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

News sponsored by West Coast Office National for all your printing & stationery needs.www.pencil.co.za

Transnet sets new records

Transnet Freight Rail (TFR) reported on Thursday that it achieved a new weekly throughput record, of 919 000 t of iron-ore, which was transported last week from the mines of the Northern Cape mines to the deep-water West Coast harbour of Saldanha Bay.

The figure was nearly 19 500 t better than the previous Sishen-Saldanha corridor record of 899 592 t, which was achieved a week earlier.

For its 2009/10 financial year, TFR was planning to rail 46,4-million tons along the corridor, implying weekly volumes of more than 892 000 t. This mean that it was closing in on the 47-million ton volume milestone set as part of a R8,7-billion expansion of the link.

Indeed, CEO Siyabonga Gama said on Thursday that the State-owned railways utility was now targeting one-million tons a week - an ambition that was closely linked to the development of new loops, known as 7a and 7b, which should be completed this year.

In the year to March 31, 2009, TFR railed some 37-million tons down the corridor, making it one of the few areas of volume growth for 2008/9 - coal volumes slumped to less than 62-million from 63,5-million tons in 2007/8 and general freight volumes slumping to 77-million tons in 2008/9 from more than 83-million tons.

It was still targeting 65,6-million tons for the coal line, but had railed only 17,5-million tons between March 26 and July 12.

The most recent improvements on the iron-ore line were reportedly aided by the corridor's investment in radio distributed-power trains, with the thousandth such train having operated last week.

But Gama also stressed that the performance had been achieve on the back of improved communication with customers and "meticulous planning". Capacity had also been increased to allow more volumes to be transported from Assmang's Khumani mine.

The R8,7-billion two-phase expansion of the corridor was also advancing, with the first phase, aimed at raising volumes to 41-million tons a year, nearing completion.

The ‘Phase 1B' investment, which was designed to increase yearly throughput to 47-million tons.

This expansion included the acquisition of 44 locomotives, with the first batch of new 19 E locomotives to be operational in February 2010. But the current improvements have been achieved in the absence of the new rolling stock.

Further, Transnet had approved a R4,3-billion third phase to raise throughput to 60-million tons, with TFR confirming that work was already under way on the project.

However, there was still concern that the State rail utility remained a serious constraint to South Africa's iron-ore growth, despite the recent slowdown in demand and pullback in prices. There was emerging consensus, that iron-ore volumes and prices were set to recover, with iron-ore spot prices having recently moved above price levels set during recent negotiations between miners and steelmakers.

A public-private partnership had been mooted to align rail capacity to the growth aspirations of miners such as Kumba Iron Ore (KIO) and Assmang, as well as to increase efficiencies and contain costs.

At this stage, though, Transnet had simply agreed to make available up to 12-million tons of additional cumulative capacity in the period from 2009 to 2011. In return, the miners had signed take-or-pay agreements for this additional volume.

JSE-listed KIO planned to raise production by 10% during the year, despite the lower prices, and had near-term prospects that could raise its output to close to 50-million tons, most of which would be for export. The Sishen mine produced 34-million tons in 2008.

Meanwhile, Assmang had plans to raise capacity at its Khumani mine to 16-million tons a year.

Assmang, too, had signed a contract with Transnet for its next four-million tons of export iron-ore, which was due to kick in from July 1, 2012.