and the total integrated project will require a capital expenditure of R11-billion.

Wanting to dispose of its Kalahari manganese asset is Australian junior Aquila Resources. The ASX-listed company is looking to raise money by selling Avontuur, reportedly to help fund its share of the A$5.2-billion West Pilbara iron-ore joint venture project with AMCI Inc.

Black economic-empowerment company Majestic Silver Trading owns 51% of UMK, a low-cost opencast producer, and the Russian company Renova is the remaining 49% shareholder.

UMK, which has been able to get out of its starting blocks fast because of the shalllowness of its orebody, has invested R900-million to date and expects to spend another R300-million to R350-million to complete its mining project.

It was able to make its first domestic sales in August 2008 and its first exports in March 2009. The equity-funded company expects to repay its shareholders's loans and become debt free before the end of 2012.