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Emerging Miners of Iron-Ore
in the Northern Cape, SA
4th June, 2013
Presented by
Mr. Somdeb Banerjee
Executive in Charge, Southern Africa Tata Steel Ltd.
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Agenda
Overview: The Tata Steel Group
Global Iron Ore market and Projection for the coming years
South African Iron Ore market- is it the right time for new entrants?
Potential Shift in the market
SA mining: How to make the ‘sun shine’ again?
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Overview:
The Tata Steel Group
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Tata Steel Group
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Tata Steel India
1000 KM
I N D I A
104 years old still young & flourishing
• Building & nurturing long term relationship with
customers : large percentage of them have greater than
10 years of business relationship (many distributors for
two generations)
• Only private company in India maintaining a township
• Large employee base (35,000 employees) and respect
for people (many, for many generations)
• Pioneer in Industrial harmony: 82 years without any
labor unrest
• Sustaining cost leadership by ensuring raw material
security; 100% Iron Ore, 50% Coal
• Equity partnership for key commodities in entire value
chain : Ferro Alloys, Rolls, Refractories, Shipping ,
Service Centres
• Reference site selected by United Nations (Global
Compact) for Corporate Social Responsibility
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Jamshedpur
Central Team
Jo’burg
South Africa
Maputo,
Mozambique
Abidjan, West
Africa
Montreal
Canada
Brisbane
London, UK
Tata Steel :Global Footprints
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Global Iron Ore Market and
Projections for the coming years
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Global Iron Ore Market
Data Source: Goldman Sachs Commodities Research, 2013
46%
30%
3% 3%
5%
3% 2%
Global Iron-Ore Seaborne Exports
Some 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 developed
to the emerging economies. By 2020, developing
countries will account for almost 80% of the World’s
Urban population
• New supply will come with higher capital costs due
to:
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 to
destocking of plant inventories by the Chinese steel
mills and traders withdrawing from the Spot Markets.
Iron-ore market rebound in 2013 due to a re-stocking
cycle supporting prices as high as $154/t in Feb 2013.
World Iron Ore resources are estimated to exceed
230-billion tons of iron contained in over 800-bllion
tons of crude ore, with China, Australia, Brazil and
India being the largest producers
Complicated Logistics
Scarcity of skilled labour
Rise of ‘Resource
Nationalism’
Increasing regulatory burdens
Degrading quality of ore
reserves
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Projections for the coming years
Short Term Projections- 2013
Salient 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 mine
production to balance the demand for 2013
Long Term Projections- 2013-2017
• Iron ore production of expected to expand by 10% in
the next three years, while steel production is
expected to grow by 5%- causing a shift in pricing
• More subdued expectations for the coming years
with 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 from
infrastructure projects- Steel production growth
rate has slowed and will remain below GDP growth
rates in the future * Data Source: Goldman Sachs Commodities Research Report- 2013
-500
0
500
1000
1500
2000
2500
2012 2013 E 2014 E 2015 E 2016 E 2017 E
Seaborne Demand and Supply Forecast (in million tonnes)
Global Iron Ore Demand Seaborne Imports
Seaborne Exports Seaborne surplus
Seaborne demand growth rate is slowing down to 3%, while seaborne supply will continue to grow at 7%. In
this light, market prices will shoot downwards and remain below marginal production levels till equilibrium is
attained. Emerging miners need to be cautious of their costs of production to stay relevant in the long
run when the market slumps again.
Projections based on various studies including:
• Goldman Sachs research reports
• Creamer Media’s Iron ore reports
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South African Iron- Ore industry Is this the ‘Right Time’ for Emerging Miners?
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South African Iron-Ore Industry
Total reserves – 9.3-billion tons with principal deposits in
the Northern Cape province with other high grade hematite
deposits on the northern limb of the Bushveld Complex. *
Experts are bullish on the outlook for South African iron-ore miners, pointing to:
• The fact that SA has overtaken India as the third largest exporter of Iron Ore to China
• The opening of Kumba Iron-Ore’s R8.5-billion Kolomela Mine in 2012
• Further, capacity expansion plans for the country’s infrastructure focusing on the iron-ore rail link between the mining hubs in Northern Cape and Saldanha Bay. This infrastructure will eventually boost the region’s iron-ore transport capacity to 100-million tons a year.
However,
• The South African cabinet has proposed amendments to the MPRDA and the Competition Act to provide for higher control on Iron-Ore prices in the hands of the regulators.
