Emerging Miners of Iron Ore in Northern Cape

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Somdeb Banerjee, Managing Director at Tata Steel Minerals (Southern Africa) (Pty) Ltd delivered the presentation as part of the Africa Iron Ore 2013 conference. To learn more about the event and for information on next year’s event, please visit the conference website: www.immevents.com/mining-conference/africa-iron-ore

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Emerging Miners of Iron Ore in Northern Cape

  1. 1. 1
  2. 2. 22Emerging Miners of Iron-Orein the Northern Cape, SA4th June, 2013Presented byMr. Somdeb BanerjeeExecutive in Charge, Southern AfricaTata Steel Ltd.
  3. 3. 3AgendaOverview: The Tata Steel GroupGlobal Iron Ore market and Projection for the coming yearsSouth African Iron Ore market- is it the right time for newentrants?Potential Shift in the marketSA mining: How to make the ‘sun shine’ again?13452
  4. 4. 4Overview:The Tata Steel Group
  5. 5. 5Tata Steel Group
  6. 6. 6Tata Steel India1000 KMI N D I A104 years old still young & flourishing• Building & nurturing long term relationship withcustomers : large percentage of them have greater than10 years of business relationship (many distributors fortwo generations)• Only private company in India maintaining a township• Large employee base (35,000 employees) and respectfor people (many, for many generations)• Pioneer in Industrial harmony: 82 years without anylabor unrest• Sustaining cost leadership by ensuring raw materialsecurity; 100% Iron Ore, 50% Coal• Equity partnership for key commodities in entire valuechain : Ferro Alloys, Rolls, Refractories, Shipping ,Service Centres• Reference site selected by United Nations (GlobalCompact) for Corporate Social Responsibility
  7. 7. 7JamshedpurCentral TeamJo’burgSouth AfricaMaputo,MozambiqueAbidjan, WestAfricaMontrealCanadaBrisbaneLondon, UKTata Steel :Global Footprints
  8. 8. 8Global Iron Ore MarketandProjections for the coming years
  9. 9. 9Global Iron Ore MarketData Source: Goldman Sachs Commodities Research, 201346%30%3%3%5%3%2%Global Iron-Ore Seaborne ExportsSome Trends observed in the Iron Ore Industry:• While Chinese demand is stabilizing, massive build-out of India and rest of BRICs will continue the on-going shift in demand and wealth from the developedto the emerging economies. By 2020, developingcountries will account for almost 80% of the World’sUrban population• New supply will come with higher capital costs dueto:China absorbs about 60% of the global supply.Prices of Iron Ore declined sharply during 2012,hitting a three year low of $86.70/t owing primarily todestocking of plant inventories by the Chinese steelmills and traders withdrawing from the Spot Markets.Iron-ore market rebound in 2013 due to a re-stockingcycle supporting prices as high as $154/t in Feb 2013.World Iron Ore resources are estimated to exceed230-billion tons of iron contained in over 800-blliontons of crude ore, with China, Australia, Brazil andIndia being the largest producersComplicatedLogisticsScarcity ofskilled labourRise of‘ResourceNationalism’IncreasingregulatoryburdensDegradingquality of orereserves
  10. 10. 10Projections for the coming yearsShort Term Projections- 2013Salient points for emerging miners in SA• Continued high prices of Iron-Ore to the tune of $120-130/t by the need for high-cost Chinese mineproduction to balance the demand for 2013Long Term Projections- 2013-2017• Iron ore production of expected to expand by 10% inthe next three years, while steel production isexpected to grow by 5%- causing a shift in pricing• More subdued expectations for the coming yearswith the long term price forecast at $88/t driven by:- More robust Chinese domestic production- Expected surge in international supply- Maturing of Chinese economy away frominfrastructure projects- Steel production growthrate has slowed and will remain below GDP growthrates in the future* Data Source: Goldman Sachs Commodities Research Report- 2013-500050010001500200025002012 2013 E 2014 E 2015 E 2016 E 2017 ESeaborne Demand and Supply Forecast(in million tonnes)Global Iron Ore Demand Seaborne ImportsSeaborne Exports Seaborne surplusSeaborne demand growth rate is slowing down to 3%, while seaborne supply will continue to grow at 7%. Inthis light, market prices will shoot downwards and remain below marginal production levels till equilibrium isattained. Emerging miners need to be cautious of their costs of production to stay relevant in the longrun when the market slumps again.Projections based on various studies including:• Goldman Sachs research reports• Creamer Media’s Iron ore reports
  11. 11. 11South African Iron- Ore industryIs this the ‘Right Time’ for Emerging Miners?
