Business

Iron ore find rekindles railway need

Roman Grynberg

If the high-grade deposit in Botswana is verified, the trans-Kalahari rail link could become a reality, writes Roman Grynberg.

In July this year Dr Michiel de Wit, president of Tsodilo Resources, a junior miner listed on the Toronto Stock Exchange in Canada, got up at the Capital Resources annual meeting on the mining sector in Gaborone and said that his company had found "more than a billion tonnes of high-grade iron ore" in northern Ngamiland, not far from Shakawe in northwest Botswana.

The proper response to such statements is to yawn politely, for two good reasons. First, it is often said that junior miners begin to mine the stock market long before they mine their first tonne of ore and so will say such things to pump up their stockmarket values before they have an internationally accepted and independent assessment of the reserves. Business, after all, is business.

The second reason for incredulity is that nature likes to play tricks on mankind and even if Tsodilo Resources finds a huge commercial deposit of iron ore in Ngamiland right on the Caprivi Strip, it looks, from a commercial standpoint, a lot like discovering iron on the moon. How do you get it anywhere? Moreover, if you want to ship it out as unprocessed iron ore, the nearest railhead is in Tsumeb in northern Namibia, 400km away – and even that remote place is still 700km from the port of Walvis Bay.

The question of scepticism about what Tsodilo Resources has actually found at Shakawe will be allayed only when the firm completes an independent assessment, which is expected in the first half of 2013. Each stock exchange has its own standards by which it judges scientific validity. But the drill results, undertaken by an independent assay company in South Africa, are fairly impressive. However, an independent technical review of the exploration process and results to verify that everything is done according to international standards – a requirement of the Toronto Stock Exchange – has not yet been completed.  

If the independent review confirms the tests done at Tsodilo's Xuadum deposit, the grades, at between 69.5% and 72% iron ore, are quite high and well above the minimum standard for what is called direct shipment ore – ore that is considered good enough to ship overseas without further beneficiation. Such a grade normally requires grade levels of about 60% to 64%.

This is all good news and there may well be a copper deposit below the iron ore. None of this is reason to rush out and buy shares, but what happened last month finally made me take Tsodilo Resources a lot more seriously. The International Finance Corporation has taken a $2million equity position in the company to allow it to continue its exploration. This is an important vote of confidence in Tsodilo, because it is the second time the corporation has injected equity into it.

Resources
It is now time for everyone, including policymakers, to take a deep breath and for the government to evaluate carefully what it is going to do in the event that Tsodilo Resources reports to the markets next year what everyone hopes – that Botswana has substantial iron ore resources and has discovered the extension of the Zambian copper belt into the Kalahari.

A number of options are open to Botswana. The easiest is to pursue the ivory-diamond model – the resource extraction model that has typified the country and most of Africa since the 19th century. In other words, kill the elephants or dig out the rough diamonds and send them unprocessed to the coast or the airport. This was the industrial and mining policy pursued with the nation's diamonds until this year, when the marketing arrangements with De Beers changed and diamond aggregation and processing moved to Botswana.

Even if the government decided to do nothing with such an iron ore deposit except to allow it to be shipped unprocessed to the Namibian coast, it would still make a difference. But there is no way that such a low-value item as iron ore, which was trading last week at $107 a tonne for the benchmark China import iron ore fines 62% Fe spot (CFR Tianjin port), could be transported by road when the nearest port is in Namibia.

At the very least, a century-old dream would have to be fulfilled in Botswana: to build a trans-Kalahari railway. A railway from Maun to Gobabis or Tsumeb in Namibia with a spur to Shakawe would in effect connect the two countries. All that would be left would be connecting Maun to Sowa – a "mere" 400km – and the trans-Kalahari railway would be completed.

There is another – and possibly better – option for the iron ore and that is to refine it into steel in Botswana. But nature plays terrible tricks with men and their foolish plans and tends never to put the resources where the infrastructure is found. It is difficult to find a more remote location in Botswana than Shakawe. To make steel you need five basic ingredients. The first three are iron ore, which the country may well have; electricity, which it could easily secure given Botswana's massive but low-quality coal deposits; and cheap, unskilled labour, which it does have in relative abundance.

Missing ingredient
It is, alas, the last two that are missing – coking coal, which is needed to remove iron oxide, and a railway to the coast and to where the infrastructure is found, which essentially means Selebi-Phikwe in the east of the country. Coking coal is high-quality coal that does not exist in Botswana, but it is found in abundance in Sangwe in northern Zimbabwe and in the Waterberg coalfields in South Africa's Limpopo province. Coking coal could readily be imported.

Thus the last missing ingredient is, once again, a railway. That is unless Botswana replicates all the infrastructure in Ngamiland that was built in Selebi-Phikwe 35 years ago for the Bamangwato Concessions Limited copper and nickel mine. And if the railway goes east, it will mean Botswana will only be able to sell iron ore and not have a steel industry.

Recently, the Economist magazine wrote that there is no such thing as a profitable inland steel mill anywhere in the world. It is clear that the commercial case for establishing a steel industry in a landlocked country such as Botswana still has to be made. Although it is important to process Botswana's raw materials, there is no room for sentiment and little point in losing money doing so. Bamangwato Concessions Limited is working on precisely this through its Polaris beneficiation programme, but the results are yet to be seen.

The views expressed are those of Professor Roman Grynberg and not those of the Botswana Institute for Development Policy Analysis, where he works. The author has no commercial interest in Tsodilo Resources or any other company

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