ARM Ferrous interests comprise a 50 per cent stake in Assmang Limiteds (Assmang) operations. Assmang is jointly controlled with Assore Limited (Assore).
Assmangs operating divisions are based on its three principal commodities:
Looking back, F2007 was a successful year for the Ferrous Division particularly in terms of maintaining production at all operations.
These achievements translated to a 41% increase in Assmangs turnover for the year to R6.1 billion. Headline earnings almost doubled to R1.3 billion (F2006: R680 million), attributable mainly to higher US dollar prices for Assmangs commodities, increased volumes and a softer Rand exchange rate against the US currency.
A number of records were achieved during the year notably in production and sales of iron ore and in manganese and chrome ore sales. It was also an excellent year in terms of chrome production.
Specifically the Dwarsrivier Chrome Mine, which is still in ramp-up phase, has performed well. At Beeshoek, which is now reaching the end of its life, performance was satisfactory in challenging circumstances, with some product quality deterioration. This will be addressed in F2008 by transporting about 1 million tonnes of unprocessed iron ore from the newly-developed Khumani project to Beeshoek, where the existing pits at Beeshoek will be producing about 3.5 million tonnes and detrital ore will be contributing about 1.5 million tonnes. By transporting ore from Khumani to Beeshoek, the mine will be in a position to meet its contractual requirements in terms of its transport agreements with Transnet, thereby ensuring consistent and reliable supply to customers.
Khumani, essentially in a ramp-up phase over the next 36 months, is set to produce its first million tonnes in F2008. The construction of Khumani has been a particular highlight in the past year, especially in a burgeoning South African economic environment, where skills are in short supply, and suppliers and contractors are overcommitted. Khumani, at a capital cost of R4 billion, is currently one of the largest mining projects to come on stream in South Africa and will continue to contribute to ARM Ferrous for at least 30 years.
|100% (000t)||FY2007||FY2006||% change|
|Iron ore||6 855||5 926||16|
|Manganese ore*||2 327||1 678||39|
* Excluding inter-group sales
Volume growth for ARM Ferrous continues to be constrained by freight and logistical capacity in South Africa. However, Assmang has made excellent progress in its deliberations with Transnet, with the following key developments:
The markets for all ferrous commodities in the past year have been buoyant, and the division sees a continued bullish trend for most of its commodities. The growth in steel continues to be driven primarily by Chinese demand.
The bullish market, fuelled by demand outstretching supply, is likely to be sustained until at least 2010, at which stage the group expects some softening, not necessarily associated with any slowdown in China, but rather with anticipated new supply coming on stream. New projects for all the commodities produced are currently on the drawing board or in construction. These could be affected by the increasing cost of capital, and the global shortage of skills which could have a negative impact particularly on the smaller projects.
India remains an unknown entity in terms of new supply. With continued GDP growth in that country their production may be consumed locally, with the consequent effect on their exports. Already the division has noted that some of Indias export manganese tonnages have been cut back and utilised locally. The challenge for ARM Ferrous is to grow its share in the global market, particularly against the background of the logistics challenges in South Africa.
In an effort to grow the markets for its commodities, Assmang recently commissioned an in-depth external expert study into changes in the global steel industry. The division has been encouraged by new opportunities which demonstrate the potential of increasing the manganese units utilised in the manufacture of steel products.
The quality of ore produced in South Africa also stands it in good stead in any potentially declining market, in that the unique physical and chemical composition of both South African iron and manganese ores are essential in producing low-cost high quality steel.
Khumani Iron Ore Mine, currently in the capital consumption phase, absorbed some R1.67 billion for the financial year. Total capital committed amounted to R2.4 billion, with all critical imported capital equipment already in South Africa. The remaining 12-month construction phase will require a further R2.3 billion. Some R280 million has already been expended on the newly-constructed Dwarsrivier Chrome Mine. At the Cato Ridge Works R100 million was spent on dust and fume control and on upgrading furnaces.
