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ARM's manganese business booms
Brendan Ryan
Posted: Mon, 01 Sep 2008
[miningmx.com] -- MANGANESE ore prices are so high that Assmang is trucking ore 1,000kms from its mines in the Northern Cape to the port of Richards Bay in Kwazulu Natal for export.
Assmang is doing this because it cannot get the ore out through Port Elizabeth which is the port traditionally used for manganese exports but which currently cannot cope with the increased export volumes.
Road haulage costs to Richards Bay amount to around R650/t but high-grade manganese fines sold for an average price of US$197/t (about R1,400) FOB (free-on-board) during the year to end-June.
Current prices for high-grade manganese fines have doubled to between $380/t and $400/t equivalent to between R2,900/t and R3,080/t at current exchange rates.
Assmang sells a variety of grades of manganese ore and also sells the material through long-term contracts as well as on the spot
market.
Assmang is jointly controlled by Assore and African Rainbow Minerals (ARM) which today reported results for the year to end-June revealing that manganese had by far the highest profit margin in the group.
ARM’s overall EBITDA (earnings before interest, tax and depreciation) margin was 57% but the EBITDA margin on manganese ore sales was 73% compared with 54% on manganese alloy sales.
Manganese contributed 49.1% of ARM’s total earnings before interest and tax (EBIT) of R6.7bn for financial 2008 compared with 19.3% of total EBIT of R2.5bn in financial 2007.
These profit levels and margins explain the intense interest in the further development of the manganese deposits of the Northern Cape.
Four newcomers are jostling to get into the business which is currently dominated by Assmang and Samancor.
One of those newcomers is Pallinghurst Resources which listed on the JSE recently. According to Pallinghurst CEO Arne Frandsen plans are to develop an opencast mine producing 2mt/year of manganese ore.
He added, “We’re in discussions with Transnet Freight Rail (TFR) over the logistics of getting that material to the coast. Obviously, over the longer-term we would like to build a smelter to beneficiate that material but then you run into the power constraint problems.”
Interviewed after today’s
presentation, ARM executive director Jan Steenkamp said Assmang was in discussions with TFR over plans to increase the total amount of manganese ore exported from South Africa.
Steenkamp said the current capacity to export manganese ore by rail through Port Elizabeth was 3.5mt/year which was split between Assmang and Samancor. That capacity was in the process of being ramped up to 4.2mt/year.
Medium term plans were to expand the capacity on the rail line and at Port Elizabeth harbour to 6mt/year over a 24 month period starting from next year.
At the same time a pre-feasibility study would be carried out looking at the potential to export up to a further 3mt/year of manganese ore by railing it to Durban for shipment through the existing Bluff Mechanical Appliance (BMA).
Steenkamp commented, “that would take capacity to a total level of manganese exports of around 9mt/year. Based on our assessment of the global market and various market
research reports we reckon South Africa could export in total more than 12Mt/year over a five to ten year time frame.
“Who gets what share of the expansion of TFR’s capacity above 4.2mt/year will obviously be the subject of debate but my main focus is on how to get the total increased export volumes out of the country.
“ In the longer-term there may be potential to go through Coega depending on developments.”
Asked about the possible impact of Government’s drive to beneficiate SA’s minerals locally instead of exporting the raw ore, Steenkamp replied, “that’s fine but then you come up against the reality of the power supply situation.
“We have just suspended the environmental impact assessment on the proposed seventh furnace at our Cato Ridge smelter because we need to have greater confidence on when the power to run that furnace will be available.”
Steenkamp acknowledged that trucking manganese ore to Richards Bay was not ideal and
that the haulage of this material is damaging the country’s road infrastructure.
“We are consulting and co-operating with the Department of Roads and local municipalities and have created a budget to help with road repairs going forward, particularly in the Northern Cape,” he said.
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