Sishen to Saldanha. Transnet extends iron line shutdown

Transnet Freight Rail (TFR), Transnet's largest division by revenue, said on Monday that it has delayed the reopening of the export iron ore line, which was shut down after "extensive damage" following a derailment last week.

The freight train derailed near Vredenburg north of Saldanha in the Western Cape on Thursday July 22. It was en route from Kumba Iron Ore's (KIO) Sishen mine in the Northern Cape to the Saldanha Port.

The 861-kilometre-long export iron ore line has the capacity to transport around 50 million tons of iron ore a year.

Sandile Simelane, spokesman for the TFR, said the division originally intended to open the line on Monday, but it now expected to open it at 6pm local time on Wednesday.

The derailment has delayed the movement of iron ore along the Sishen-Saldanha railway line. The TRF moves about 900 000 tons to one million tons a week on average.

Simelane said the unit and its customers are planning how they would recover from the delay.

At this stage, the TFR will only know the costs of the damage after its investigation into the derailment, Simelane said.

Two locomotives derailed along with 107 of the wagons in the rear portion of the train, which consists of over 300 wagons.

On Friday, the Railway Safety Regulator (RSR) said it had launched an investigation into the cause of the derailment.

"Two railway safety inspectors have been dispatched to the scene to conduct an on-site investigation," the RSR said.

The regulator said the derailment had resulted in "extensive damage" to rolling stock and infrastructure.

"There is no indication of the probable cause of the occurrence at this stage," the RSR said.

It said the line has been closed for clean up and repair operations.

The damaged line connects iron ore mines near Sishen in the Northern Cape with the port at Saldanha in the Western Cape. The line is dedicated to transporting iron ore and it does not carry passengers.

As part of its mandate, the RSR monitors and ensures safety compliance by conducting audits, inspections, safety assessments and occurrence investigations. - I-Net Bridge

News Source busrep.co.za

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Transnet to reopen Sishen–Saldanha line on Wednesday

JOHANNESBURG (miningweekly.com) – The Sishen–Saldanha railway line would be reopened on Wednesday evening, Transnet Freight Rail (TFR) spokesperson Sandile Simelane confirmed on Monday.

The railway line was closed on Thursday afternoon, after a train transporting iron-ore from Kumba Iron Ore’s Sishen mine to the port of Saldanha derailed near Vredenburg.

One diesel and one electric locomotive, along with 107 wagons in the rear portion of the train, had derailed.

Simelane said that the railway and the overhead cables had also suffered some damage in the incident.

The 861-km railway line is the second-largest railway line in terms of revenue generation and carried iron-ore from mines in the Sishen region, in the Northern Cape, to the port of Saldanha for exports.

Between 900 000 t and one-million tons of iron-ore was transported on the railway line each week, noted Simelane.

Source miningweekly.com

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Transnet planning expansion of the Sishen-Saldanha corridor.

KUMBA Iron Ore has reached a “new spirit of cooperation” with Transnet Freight Rail (TFR) over the expansion of the Sishen-Saldanha export corridor beyond a capacity of 60 million tonnes (MT) per year.

That’s according to CEO Chris Griffith , who spoke to financial media at the group’s Sishen iron ore mine.

Griffith said Kumba, rival iron ore exporter Assmang and manganese producer Samancor had agreed with TFR to appoint Australian consultants Aurecon to carry out a new study on how the railway line and the port facilities at Saldanha Bay might be expanded.

Griffith added the initial report from the new study should be available by about July.

The development is a breakthrough, given the situation that ruled as recently as November.

Griffith reportedly upset TFR by commenting to Miningmx during a visit to Kumba’s developing Sishen South mine that he felt the railway line could be run better with private sector involvement.

Griffith repeated that view in his latest assessment, but stressed that TFR had improved its performance markedly in recent months on the operation of the line.

Kumba boosted its export sales of iron ore from 24.9mt in 2008 to 34.2mt in 2009.

Sishen’s current project pipeline can add another 29% to present export levels, while the mine has the potential to produce about 70mt annually by 2019.

Griffith said Aurecon had been appointed to bring “fresh eyes” to the future expansion of the Sishen line after TFR came up with a capital estimate flatly ruled out by Kumba.

He said: “TFR came up with a capital cost number for the expansion beyond 60mt, which I just wiped from my memory because it made any expansion impossible.

“That capital cost would have resulted in an incredible tariff rate to be charged by TFR.

“We could not have the same guys doing the same stuff here, which is why the four partners agreed to bring in Aurecon. Hopefully, the new study is going to come up with a different approach and a more reasonable number.

