Kumba to extract 24-month payback on Kolomela

[miningmx.com] – IN less than two years, Kumba Iron Ore (Kumba)
could recoup the R8.5bn expended in building its new Kolomela mine, because the
mine started producing so much earlier than expected.

Kolomela is near Prieska, about 70km south of Sishen, and would in terms of the
investment proposal only start producing in April of this year.

The rapid completion of this enormous building project, which started four years ago,
meant that Kolomela was able export its first iron ore as early as November of last
year. “We would probably have produced about three million tonnes this year, but
since we were able to start production sooner, we were able to supply more this year
– between four million and five million tons,’ Kumba CEO, Chris Griffith, said in an
interview on Friday.

However, the build-up of production at Kolomela is progressing so well that Griffith
was able to give the assurance at a presentation of Kumba’s interim results on
Friday that Kolomela will produce “at least’ six million tonnes this year. At the mine
itself, personnel are talking about seven million tonnes in 2012.

“The staff think I’m a bit crazy, because I said to them my grandmother could get
between three million and four million tonnes out of this mine. However, they
reacted very well,’ said Griffith, who is becoming CEO of Anglo American at the end
of August.

Kolomela will reach its design production capacity of nine million tonnes per year
next year. “This means that within 18 months to two years we’ll be able to repay the
R8.5bn that we got from the market to build Kolomela,’ Griffith said.

That’s good news, but the earlier profit is highly necessary to offset lower ore grades
and production at Sishen.

In Griffith’s term of office, Sishen became the country’s richest mine – despite the
collapse of the resources markets in August 2008 – making Kumba one of the top
performers on the JSE.

Sishen’s enormous orebody is receding, and huge volumes of surface waste must be
removed these days to expose the deeper ore body. Kumba’s management has
predicted since 2009 that this would happen. Since then, about 20 million tonnes of
waste is mined at Sishen every year, but in the second half of last year these higher
mining costs started making themselves felt. In the latest half-year to end-June, the
stripping rate – the ratio between the waste that has to be removed and ore
production – rose from the usual 2.1 a year ago to 3.4 by the end of June.

It looks as if Sishen is going to have to remove an additional 30 million tonnes of
waste this year, which will cause mining costs to rise fairly sharply. However, that’s
a good thing, Griffith says, because the sooner the waste is removed, the better.