Strong and steady: Iron ore is an increasingly attractive segment

Critical in the production of steel, iron ore, which represents around 95% of all metal used each year – is a major potential growth area for South Africa. According to a March 2011 report released by Kumba Iron Ore (KIO), a South African unit of London-headquartered Anglo American and the fifth-largest seaborne iron ore supplier in the world, the country’s iron ore production could as much as double over the next 10 years if the conditions are right. This would entail adequate ancillary infrastructure, a favourable regulatory environment and a strong domestic market for iron ore and steel products.

PRODUCTION: According to 2011 estimates from the US Geological Survey, South Africa is the seventh-largest producer of iron ore in the world, coming in just ahead of the US with expected production of 55m tonnes of usable ore. The country’s reserves are estimated at 1bn tonnes of crude ore, with 650m tonnes of iron content. Most reserves are located in the Northern Cape, the location of KIO’s open cast Sishen mine, one of the largest open-pit mines in the world.

KIO’s Sishen operation produced 41.3m tonnes of iron ore in 2010, out of a company total of 43.3m tonnes. Ore from the mine, which came on-stream in 1947, is processed in two beneficiating facilities, with a lumpto-fine-ore ratio of 60:40. Sishen, its proven mineral resource standing at 1.13bn tonnes in June 2011, has a life of more than 20 years at current production rates.

KIO – which is majority-owned by Anglo American, but in which the state-owned Industrial Development Corporation of South Africa holds a 13.1% stake – also operates the Thabazimbi mine in Limpopo province. Total annual iron ore production from the mine is estimated to be around 2m tonnes. Output from the open-cast mine is processed in one local beneficiating facility, with a lump-to-fine-ore ratio of 42:58, and is sold exclusively to ArcerlorMittal South Africa (AMSA), which is listed on the Johannesburg Stock Exchange (JSE) and a member of the AcerlorMittal Group. Through KIO, the 11th-largest listed company on the JSE, Anglo American is also developing the Kolomela mine in the Northern Cape, which is expected to come on-stream in 2012. The R8.5bn ($1.04bn) development should ramp up to its full capacity of 9m tonnes per annum by 2013.

MINES: Other operational mines include the Khumani and Beeshoek mines, run by Assmang – a joint venture of African Rainbow Minerals and Assore. Situated in the Northern Cape, Khumani was in recent years developed from a greenfields site with a view to replacing the tonnage produced by the Beeshoek mine, which is nearing the end of its life. The mining infrastructure on the King farm – one of three locations of the Khumani mine – was fast-tracked by six months and commissioned in 2010. Expansion of production capacity is expected to bring output up to 16m tonnes per year. Other international firms are developing iron ore projects in South Africa or seeking to acquire more deposits.

PRICES: AMSA has argued that by sourcing discounted iron ore, it can supply the South African market with cheaper steel, effectively pumping some R9bn ($1.1bn) into the economy in 2009. AMSA used a “basket” pricing method, averaging prices from several other markets. Historically, iron ore prices have been set through benchmark annual pricing, decided by the industry’s leading miners and steelmakers, although the system has broken down in recent years. The global price of iron ore has surged massively, driven by demand from China’s steel industry and peaking at $187.18 per tonne in February 2011. While it fell to $140.40 over the course of 2011, Chinese demand remains significant.

South Africa exports 47.5m tonnes of iron ore, representing some 81.8% of total production. Much of the ore for export is transported on the Iron Ore Export railway line, known as Orex, which links Sishen to the dedicated iron ore export facility at Saldanha Bay in the Western Cape. Operated by government-owned logistics group Transnet, the 860-km line is the country’s only heavy-haul iron ore line and is serviced by trains of 342 wagons. Its capacity is currently being expanded, with 60m tonnes capacity targeted by 2012/13.