• Further, SA’s mining sector experienced wildcat strikes during 2012 leading to significant challenges for large Iron-Ore miners too.
* Source: Chamber of Mines, South Arica
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Support for Emerging Iron-Ore Miners in SA
Benefits of supporting Emerging
Miners in South Africa
Employment generation
(especially with BEE partners)
Economical benefits for the
communities and the country
Technological improvements to
beneficiate previously
‘Stranded Ore’
Transformation and rural
development with improved infrastructure
Grant Thornton International Mining Report, 2013:
“The report shows that mining executives are beginning to see light at
the end of the tunnel following a period of strikes and uncertainty
surrounding the mineral regulatory regime.
The mining report revealed that SA junior miners will spend more on
capital equipment and, despite knowing that labour and energy costs
will increase significantly, they also expect to be profitable, with half
(49%) of the respondents in SA also anticipating increased revenues
this year. This is significantly higher than in Australia (36%), Canada
(31%) or the UK (21%).”
“Transnet is committed to
providing capacity to emerging
miners, in particular BEE
players”
Already seeing significant
steps in the areas of Coal and
Manganese.
TRANSNET DMR “Since the mid-1990s, government
has sought to promote black
economic empowerment in the
mining industry. The process will
take time, but black-owned
firms are now beginning to play an
important role in the mining
industry, and several new mining
giants have emerged.”
DMR
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Is this the ‘Right Time’ for new entrants
in the South African Iron Ore industry?
Adequate Rail and Port capacity
Sufficient energy and
water resources
Conducive regulatory
environment
Viable market for a secure off-take of Iron ore
production
Collaboration for beneficiation
and infrastructure
Conducive
environment for
generating an
attractive return on
investment for
Emerging Miners
• While most of these projects are economically viable under
current market conditions, by the time the projects mature, the
market prices would have dropped significantly.
• Emerging Miners can reap the benefits of a bullish market till
2014, subsequent to which they will need to be conscious of
their costs to be sustainable in the long term
• Established miners in SA, along with Junior Miners can
double the Iron-Ore production *
• This would create more than 14,000 new jobs *
(even more through BEE partners) and add significant
economical benefits to the regions and the country as
a whole
Opportunities for development of
Iron Ore Hubs in South Africa
Northern Cape
EXPORT Hub
Sishen
Assmang
Burke
Kolomela
Sedibeng
Limechem
Limpopo
INLAND Hub
Limpopo
EXPORT Hub
* Source: Kumba research report, 2012
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Opportunities in the Northern Cape-
Geology and Mineralization
Iron ore Mineralisation is hosted by BIF of Kuruman/Manganore
Iron 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 underlying
dolomites
Slumped BIF were preserved, Supergene enrichment took place
leading to high grade Haematitic Iron ore.
Due to differential erosion over time, the Iron ore and BIF were
preserved in relation to surrounding dolomites.
Presently the BIF and Iron ore are seen as topographic highs in
the landscape.
Sishen
Mine Khumani
Mine
Kolomela
Mine
Sedibeng
Mine
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Opportunities in the Northern Cape-
Mineralization and New Projects
• Lithology shown in “Black colour” are areas with Iron Ore/
BIS potential
Areas Where New Mining Projects
Are Likely To Come Up.
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Northern Cape
Infrastructure Development
Sishen- Saldanha Export Ore System *
• 888 km, heavy haul single railway line
• Volumes for iron ore are expected to
rise from 45mtpa up to 118mtpa in
2041 in line with capacity ramp plans
of Transnet
Load out facilities
• Load out facility are owned and
operated by the established miners
• Other players to rely on Assmang/
Kumba’s support for load out of their
product onto the Orex system
Saldanha Port Terminal *
• Port handled a capacity of 58 million-
tons of bulk cargo in FY11-12
• Expansion program underway to
increase Port capacity in line with
customer demands
Infrastructure requirements for Emerging Miners in
the Northern Cape:
• Common Load out facility for self-reliance and cost
minimization
• Rail capacity allocation to transport the product to port
• Stockpile capacity at port to maintain integrity of
product
* Source: Transnet Website
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50
100
150
2010 2015 2020 2025 2030 2035 2040 2041
Mil
lio
n T
on
s
Year
Expected Demand on the Orex Line (Sishen to Saldanha) *
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Banded 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 distinct
name.
• Nature removes this silica over millions of years, by the process of
leaching(Supergene Enrichment), leaving behind only the Iron, giving
rise to the high grade Iron Ore Deposits seen today.