The outlook for F2008 in terms of demand and pricing remains positive. The tailing off of output from Beeshoek Iron Ore Mine will affect production costs during the course of 2008, until Khumani Iron Ore Mine is fully ramped up to steady-state production levels.
At the manganese division, higher volumes are expected at a lower unit cost. The division also believes that it will be in a position to derive more benefit from future production growth in alloys, which will result in higher margins per tonne of ore from this business unit.
The mining licence for Khumani Iron Ore Mine was approved in December 2006, while a revised export contract was concluded with Transnet in May 2007.This provides for a 20-year contract at 10 million tonnes per annum. The first blast, exposing 600 000 tonnes of ore, was undertaken in May 2007 and the first export railing is planned for April 2008.
Funding is being provided from the Assmang balance sheet. Assmang anticipates considerable cost efficiencies to be achieved at steady-state, with on-mine costs anticipated to be 25% lower than Beeshoek. The potential for expansion to 16 million tonnes per annum is being explored.
Production from this opencast mine commenced from three pits on the Bruce farm. Blasted products from the pits are to be trucked to a primary crusher and this crushed product conveyed to a central processing plant .A two-stage crushing and screening plant is being constructed. A portion of the ore will be upgraded through the installation of a Dense Media Separation (DMS) facility. A rapid load out train station is provided for, whereafter the ore will be transported to Saldanha harbour for export.
The iron ore cost per tonne at Beeshoek increased by 33% due to additional contractors, at higher cost, being employed to maximise capacity. In addition, Khumani detrital ore is being transported to Beeshoek by road for processing, while the Khumani plant is under construction, which has resulted in higher transport costs.
As Khumani starts processing its ore from the first quarter in 2008, the cost of production will reduce significantly, with projected mining costs at steady state expected to be approximately 25% lower than currently experienced.
|Iron ore produced||000t||6 675||5 536||21|
|Sales volumes||000t||6 855||5 926||16|
|Revenues||Rm||2 163||1 411||54|
The Dwarsrivier Chrome Mine is in a ramp-up phase to achieve an annual production capacity of 1.4 million tonnes per annum. The cost of production from the mining increased by 21% year-on-year as a result of all tonnage being produced from underground, where in the previous year most tonnage was produced from an open-cast mine. A benchmark study indicated that the Dwarsrivier Chrome Mine and the Machadodorp Smelter controlled costs within industry cost parameters.
The chrome division achieved a significant improvement in earnings contribution to the company, mainly due to improved charge chrome prices, cost control and weaker Rand/US dollar exchange rate.
The demand for stainless steel, specifically in China will remain strong with a relatively strong charge chrome price for at least most of the 2008 financial year.
Further organic growth will be assessed to optimise the exploitation of the chromite resource at the Dwarsrivier Chrome Mine.
|Chrome ore produced||(000t)||710||526||35|
|Chrome ore sold*||(000t)||172||178||(3)|
*Excluding intra-company sales
|Charge chrome produced||000t||242||230||5|
|Charge chrome sold||000t||232||210||10|
|Sales revenues||Rm||1 195||870||37|
The manganese mines as well as the ferromanganese smelter had an exceptional year in terms of safety, production and sales volumes, and below inflationary cost increases.
The earnings generated from this division increased by 77% to R576 million (100% basis. This increase is due to strong manganese unit prices, cost control and a weaker average Rand/US$ exchange rate.
The demand for steel remains strong. New supply into the market during the ensuing year is limited with a resultant strong price expectation. At the Cato Ridge Smelter significant capital will be spent to further improve furnace efficiencies and the control of dust and fumes.
A feasibility study to evaluate the construction of a new furnace at Cato Ridge will also be concluded during the year.
At the manganese mines a detailed investigation and evaluation will be done to assess future plant throughput capacity.
|Manganese ore produced||000t||2 847||2 572||11|
|Manganese ore sales||000t||2 327||1 678||39|
|Manganese alloys produced*||000t||347||306||13|
|Manganese alloys sold*||000t||251||260||(3)|
|Sales revenue*||Rm||1 380||1 014||36|
*Excluding intra-company sales
© 2007 African Rainbow Minerals Limited