[miningmx.com] — MERAFE Resources will fund its share of the second phase expansion of the Lion ferrochrome smelter complex, but will not take up its right to increase its stake in the venture from 20.5% to 26%.
The Lion smelter complex is a joint venture between Merafe and Xstrata. The second phase expansion (Lion 2) will involve construction of a 360,000 tonnes per year smelter which will increase the Xstrata/Merafe chrome JV’s total ferrochrome capacity to more than 2.3 million tonnes (mt) annually.
The capital cost of Lion 2 is budgeted at R4.9bn, which includes R700m for the development of the 1.2mt/year Magereng mine within the Thorncliffe mine complex.
Merafe’s share of the capital cost is R1bn, which CEO Stuart Elliot said would be funded through a combination of existing cash balances, debt and Merafe’s share of future cash flows from the venture.
Elliot said Merafe would not exercise its right to increase its interest in the JV to 26% “due to current equity market conditions’ because part of this funding would have to be in the form of new equity.
He said: “Building on the investment that has already been made through Lion 1 in South Africa, Lion 2 will create over 1,000 permanent jobs and a further 1,800 jobs will be created through the construction phase, thus aiding one of South Africa’s key challenges regarding employment creation.’
Ferrochrome along with nickel are the metals which put the “stainless’ into stainless steel.
Elliot said the long-term fundamentals for ferrochrome remained strong, with stainless steel melt production forecast to growth at 6% annually for the foreseeable future.
He said: “From a supply perspective there are increasing barriers to entry including securing electricity supply, high capital costs, increasing costs of production, access to funding and shortage of quality ore reserves.’
The Lion 2 project will consist of two closed electric arc furnaces using Premus technology, as well as two pelletisers and two drying and roasting kilns.
Elliot said Lion 2 was aligned with the integrated resource plan 2010 and the industrial policy action plan, and that the venture had an approved budget “committing Eskom to allocate electricity to Lion 2′.
First production of ferrochrome is expected in the first half of 2013.
