Building the market for sustainable metals
The first generation of metals produced with little or no carbon emissions is headed to market.
Article originally posted on BizNews.com by Alec Hogg
Setting up a new iron ore project is no small undertaking. In addition to getting mining rights, companies must manage environmental issues, and very often invest large sums in local infrastructure to ensure that it’s possible to get the iron to customers elsewhere once mining starts. The Exxaro project in the Republic of Congo is, by global standards, a relatively small one. Nevertheless, Exxaro’s Mzila Mthenjane estimates that getting it up and running will require a capital outlay of around $340m dollars – about R3.7bn at current exchange rates. Not only does Exxaro have to conduct geological tests of the iron ore body and plan and develop its operations, it must also meet the Congolese government’s terms, which includes some pretty substantial investments in local infrastructure, including rail and ports. Happily, all is going well, and the Congolese government has given Exxaro the nod to continue with the project, which should contribute to a healthy bottom line for the company going forward. – FD
To watch this CNBC Power Lunch video click here
ALEC HOGG: Well, Exxaro and the government of the Republic of Congo have signed an agreement in relation to the development of the Mayoko iron ore project. Joining us on the line now is Mzila Mthenjane, the Executive head of Strategy & Corporate Affairs at Exxaro. Mzila it’s good to have you on the show. We missed each other yesterday. It’s a big deal – this one. The deal that you did in March 2012 with African Iron…this is the conclusion perhaps of the promise that was proposed at that stage, but maybe was delayed a little.
MZILA MTHENJANE: Good afternoon, Alec. Thanks for having me on the show. Yes indeed, it is a milestone for Exxaro to have reached this agreement and it refers specifically to the mining convention. In South African terms, it’s really the Mining Right, so we’ve been given the right to mine, and what that includes is the environmental aspect and talking to my colleague Ernst Venter, it also includes some of the tech’s regime. Obviously, you would have seen from the announcement that there are still some conditions outstanding. Those include conditions in relation to the excess to the port and the rail. We’ve decided to make it all a package before we actually start mining, rather than mining and then having to stockpile before we get to an agreement with the rest of the package of agreements. It’s significant for us.
ALEC HOGG: Mzila, just elaborate a little about the access to the rail because clearly, the rail goes to the port, which is 300 kilometres away. From the research at the time that you kicked off, or you bought African Iron, the iron ore deposit’s not that far away from the rail. Is there a problem in getting onto the rail, or is the rail itself an issue?
MZILA MTHENJANE: No, there isn’t a problem with getting onto the rail, Alec. I think the issue is about the fact that obviously, the Republic of Congo wants to develop a vibrant mining industry, and that’s probably the only rail that’s been built in the area because there are other mining projects being developed. You’ll be aware of the [inaudible 2:22] to have a property, which borders our property and I think a couple of hundred kilometres – probably north – of that, we also have [inaudible 2:32]. All these mining properties and future mining properties will need access to that rail and port for getting their product to market, so the whole issue is in relation to Exxaro not necessarily getting its service fee, but certainly getting sufficient capacity to forward its product as well as allowing other potential use of the rail.
ALEC HOGG: You spent R1.3 billion already in developing up to the point where the Mining Convention was not given…now it has been given, so you’ll go further. What, potentially, is the investment in this 720 million ton deposit?
MZILA MTHENJANE: The original CAPEX budget was around $340-odd million, so of that we have…the R1.3 billion equates to about $100 million, so there’s still the balance of the $240 million to spend. What we’re going to be doing now obviously, is we’re going to be developing the project in phases and the initial phase will be looking at about one to two million tons. We’ll do further studies as we extend it to five and ten million – potentially higher than that. For now, we think we’ll go up to about ten million tons over five years or so.
ALEC HOGG: That’s an important contributor to the iron ore market. Mzila, just to put it in perspective for people who perhaps don’t know this industry that well: how big a deposit is this, relative to some of the other big ones around the world?
MZILA MTHENJANE: It’s relatively small. What I’ve just mentioned now is that we’re looking at a 10 million ton project. When you compare that to some other projects in Australia, which are probably about five to ten times that, so I think in terms of scale it’s probably small to mid-tier compared to the majors like Vale, Rio, and BHP who are developing very large projects. I think, for a company of our size, we’re comfortable with that. It puts us in probably a less risky space from a capital expenditure perspective and risk, compared to having to develop a multi-billion dollar project and the associated capital with that.
