[miningmx.com] — EXXARO Resources would go ahead with construction of the proposed Fairbreeze heavy mineral sands mine near Richards Bay, in response to improved conditions in the titanium market.
CEO Sipho Nkosi announced at the results presentation held in Johannesburg on Thursday that the Exxaro board had given the go-ahead for the R2.4bn mine on Wednesday.
Fairbreeze will replace the existing Hillendale mine, which supplies feedstock to the titanium slag smelters at Exxaro’s KZN Sands plant but will be mined out during the first quarter of 2012.
Nkosi said the decision to build Fairbreeze meant the titanium slag smelters would remain in operation and about 1,050 jobs would be retained.
Exxaro announced in late 2009 that it was shelving Fairbreeze because of the poor returns expected from the project.
Financial director Wim de Klerk said at the time: “We were not prepared to accept single-digit returns on the investment required, given the better returns on offer from other divisions of the group.’
De Klerk commented on Thursday that prices for titanium feedstocks and titanium pigment had improved markedly in the second half of 2010, and he expected further improvements this year.
He said: “We believe this recovery is sustainable, based on the industry fundamentals. The price rises that have taken place since August were the first signs of recovery in this market in more than a decade.
“We have stuck with this commodity for many years despite the low returns, because we believed in the good underlying fundamentals for the market combined with the prolonged underinvestment into new production capacity. We also believed that re-pricing had to happen.’
Speaking at question time, former Exxaro CEO Con Fauconnier said: “I would like to say ” I told you so’ to all the doubting Thomases who gave us such a hard time over the years on the titanium business.’
The contribution made by mineral sands to Exxaro’s net operating profit swung decisively back into the black during 2010, when a profit of R179m was made compared with a loss of R124m in 2009.
All three of Exxaro’s titanium sands operations – KZN Sands, Namakwa Sands and Australia Sands – had lost money in 2009, but only KZN Sands was loss-making in 2010.
De Klerk said Exxaro had spent R2.7bn on capital expenditure during 2010, but this would rise sharply to R8.2bn in 2011 and R7.7bn in 2012 because of commitments to expand the Grootegeluk colliery to meet the coal supply requirements of Eskom’s new Medupi power station.
De Klerk pointed out that Exxaro had renamed this project the Grootegeluk Medupi Expansion Project – or GMEP – to avoid confusion with Eskom’s Medupi project in particular because “we are not running late’.
He added that Exxaro’s conservative financial structure would allow the group to fund this major capital outlay while still being able to develop other growth opportunities in its project pipeline.
One of those opportunities is a diversification into iron ore, which was first flagged last year.
Questioned about the state of play regarding Exxaro’s iron ore plans, Nkosi said: “Please be patient with us for a while on this one. We cannot disclose anything at this stage.’
Nkosi said Exxaro would push ahead this year with plans to sell its loss-making Zincor operation near Springs.
Zincor’s net operating loss worsened to R171m in 2010, from a loss of R47m in 2009.