• In most of the smaller deposits in Northern Cape, huge resource of BIS
is available.
• If this silica removal process can be done economically, using a
suitable Beneficiation technique, the BIS will open up vast additional
mineral potential in Northern Cape.
Iron Band Silica Band
Laminated Iron Ore formed from BIS
BIS • Liberation and concentration of the Hematite from the Silica in the BIS is the
biggest 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 a
concentrate from simple spirals ?
• In case of bands being narrow, sub millimetre size grinding or even micron size
grinding may have to be taken up.
• Concentration of hematite in such cases would have to be explored, as this ore
is not magnetically susceptible.
• A possible option could be DMS or Heavy media separation?
• Once concentrate is achieved, the next challenge is to agglomerate the
concentrate, and transport to port.
• All this above is being explored and implementations are being done in some
parts of the world.
Potential for BIS Beneficiation
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Potential Shift in the Market Key Points for emerging Miners
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Potential Shift in the Market
Market conditions deteriorate
• Chinese domestic production to mature, creating an export surplus 2014 onwards
• Expected decline in seaborne Iron-Ore prices to $88/t CFR China
• Decline of seaborne Iron-Ore demand from Chine due to maturing of economy
Cost of production increases
• Complicated logistics solutions to move product from mine to customer
• Rise of ‘Resource Nationalism’
• Regulatory uncertainty
• Degrading quality of minerals available
• Labour scarcity leading to increased cost of labour
In such a scenario,
how can emerging
miners stay relevant?
Country Avg GDP Growth Country Avg GDP Growth
Angola 11.1 China 9.5
China 10.5 India 8.2
Myanmar 10.3 Ethiopia 8.1
Nigeria 8.9 Mozambique 7.7
Ethiopia 8.4 Tanzania 7.2
Kazakhstan 8.2 Vietnam 7.2
Chad 7.9 Congo 7.0
Mozambique 7.9 Ghana 7.0
Cambodia 7.7 Zambia 6.9
Rwanda 7.6 Nigeria 6.8
2001-2010 * Forecast 2011-2015 *
* Source: The Economist, 2011
6 out of the 10 fastest growing economies are
African with a focus on infrastructure building
in in the sub-Saharan continent Further, rapid
infrastructure development is expected for
India and other BRICs economies. Emerging
South African miners can look towards inland
African markets and other developing countries
for seaborne exports
Collaborate to benefit from common
infrastructure and facilities which
would otherwise have been
uneconomical and not viable for the
scale of individual operations
New market opportunities Capitalize on Economies of Scale
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Potential Shift in the Market
Market conditions deteriorate
• Chinese domestic production to mature, creating an export surplus 2014 onwards
• Expected decline in seaborne Iron-Ore prices to $88/t CFR China
• Decline of seaborne Iron-Ore demand from Chine due to maturing of economy
Cost of production increases
• Complicated logistics solutions to move product from mine to customer
• Rise of ‘Resource Nationalism’
• Regulatory uncertainty
• Degrading quality of minerals available
• Labour scarcity leading to increased cost of labour
In such a scenario,
how can emerging
miners stay relevant?
Investment in down-stream Iron and Steel Value Chain
It is evident from the experience of Australia, that having raw materials required for steel
making 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 a
demand 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 market
3. Investment in nascent steel making technology given the limited availability of
metallurgical coking coal (to be gradually replaced with thermal coal) and high grade
lumpy iron-ore
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South African Mining Industry:
How to make the ‘Sun Shine’ again?
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Government and para-statal agency
support to create an attractive and
conducive environment
Collaborative efforts between
Emerging and Established Miners
to reap economies of scale
SA Mining-
How to make the ‘sun shine’ again?
Successful and Sustainable
Iron-Ore Mining Industry in SA
SCALE
PROXIMITY TO MARKETS
CONTROLLED LABOUR COSTS
COMMUNITY SUPPORT
TECHNICAL EXPERTISE
LOGISTICS AND INFRASTRUCTURE
CAPACITY
GOVERNMENT AND REGULATORY
STABILITY
Investment in developing
downstream steel making industry
in South Africa
Uncontrolled Labour
Cost escalations
could have a
negative impact on
the long term job-
creation and skill
development of the
people
Long term benefits to percolate to the communities of the mining
areas. Improvement of livelihood and conditions of living.
Improvement in
mining and
beneficiation
technology with a
focus on the
abundantly available
and currently
stranded ore
Logistics and Infra capacity ramp
up to meet customer demands
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THANK YOU