“We have also placed firmly on the table that, while we are not that concerned over who owns the railway line, we do want to have a say in the running of the operation.”

Griffiths said the inclusion of Samancor in the negotiations also respresented a major change in approach.

Previously, the iron ore exporters were against sharing capacity on the line with the manganese exporters for a number of reasons, including possible contamination of iron ore stockpiled at Saldanha Bay.

Griffith said in November such potential contamination was “a huge issue” for the iron ore exporters and that “the expanded port has to be designed to make sure that this does not happen”.

Turning to iron ore pricing, Griffith said Kumba’s strategy remained one of letting the big three (Rio Tinto, BHP Billiton and Vale) settle first, after which Kumba would finalise its prices.

He said Kumba would support the move to more frequent index pricing such as the quarterly system implemented by the three major iron ore producers “because there’s more value there”.

He added Kumba intended to continue selling 85% to 90% of its exports on long-term volume contracts. This was because it added value from the group’s “niche product strategy” utilising the high grade and hardness of the lumpy ore produced by Sishen.

Kumba’s current cash cost of producing a ton of ore is $11.8/t. The free-on-board (fob) cost at Saldanha Bay is about $20/t after taking into account railage and port handling costs.

The landed cost of a tonne of iron ore exported from South Africa to China is about $40/t after freight charges.

Last year’s benchmark China landed iron ore price was $62/t. Since July the index price for 62% fe iron ore landed in China has shot up, reaching $130/t in January and around $165/t currently.

Griffith said: “The last nine months of this year should see some very good prices coming through. Kumba should have another fantastic year, although we have a few distractions for the corporate team to deal with.”

Source http://www.miningmx.com

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ArcelorMittal in Saldanha Bay could be facing iron ore supply problems.

Kumba Iron Ore appears to have dealt steel giant ArcelorMittal South Africa another body blow in the ongoing battle between the two companies.

The Mail & Guardian understands that Kumba has applied for a 21% share in the mining rights to the Sishen mine, which lie at the heart of the corporate bun fight.

The matter is being closely watched as it ultimately goes to the heart of steel pricing in the country and could affect manufacturing and jobs.

Neither company would comment, but they are understood to have entered arbitration to resolve the dispute. To add to ArcelorMittal’s woes an industry insider speculates that the government’s dissatisfaction with its steel pricing, as well as its lack of empowerment status, has left it with little sympathy in the corridors of power.

If Kumba is granted ownership of the minority portion of the rights, which ArcelorMittal held and failed to convert into new order mining rights, this could give Kumba the leverage it needs to force a better price for the 6.25-million tons of iron ore that it supplies to Arcelor-Mittal each year, according to analysts.

The rights have since reverted to the state. “The holder of the right was meant to apply for conversion before April 2009 and they [ArcelorMittal] failed to do so,” said Jeremy Michaels, a spokesperson for the department.

How Kumba’s application will be received is unclear. The department viewed the issue as a dispute between “two private companies”, said Michaels. DMR would not comment on any applications for the rights.

Under a contract negotiated through the unbundling of the state-owned Iscor in 2001 -- which resulted in the creation of what became Kumba Iron Ore, its ironore mining arm, and ArcelorMittal South Africa -- ArcelorMittal, because of its share of the mining rights in Sishen, would receive 6.25-million tonnes of ore from the Sishen mine at cost plus 3%.

The mining rights, viewed as undivided, are 79% owned by Kumba through its subsidiary the Sishen Iron Ore company, with the minority share or 21% lying with ArcelorMittal. ArcelorMittal paid R2.5-billion at the time for the rights to Sishen and the 6.25-million tonnes of ore a year at cost plus 3%

On February 26 ArcelorMittal suspended trading of its shares after Sishen notified the company on February 5 that it would no longer be supplying ArcelorMittal with ore at the preferential price, but rather at market-related prices.

It is understood that Kumba viewed ArcelorMittal’s failure to convert its share of the mining rights as an opportunity to amend the deal unilaterally. A prior arbitration ruling on a related matter is believed to have given it the impetus to do so.

In the development of the Sishen South project -- an extension of the Sishen mine -- ArcelorMittal had assumed a matching arrangement (cost plus 3%) on the output of Sishen South. Kumba disputed this.

The matter went to arbitration and late last year it was ruled that, because ArcelorMittal did not own the mining rights in this matter, it was not entitled to a similar deal.

