Jan Steenkamp, Senior manager of ARM ferro-alloys division
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ARM examining R700m furnace
David McKay
Posted: Mon, 05 Mar 2007

[miningmx.com] -- AFRICAN Rainbow Minerals (ARM), South Africa’s largest mining empowerment company, is considering the merits of spending up to R700m expanding its Cato Ridge ferromanganese facility.

Jan Steenkamp, MD of ARM’s ferrous metals division, said the expansion may get a positive board ruling in July.

If approved, ARM will add a seventh furnace to the KwaZulu-Natal facility taking production about 80,000 tonnes/year higher to about 300,000 tonnes/year of high carbon ferromanganese alloy. Ferromanganese is used in making steel demand for which has increased in China.

“At the moment, we’re just twiddling our thumbs waiting for Spoornet (the national transport utility) to give us an answer on the rail tariff,” said Steenkamp. “There are indications it will be next month.”

That’s all good news because Spoornet’s lack of capacity has hampered ferrous metal expansions for years. The development also helps ARM meet more of the beneficiation goals that the South African government is anxious to meet.

South Africa's deputy president, Phumzile Mlambo-Ngcuka, said last week that she intended to gazette in parliament by the year-end a level of mandatory vertical integration for mining companies.

“We are urging those who are not currently complying in terms of exporting beneficiated minerals to prepare themselves to comply,” said Mlambo-Ngcuka.

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“We want to do the expansion because there’s significant spare capacity at the mine and the margins on alloy are much better,” said Steenkamp. It’s the idea of job creation – and better margins – that has the South African government excited about beneficiation.

However, another consideration for ARM is whether the market can support more production of this metal. The manganese market is small, dominated by a handful of companies and easily disturbed. Perhaps the retracing in Chinese equities, and the possibility of high interest rates might give ARM cause for a rethink on its expansion?

One final issue, however, is whether ARM can support the additional balance sheet stress. Steenkamp said it could, but it’s worth noting that ARM’s ferrous metals division is currently financing the R3.8bn development of an iron ore mine. An expansion of the mine could cost another R2bn. “The banks have been very keen to help us,” said Steenkamp.