African Rainbow To Spend R9 Billion In Next Three Years

From Creamer's Mining Weekly

Cash-flush diversified mining company African Rainbow Minerals (Arm) would spend R9-billion in capital in the next three years, Arm executive chairperson Patrice Motsepe said on Monday.

Although that was down on the R13-billion that the company was scheduled to spend to June 2011, it reflected the "cautious-optimism" mode in which Arm currently found itself, as it partnered the large Brazil-based Vale in Africa and spoke of "its ambition being far greater than its size".

Motsepe said that the strategy would be to grow the company cautiously, with its cash having increased to R3.7-billion from R1.2-billion a year ago and after having trebled its headline earnings to R2.2-billion in the six months to December 31.

"Even if the current difficult times continue, we will still be profitable," Motsepe said, adding that it was imperative that the company continued its growth strategy and exploit greater acquisition choices, while targeting only those that were "absolutely irresistible".

Overtures had been made by several companies that were in "extreme distress", but Arm would only consider acquiring assets that were "extremely attractive".

"We have enough money to fund our growth and the future looks good," he said.

The joint venture with Vale had laid a foundation for Arm to take part in new activities in the Democratic Republic of Congo, and Motsepe pointed out that Vale had $15-billion in cash and opportunities were opening up for both companies, not only on the continent, but also in South Africa itself.

"We will be engaging Vale to look at how we can continue to grow," Motsepe said.

Arm CEO André Wilkens told Mining Weekly Online that Vale, which was producing some 400,000 t/y of copper, had singled out Africa as one of its growth areas and was providing Arm with expertise that it did not have.

Wilkens said that the partnership with Vale was based on Arm matching its business relationships in Africa with Vale's skills and expertise and in that way the two companies would be able to grow their African footprint together.

Wilkens said that Arm's coal partnership with Xstrata was another that was poised to grow the company on the back of coal prices, which he predicted would continue to be attractive.

The manganese partnership with Assmang, which contributed 66% of the company's earnings before interest and tax in the six months to December, would continue to yield into future, despite the fall in manganese prices and volumes.

Although there were concerns about the spot price of manganese falling to $6/ manganese unit, Wilkens reminded shareholders that the company did exceedingly well in the previous financial year when the spot price of manganese was only $5/ manganese unit.

"With Assore and Assmang, we have some of the best quality manganese available on the globe and it is always used as a blend material, and that puts us in a very strong position going forward," Wilkens told Mining Weekly Online.

Moreover, the price of $6/ manganese unit would put many of the smaller manganese miners under pressure, and create space for higher-margin participants like Arm.

"Our margins at the current spot prices are very significant," he added.

The company's new Khumani iron-ore mine was continuing to rampup and even at flat iron-ore prices was offering good margins of profit.

"Iron-ore is going to be a very nice growth area," Wilkens said.

There was no doubt that following the start of implementation of the Chinese stimulus package in October, the outlook for iron-ore demand improved with one of the Chinese banks having lent more money to microbusiness in the first 20 days of January than in the previous two months.

The Chinese economy was rising and China had announced several transport and other infrastructure programmes that were improving the outlook for iron-ore, manganese and copper.

The company's cutback on chrome production had been firm, with only two or three furnaces still operating.

"At the current prices, just about nobody can make money," Wilkens said, but the company was managing to sell some chrome and was reviewing its chrome position at three-monthly intervals.

He said that, of the 48 ferrochrome furnaces in South Africa, only a mere handful was in operation.

Producers have responded exceedingly well to the fall off in demand, which would have the effect of bringing the ferrochrome market back into equilibrium "soon".

Platinum production had been reduced 10% and the company was in the fortunate position of not being over reliant on the US and more reliant on Europe.

His view was that a platinum price $1 100/oz to $1 200/oz was possible in the medium term.

On iron-ore logistics, Arm executive director Jan Steenkamp told Mining Weekly Online that the company had signed a ten-million-ton-a-year, 20-year contract with Transnet. Another four-million-ton was to be added to the ten-million tons and a contract for that was expected to be finalised in the next few weeks.

Capital of R1,2-billion had been approved for the next phase of expansion, which would be for those four-million tons export a year, plus two-million tons a year, taking the capacity of the Khumani mine to 16-million tons a year.

The contract with Transnet in terms of the first rampup of the next four-million tons of export iron-ore would commence on July 1, 2012.

“We are on site, doing surface excavation for the next phase,” Steenkamp said.

Even with expected price reductions, the project would still give the shareholders an acceptable return.

Iron-ore was poised to sell in slightly higher volume in 2009, and the company had no reason to offer any price discounts at this stage.

On a possible new rail public-private partnership with Transnet, Steenkamp said that new models were being discussed and all roleplayers were participating in future alternatives, but no decisiona had as yet been made.

On manganese, Steenkamp said that sales volumes of manganese had declined, but production was being maintained in the different areas and different grades, because the company blended into the market.

Manganese price negotiations were also now under way and it was understood that there would be a reduction in manganese prices.