But ArcelorMittal is understood to take a different view, which is that, on the division of the Sishen mining rights, Kumba, owning the majority share, would deal with the regulatory issues, including mining-rights applications and conversions. Mittal re-opened trading of its shares last week, with a reported 23% drop in the price.

The very sweet price granted to ArcelorMittal has been a sore point for the South African government.

On Iscor’s unbundling, facilitated by the department of trade and industry, under Alec Erwin, the price granted was, in part, aimed at locking in lower costs for the local steel industry and ensuring its competitiveness. But ArcelorMittal has been accused of not passing on the benefits of these prices to local customers.

Instead, it opted to benchmark its price against a basket of countries, which critics argue is closer to import prices and ensures Arcelor- Mittal retains extensive profits. Its pricing saw the company being dragged to the Competition Tribunal and slapped with just under R700-million in fines. But it challenged the ruling and subsequently settled with the complainants.

ArcelorMittal has long denied the accusations, citing rebates to customers that allow them to export competitively as one example of the support it provides to customers.

According to Matt Brenzel, portfolio manager at Cadiz Securities, a victory for Kumba might not affect local steel prices. Instead, a better price for Kumba would ideally affect only ArcelorMittal’s profit margins.

Brenzel estimated that ArcelorMittal was receiving ore from Sishen at roughly R125/tonne. Compared with an export parity price of around R475/tonne ArcelorMittal stood to earn more than R2-billion a year from the deal.

He noted that if Kumba did get ArcelorMittal’s share of the rights, the company would achieve little besides room to negotiate for a better price.

In terms of off-take, ArcelorMittal was the only real customer that Kumba had for the ore, given the constraints on the rail line to transport ore to Saldanha Bay for export, he said. Aside from pricing issues Arcelor-Mittal’s failure to strike an empowerment deal is also seen as an irritation to some sectors of government.

ArcelorMittal is one of the largest suppliers of steel to a number of companies, including mining houses. Under the mining charter, companies are expected to procure goods from BEE-compliant suppliers.

One industry insider argued that, with ArcelorMittal being one of the largest suppliers of such a key input, it has meant the transformation performance of miners is looking increasingly bad.

ArcelorMittal had apparently planned to undertake a BEE deal but this was put on hold because of the financial crisis and the recession that followed.


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Source http://www.mg.co.za

South African commodity lines at heart of Transnet investment plans

Mining Weekly reported that Transnet commodity corridors in South Africa were likely to be the main beneficiaries of the State owned transport utility's expanded 5 year capital investment program.

Mr Chris Wells acting CEO of Transnet said that the new plan, which would be unveiled in February, would probably involve a 10% increase in the budget of the current rolling plan which stands at ZAR 80.5 billion.

The group had 2 main commodity lines: the coal line, linking the coalfields of Mpumalanga province with the export terminal at Richards Bay and the iron ore line from Sishen to Saldanha.

Mr Wells indicated that the main focus would be on the procurement and upgrading of locomotives and wagons for the commodity lines, but stressed that these projects still had to receive board approval. The group had invested ZAR 62 billion over the last 4 and half years in the upgrading and modernizing of existing facilities, as well as in expanding infrastructure capacity.

Its projects were also fully funded up until the end of the current financial year, and the group currently has ZAR 8 billion in cash on hand, which had been raised "opportunistically", so as to ensure that there was sufficient and timely funding for the projects. It was also confident of being able to fund the expanded project pipeline, without recourse to its shareholder, the South African government.

Transnet was in consultation with manganese exporters on the development of a new export channel which could either flow through the deep water harbor at Saldanha Bay, on South Africa's West Coast or through the new port at Ngqura in the Eastern Cape. Several possible private sector participation models were being considered, with BHP Billiton, African Rainbow Minerals and Assore having already indicated a preference for converting the Sishen line into a dual commodity channel.

The Sishen Saldanha heavy haul line had emerged as Transnet Freight Rail's top performing corridor with exports tons increasing by 32.7% to 21.1 million tonnes in the 6 months to September 30th 2009. The manganese miners would like to have access to this channel so as to boost exports from the Kalahari manganese field to some 12 million tonnes per year from the current position of around 5 million tonnes yearly, most of which is currently moved through the depth and land constrained harbor at Port Elizabeth.

The iron ore channel was in the process of being ramped up from 47 million tonnes to 60 million tonnes and a combined 90 million tonne channel with 78 million tonnes for iron ore and 12 million tonnes for manganese could be pursued. There were also various plans to raise the capacity of the coal rail corridor through to Richards Bay.

(Sourced from Mining Weekly)

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