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Exxaro considers manganese output Posted: Fri, 20 Jul 2007 [miningmx.com] -- DESCRIBED AS Anglo American’s “broken furniture” by one former banker, heavy minerals producer Namakwa Sands isn’t an easy sell for Con Fauconnier, outgoing CEO of Exxaro Resources. Exxaro bought the asset from Anglo for R2bn as part of the restructuring of Kumba Resources while its more lucrative iron ore mines went the other way – into Anglo. That's one of the reasons the company is working on building in additional revenue streams, including the possibility it could become a 200,000 tonne/year ferromanganese producer. It is currently testing that prospect through a technology joint venture with Samancor, the manganese giant in which Anglo American and BHP Billiton have a stake. First, however, Exxaro's Namakwa Sands. The market for heavy minerals – mostly titanium, which is used in the manufacture of pigment – is flat and Namakwa has been a troublesome asset in the past. Even for a company with as much technical depth as Anglo, Namakwa Sands was having furnace roofs blow off, or gremlins elsewhere in the system. It reached break-even several years after commissioning. The upshot is that, apart for a zinc business – which includes the Zincor refinery in South Africa and the Rosh Pinah mine – black-controlled Exxaro Resources is heavily reliant on its coal assets. A pure play company dressed up as a diversified miner? On balance that might be overstating its reliance on coal. Exxaro retained a 20% stake in its former iron ore assets, now in Kumba Iron Ore (KIO), the separately-listed company that Anglo now controls. And as Fauconnier contends, Exxaro has big plans for mineral sands, which are being expanded in SA and Australia. “We’ll continue to assess mineral sands but, fundamentally, it’s a good business,” he says. But coal is where the action is for Exxaro. Rough estimates are that the company’s output of about 42 million tonnes/year will reach 60 million tonnes/year in a few years. Sipho Nkosi, who is to become CEO in August, says output figures can be easily reached. The “Mepudi” expansion at its Grootegeluk mine, which supplies Eskom’s Matimba power station, another expansion at Inyanda and the Mafube project with Anglo Coal (towards year-end 2008) will provide around 14.5 million tonnes/year of extra coal. That excludes production of metallurgical coal, which will also increase as Eskom’s Matimba power station expands. Much of its coal production is for Eskom, South Africa’s power utility that said recently it would spend R200bn expanding capacity for the much-stressed southern Africa power grid. That means projects are safely premised on long-term contracts, which in turn converts into stable cash flow – one of the reasons Exxaro Resources’ share has fared well since listing last year. Commenting on its early stage businesses, Fauconnier said Exxaro's ferrous metals production could be supported by a 200,000 tonnes/year production of ferromanganese. The company is in a joint venture with Samancor, which is controlled by BHP Billiton, to test the notion. That novel partnership is subject to pilot plant testing, in which Exxaro contributes new technology. If successful, the technology could knock 30% of current ferroalloy production costs. Currently, Samancor is providing manganese ore in order to test it. If the technology works in the pilot plant Exxaro is free to embark on the project independently, or with Samancor in an enlarged partnership. Furthermore, Fauconnier says the technology could be transferred to other ferroalloys, such as ferronickel. Given the improvement in nickel prices, there’s obvious excitement that the group has a new major revenue generator on its doorstep. Over the shorter term there are questions concerning how the transfer of management between Fauconnier and Nkosi will work in practice. It’s clear the two have a good working relationship. Nkosi comes across as far more relaxed and confident than his media-shy reputation suggests. He says taking over Exxaro will have its challenges, none of which are insurmountable. Click Here to subscribe to our daily newsletter
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