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Merafe begins long-awaited diversification
Allan Seccombe
Posted: Thu, 21 Jun 2007
[miningmx.com] -- MERAFE RESOURCES, the ferrochrome empowerment company, has kicked off its diversification strategy by entering a joint venture with contract miner Scharrig Mining to develop and acquire coal assets.
The joint venture called Merafe Coal has coal resources of about 11 million tonnes near Witbank and Middleburg which it will bring into production in just over a year’s time, using Scharrig’s mining skills, said Merafe CEO Steve Phiri.
“This is a vehicle for acquisitions. This is the first step in acquiring further assets. We know what we want and we are in the process of talking to someone,” Phiri told Miningmx.
Merafe is the empowerment partner for Xstrata in its South African ferrochrome projects and is a partner to Samancor.
Merafe embarked on its keenly anticipated diversification strategy away from ferrochrome because of the re-rating of its
shares and a reduction in its debt levels, Phiri said.
“The main thing that delayed our diversification strategy to other commodities was our gearing level,” he said. “Our share price has re-rated and we can look aggressively at other things.”
Merafe Coal, the equally held joint venture company, will spend a year defining the resources it has before starting to mine the potential opencast
deposits, he said.
“We are not coal miners. Scharrig has the skills to do this, and that’s exactly the reason we have this relationship,” he said.
Scharrig is an opencast mining specialist, deriving two thirds of its revenue or R914m from its services in such mining. It generated 22% of its revenue from exploration drilling in the year to end-March 2007.
"Further joint venture opportunities are currently being explored in anthracite and coal through Scharrig Mining Limited. Scharrig has acquired Benicon coal and its 60% share in Nkomati Anthracite and this operation has commenced production," said Scharrig chief operating officer Robin Berry.
There are five coal assets in Merafe Coal, of which three have been drilled to a point where they can be valued and applications for mining licences have been submitted. The other two still need to be drilled and mining licences will be sought once the drilling has been completed, Berry said, adding
production could start in 2009.
Merafe bought one of the three resources to the joint venture and Scharrig the other two, he said.
"The opportunity for growth is large," he said, pointing out the joint venture was splitting the mining side of Scharrig's business from its mining services business and in time the coal venture could be listed if the market was favourable.
This is the third leg in Merafe’s growth strategy as outlined in 2004. The first two legs involved internal and acquisitive growth in ferrochrome before turning to diversification, he said.
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