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Renova set to disturb SA balance Posted: Wed, 13 Sep 2006 [miningmx.com] -- INVESTMENT by Russia of between $1bn and $2bn is mouth-watering for the South African government – but questions with regard to the viability of the proposed inflow are worth posing. One proposal is for Russian management company ZAO Renova to build a manganese mine in South Africa’s Northern Cape province, possibly as early as 2007. That’s according to comments by President Thabo Mbeki, who added that mining prospecting was currently under way. The prospecting licences to the farms were awarded in July last year, estimated to contain a total of 350 million tons of manganese. South Africa holds about 80% of the world’s manganese reserves, so the sheer volume of metal content isn’t extraordinary. In any event, three empowerment groups were involved in the prospecting permit awards, with one group including an entity called Chancellor House and another called Pitsa Ya Sesaba. It’s those companies that share properties with United Manganese of Kalahari, in which Renova has a 49% stake. The plan is to mine enough ore from this mine to smelt 300,000 tons of manganese alloy in a facility situated at Coega, near Port Elizabeth, presumably to be railed down on a Transnet-owned line. The South African government is thrilled. Renova presents another option for the stalled Coega initiative, which has been kept waiting for a chunky anchor tenant for years. Aluminium producer, the Canadian firm Alcan, has promised to tell government whether it will involve itself at Coega. If it doesn’t, Renova has promised to build its own aluminium smelter. However, access to infrastructure is far from guaranteed. Bottlenecks on Transnet’s tracks are well known, and while the government-owned transport utility is clearly under reconstruction, its response to clients has been traditionally slow. “The big issue is getting hold of rolling stock,” says Jan Steenkamp, CEO of African Rainbow Minerals’ (ARM) ferrous metals division. ARM mines roughly 2.5 million tons of ore/year and has plans to build that up to 3.5 million tons/year by 2013/2014. It, too, will be hoping to secure additional access to Transnet rolling stock. There are other issues yet to be clarified. One is how Renova’s access to water, power and people will be managed. The other is regulatory. “Will the Russians get mining licences quicker than home-based companies?” asks one mining commentator. “Does Renova know something about mining licence applications that we don’t?” The suggestion is that Russian investment in South Africa, following hard on the heels of Russian President Vladimir Putin’s State visit earlier this month, has the South African government’s rubber stamp in a way that wouldn’t be expected by the country's public companies. Perhaps historical ties between the ANC and Russia are helpful in that respect? It would be no great exaggeration to suggest that South Africa’s Minerals & Energy Department (DME), together with members in government, has a sympathy bordering on nostalgia for Russia. DME director-general Sandile Nogxina, like many of his peers in Government, shares an ideological interest in Russia’s history. Renova’s billions also help meet Government’s plan to establish beneficiation in South Africa. But until the first sod is turned on the mine, or the first ton of alloy is produced at the smelter, the promises of Russian investment remain just that. “I’ll believe it when it happens,” says Paul Jordaan, president and CEO of Mintek, commenting on Renova’s proposed plans for Coega. Jordaan thinks the preferred route will be for Renova to establish a manganese mine and simply export “the dirt,” as he’s fond of describing the process. “The return on capital is much greater than way.” Those are tendentious comments to make, as Jordaan is a consultant to the DME. But he doesn’t necessarily believe the investment will roll out as is currently foreseen. There will also be high competition from existing players in the manganese industry. In addition to ARM, which mines manganese through its subsidiary Assmang, there’s the more dominant power of Samancor, owned by BHP Billiton. The two producers virtually control manganese production in SA, which is currently in oversupply by between 800,000 tons and 1 million tons. That’s is enough to dislodge the manganese price to $700/t from a high of around $1,000/t. By bursting into a market where the concentration of ownership is high, Renova is likely to end up rocking the boat. In that context, the Russian firm’s relationship with Government will need careful, transparent management.Free news alerts: click here
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