Kumba Assesses Participation in the Sishen-Saldanha Iron Ore Railway Line

South Africa’s largest iron ore exporter Kumba Iron Ore would like to get directly involved in the operation of the Sishen-Saldanha railway line, according to its CEO Chris Griffith. Mr Griffith acknowledged the issue was a sensitive one. This is because although Transnet Freight Rail (TFR) maintains it is running Sishen-Saldanha to international best practice, Mr Griffith believes it could be better operated with private sector involvement. Two of Kumba’s competitors – Rio Tinto and BHP Billiton maintain they have a competitive advantage in the iron ore export business because they own and operate their own railway lines and port handling infrastructure in Western Australia. Mr Griffith agreed with that assessment. Transnet acting CEO Chris Wells has strongly defended TFR’s running of the Sishen-Saldanha line. He said he was aware of the criticism, but said: “On any measure you care to apply, we are running the Sishen-Saldanha line as a world class operation.” The eventual outcome of this debate could have major implications for the proposed increase of export capacity on the line beyond the current planned expansion to 60 million tonnes (mt) per year. Mr Griffith said : “Transnet has not done a bad job, but we believe the line can be run better. If there was an opportunity to run those assets in collaboration with government, we would jump at it. But there are some things you can change and others you can’t. You have to just get on and make the best of the environment in which you find yourself.” Transnet has just completed the Phase 1A expansion of capacity on the line to 41mt/year, and is about to start the Phase 1B expansion to 47mt/year. The para-statal said in its 2009 financial results that approval “in principle” had been obtained to go ahead with the R4.3bn Phase 1C expansion to 60mt/year. The country’s two major iron ore exporters, Kumba and Assmang, previously indicated their desire to push exports well above the 60mt/year level and had been talking about going to 95mt/year. The first indication this may not happen was given on October 29, when Mr Wells said : “There has been a rethink on the economics of further expansion to the 95mt/year capacity. After assessing the capital cost of getting to 95mt/year, it’s clear that a prohibitive tariff would have to be charged. The result is that iron ore exporters are still keen to expand their capacity above 60mt/year, but not to 95mt/year.” That’s not quite the way the iron ore exporters see the situation. A source said: “On the Transnet figures, there is not going to be any expansion of the Sishen-Saldanha line above 60mt/year. The cost and the tariff are just too high. “We have to take a radically different approach to find a solution. We need to get in new people with fresh views to assess the situation. Maybe we need to get the work done by Chinese contractors if that will drastically reduce the estimated cost.” A major change already being looked at for any growth beyond 60mt/year is to diversify the line to handle about 12mt/year of manganese exports as well as iron ore. South Africa’s manganese deposits are located in the same region of the Northern Cape as the iron ore deposits. Mr Wells said Transnet was looking at a proposal to push capacity on the line to just under 90mt/year, of which 75mt would be allocated to the iron ore exporters and 12mt to the manganese mines. The balance of about 2mt/year is being kept in reserve for small black economic empowerment (BEE) iron ore producers, of which there are as yet none. Mr Griffith welcomed the decision to include the manganese exporters on the line, with one proviso which concerned the design of the expanded port facilities to handle the two commodities. He said: “We believe the mining industry has a role to play in the expansion above 60mt/year. Our key concern as iron ore exporters is to ensure that there is no contamination of the iron ore stockpiles at Saldanha Bay from the manganese stockpiles. “That is a huge issue for us, and the expanded port has to be designed to make sure that this does not happen.“ Mr Griffith added Transnet and the iron ore exporters had a window of about three years to carry out the necessary studies assessing the future of the Sishen-Saldanha line above 60mt/year. miningmx

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Transnet considering investment on the West Coast.

State freight logistics group Transnet, in consultation with manganese exporters, expects to decide within the "next four to five months" whether to develop a new export channel through the deepwater harbour at Saldanha Bay, on South Africa's West Coast, or to proceed with an alternative model involving ports on the country's eastern seaboard.

Acting CEO Chris Wells tells Engineering News Online that the group is also interrogating several possible private-sector participation (PSP) models for the two alternatives, both of which would involve "significant investment".

He refuses to be drawn, however, on the amount of capital that could be involved, or on the nature of the partnerships being investigated, saying only that the PSP model is integral the plan and is being canvassed with the miners as the studies progress.

For their part, the miners involved (BHP Billiton, African Rainbow Minerals and Assore) have indicated previously that they would prefer to "go west", and convert the high-performance Sishen-Saldanha line into a dual commodity channel for iron-ore and manganese.

That said, they have supported Transnet's investigations into both a western corridor, as well as an eastern corridor involving the harbours of Port Elizabeth, Ngqura and Durban. Still, the miners feel that greater efficiencies would be possible on a channel that is dedicated to bulk commodities, rather than one that will also have to cater for general freight.

Currently, the Sishen-Saldanha heavy-haul line is dedicated to iron-ore exports, and has emerged as Transnet Freight Rail's (TFR's) top performing corridor during 2009.

In the six months to September 30, export tons increased by 32,7% to 21,1-million tons in line with contractual commitments TFR has with Anglo American's Kumba Iron Ore and Assmang, the joint venture between African Rainbow Mineral and Assore.

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 tons a year, from the current position of around five-million tons yearly, most of which is currently moved through the depth- and land-constrained harbour at Port Elizabeth.

The Port Elizabeth channel has a theoretical capacity of six-million tons yearly, but it is unlikely that this nameplate will ever be achieved, owing to a number of constraints, especially relating to stockpiles.

"The big issue is that there is demand from the industry for a 12-million ton business, which is a massive ramp-up," Well explains.

Under the current configuration, the yearly peak is expected to be about seven-million tons, with Port Elizabeth probably only able to handle 4,5-million tons and with Durban in a position to handle up to 2,5-million tons.

So, to reach the 12-million target, there are only two alternatives: to develop a terminal at the new deepwater harbour at Ngqura and continue using Durban for the overflow; or transform the bulk terminal at Saldahna into a dual commodity facility for iron-ore and manganese.

The iron-ore channel was in the process of being ramped up from 47-million tons to 60-million tons, but significant levels of capital will be required to go beyond that level.

"To move to 80-million tons, which the iron-ore industry wants, will require massive investment into new infrastructure and rolling stock," Wells outlines, adding that any move towards the 100-million ton level once mooted, "looks prohibitively expensive".

However, a combined 90-million ton channel, with 78-million tons for iron-ore and 12-million tons for manganese, "looks full of potential"- this is reportedly because there would be a greater sharing of risk, especially at the port, than would be the case if only one commodity was involved.

"Either way, the investment would be significant, and while we could probably cater for it on our balance sheet, we would probably look at some kind of PSP with the miners," Wells concludes.

Story by Terance Creamer of the Engineering News

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