  12. 12. 12South African Iron-Ore IndustryTotal reserves – 9.3-billion tons with principal deposits inthe Northern Cape province with other high grade hematitedeposits on the northern limb of the Bushveld Complex. *Experts are bullish on the outlook for South African iron-oreminers, pointing to:• The fact that SA has overtaken India as the third largest exporter ofIron Ore to China• The opening of Kumba Iron-Ore’s R8.5-billion Kolomela Mine in2012• Further, capacity expansion plans for the country’s infrastructurefocusing on the iron-ore rail link between the mining hubs inNorthern Cape and Saldanha Bay. This infrastructure will eventuallyboost the region’s iron-ore transport capacity to 100-million tons ayear.However,• The South African cabinet has proposed amendments to theMPRDA and the Competition Act to provide for higher control onIron-Ore prices in the hands of the regulators.• Further, SA’s mining sector experienced wildcat strikes during2012 leading to significant challenges for large Iron-Ore minerstoo.* Source: Chamber of Mines, South Arica
  13. 13. 13Support for Emerging Iron-Ore Miners in SABenefits of supporting EmergingMiners in South AfricaEmploymentgeneration(especially withBEE partners)Economicalbenefits for thecommunities andthe countryTechnologicalimprovements tobeneficiatepreviously‘Stranded Ore’Transformationand ruraldevelopmentwith improvedinfrastructureGrant Thornton International Mining Report, 2013:“The report shows that mining executives are beginning to see light atthe end of the tunnel following a period of strikes and uncertaintysurrounding the mineral regulatory regime.The mining report revealed that SA junior miners will spend more oncapital equipment and, despite knowing that labour and energy costswill increase significantly, they also expect to be profitable, with half(49%) of the respondents in SA also anticipating increased revenuesthis year. This is significantly higher than in Australia (36%), Canada(31%) or the UK (21%).”“Transnet is committed toproviding capacity to emergingminers, in particular BEEplayers”Already seeing significantsteps in the areas of Coal andManganese.TRANSNETDMR“Since the mid-1990s, governmenthas sought to promote blackeconomic empowerment in themining industry. The process willtake time, but black-ownedfirms are now beginning to play animportant role in the miningindustry, and several new mininggiants have emerged.”DMR
  14. 14. 14Is this the ‘Right Time’ for new entrantsin the South African Iron Ore industry?Adequate Railand PortcapacitySufficientenergy andwater resourcesConduciveregulatoryenvironmentViable marketfor a secure off-take of Iron oreproductionCollaboration forbeneficiationandinfrastructureConduciveenvironment forgenerating anattractive return oninvestment forEmerging Miners• While most of these projects are economically viable undercurrent market conditions, by the time the projects mature, themarket prices would have dropped significantly.• Emerging Miners can reap the benefits of a bullish market till2014, subsequent to which they will need to be conscious oftheir costs to be sustainable in the long term• Established miners in SA, along with Junior Miners candouble the Iron-Ore production *• This would create more than 14,000 new jobs *(even more through BEE partners) and add significanteconomical benefits to the regions and the country asa wholeOpportunities for development ofIron Ore Hubs in South AfricaNorthern CapeEXPORT HubSishenAssmangBurkeKolomelaSedibengLimechemLimpopoINLAND HubLimpopoEXPORT Hub* Source: Kumba research report, 2012
  15. 15. 15Opportunities in the Northern Cape-Geology and MineralizationIron ore Mineralisation is hosted by BIF of Kuruman/ManganoreIron formationBIF are underlain by Dolomites of the Maremane Dome,Overlain by Shale & Quartzite of Gamagara FormationBIF slumped into the Sinkholes formed in the underlyingdolomitesSlumped BIF were preserved, Supergene enrichment took placeleading to high grade Haematitic Iron ore.Due to differential erosion over time, the Iron ore and BIF werepreserved in relation to surrounding dolomites.Presently the BIF and Iron ore are seen as topographic highs inthe landscape.SishenMine KhumaniMineKolomelaMineSedibengMine
  16. 16. 16Opportunities in the Northern Cape-Mineralization and New Projects• Lithology shown in “Black colour” are areas with Iron Ore/BIS potentialAreas Where New Mining ProjectsAre Likely To Come Up.
