Kumba Resources is missing out on the rapid expansion of demand for iron ore from commodity behemoth China due to South Africa’s rail and port infrastructure not keeping pace, says Kumba CEO Dr Con Fauconnier.
As a result, Kumba’s competitors — BHP Billiton, Rio Tinto and Companhia Vale do Rio Doce of Brazil — that can more easily raise output are increasing their share of iron ore exports to China.
Iron ore is used in the manufacture of steel and China is the world’s number-one producer of steel, with output in 2004 expected to climb 11% to 245-million tons from 220-million tons in 2003.
Commenting on China’s demand for bulk commodities at the Investing in African Mining Indaba in Cape Town, Fauconnier said: “I’ve never seen anything like it.”
The lack of rapid expansion in the Saldanha port facilities, through which Kumba exports its iron ore, and a lack of movement to increase the number of trains and trucks to raise throughput, are concerns for Fauconnier.
“There is a huge need for urgency,” Fauconnier said.
However, Fauconnier welcomed the recent move by the South African government to spend R100-billion on infrastructure over the next five years.
He also welcomed the appointment of Maria Ramos, who had a good track record while at the National Treasury, to head up transport parastatal Transnet.
“We have put our case to them [Transnet] and there is already a measure of urgency,” Fauconnier added.
However, China is not the only economy seeing growth in demand for iron ore. European steel makers are also looking for more iron ore, Fauconnier said.
India could be the next country where there is a commodity boom, he added.
The world’s second most populous country has good natural resources, but the intensity of its steel use is low, he added.
Kumba wrapping up annual iron-ore contracts
Kumba is wrapping up its latest round of sales agreements with its export customers, including those in Japan, China and Europe, Fauconnier said.
The group sells about five million tons a year to Japan and 8,5-million tons a year to China.
Companhia Vale do Rio Doce, BHP Billiton and Rio Tinto have all concluded price increases in lump iron ores sold to Japanese and Chinese steel producers of about 18,6% — the highest increases since 1980.
“These price increases are great for us and we are likely to piggy-back on them. We are well advanced with negotiations with our 30 major steel clients,” Fauconnier added.
An announcement by Kumba is imminent on the conclusion of its iron-ore sales contracts.
Talks with Assmang slow
Talks with South African manganese producer Assmang on merging or optimising the Northern Cape iron-ore resources are proceeding slower than expected, Fauconnier said.
Kumba’s preferred route for the development of the Northern Cape iron-ore resources has been for the extraction of maximum synergies and the most efficient use of rail infrastructure, including the possible use of the Coega port.
The group has previously argued that the merger of its and Assmang’s iron-ore assets would save R3-billion in capital and other savings.
Kumba is currently involved in the Sishen expansion, where R500-million is being spent, and is still looking at developing its Sishen South mine.
The group has already spent R90-million on a feasibility study for Sishen South.
Kumba’s existing capacity is about 29-million tons a year of iron-ore output. The new capacity is likely to come online by late 2004 or early 2005.
The next phase of expansion is for Kumba’s output to rise to 38-million tons, but there is a possibility that it could increase to an even higher level, Fauconnier concluded. — I-Net Bridge