  17. 17. 17Northern CapeInfrastructure DevelopmentSishen- Saldanha Export Ore System *• 888 km, heavy haul single railway line• Volumes for iron ore are expected torise from 45mtpa up to 118mtpa in2041 in line with capacity ramp plansof TransnetLoad out facilities• Load out facility are owned andoperated by the established miners• Other players to rely on Assmang/Kumba’s support for load out of theirproduct onto the Orex systemSaldanha Port Terminal *• Port handled a capacity of 58 million-tons of bulk cargo in FY11-12• Expansion program underway toincrease Port capacity in line withcustomer demandsInfrastructure requirements for Emerging Miners inthe Northern Cape:• Common Load out facility for self-reliance and costminimization• Rail capacity allocation to transport the product to port• Stockpile capacity at port to maintain integrity ofproduct* Source: Transnet Website0501001502010 2015 2020 2025 2030 2035 2040 2041MillionTonsYearExpected Demand on the Orex Line(Sishen to Saldanha) *
  18. 18. 18Banded Iron Stone Potential• BIS is the mother rock for all Iron Ore in region.• Alternate bands of Iron (hematite) and Silica (Chert) give it its distinctname.• Nature removes this silica over millions of years, by the process ofleaching(Supergene Enrichment), leaving behind only the Iron, givingrise to the high grade Iron Ore Deposits seen today.• In most of the smaller deposits in Northern Cape, huge resource of BISis available.• If this silica removal process can be done economically, using asuitable Beneficiation technique, the BIS will open up vast additionalmineral potential in Northern Cape.Iron Band Silica BandLaminated Iron Ore formed from BISBIS• Liberation and concentration of the Hematite from the Silica in the BIS is thebiggest challenge• Liberation size plays a vital role in the economics of the project.• Where bands are coarser, grinding of BIS to sub centimetre level could yield aconcentrate from simple spirals ?• In case of bands being narrow, sub millimetre size grinding or even micron sizegrinding may have to be taken up.• Concentration of hematite in such cases would have to be explored, as this oreis not magnetically susceptible.• A possible option could be DMS or Heavy media separation?• Once concentrate is achieved, the next challenge is to agglomerate theconcentrate, and transport to port.• All this above is being explored and implementations are being done in someparts of the world.Potential for BIS Beneficiation
  19. 19. 19Potential Shift in the MarketKey Points for emerging Miners
  20. 20. 20Potential Shift in the MarketMarket conditions deteriorate• Chinese domestic production to mature,creating an export surplus 2014 onwards• Expected decline in seaborne Iron-Oreprices to $88/t CFR China• Decline of seaborne Iron-Ore demand fromChine due to maturing of economyCost of production increases• Complicated logistics solutions to moveproduct from mine to customer• Rise of ‘Resource Nationalism’• Regulatory uncertainty• Degrading quality of minerals available• Labour scarcity leading to increased cost oflabourIn such a scenario,how can emergingminers stay relevant?Country Avg GDP Growth Country Avg GDP GrowthAngola 11.1 China 9.5China 10.5 India 8.2Myanmar 10.3 Ethiopia 8.1Nigeria 8.9 Mozambique 7.7Ethiopia 8.4 Tanzania 7.2Kazakhstan 8.2 Vietnam 7.2Chad 7.9 Congo 7.0Mozambique 7.9 Ghana 7.0Cambodia 7.7 Zambia 6.9Rwanda 7.6 Nigeria 6.82001-2010 * Forecast 2011-2015 ** Source: The Economist, 20116 out of the 10 fastest growing economies areAfrican with a focus on infrastructure buildingin in the sub-Saharan continent Further, rapidinfrastructure development is expected forIndia and other BRICs economies. EmergingSouth African miners can look towards inlandAfrican markets and other developing countriesfor seaborne exportsCollaborate to benefit from commoninfrastructure and facilities whichwould otherwise have beenuneconomical and not viable for thescale of individual operationsNew market opportunities Capitalize on Economies of Scale
  21. 21. 21Potential Shift in the MarketMarket conditions deteriorate• Chinese domestic production to mature,creating an export surplus 2014 onwards• Expected decline in seaborne Iron-Oreprices to $88/t CFR China• Decline of seaborne Iron-Ore demand fromChine due to maturing of economyCost of production increases• Complicated logistics solutions to moveproduct from mine to customer• Rise of ‘Resource Nationalism’• Regulatory uncertainty• Degrading quality of minerals available• Labour scarcity leading to increased cost oflabourIn such a scenario,how can emergingminers stay relevant?Investment in down-stream Iron and Steel Value ChainIt is evident from the experience of Australia, that having raw materials required for steelmaking does not guarantee a successful down stream steel making industry.Potential Opportunity Areas for Development in SA:1. Investment in Export Slab (akin to the strategy of Vale in Brazil- wherein it secures ademand for its Iron-Ore production even in the event of a bearish global export market)2. Other competitive Niche industry products with a demand in the Sub-Saharan market3. Investment in nascent steel making technology given the limited availability ofmetallurgical coking coal (to be gradually replaced with thermal coal) and high gradelumpy iron-ore
  22. 22. 22South African Mining Industry:How to make the ‘Sun Shine’ again?
  23. 23. 23Government and para-statal agencysupport to create an attractive andconducive environmentCollaborative efforts betweenEmerging and Established Minersto reap economies of scaleSA Mining-How to make the ‘sun shine’ again?Successful andSustainableIron-Ore MiningIndustry in SASCALEPROXIMITY TOMARKETSCONTROLLED LABOURCOSTSCOMMUNITY SUPPORTTECHNICAL EXPERTISELOGISTICS ANDINFRASTRUCTURECAPACITYGOVERNMENT ANDREGULATORYSTABILITYInvestment in developingdownstream steel making industryin South AfricaUncontrolled LabourCost escalationscould have anegative impact onthe long term job-creation and skilldevelopment of thepeopleLong term benefits to percolate to the communities of the miningareas. Improvement of livelihood and conditions of living.Improvement inmining andbeneficiationtechnology with afocus on theabundantly availableand currentlystranded oreLogistics and Infra capacity rampup to meet customer demands
  24. 24. 24THANK YOU

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