Going bush in South Africa
Friday, 5 October 2007
CHROME Corporation bought an old mine in the bushveld for $8 million and is bringing it back into production. By Tim Slater - RESOURCESTOCKS*
An example of a typical open cut chrome mine
Chrome Corporation managing director Brian Thomas
The Ruighoek Mine is located in the Western Bushveld of South Africa
About two hours drive northwest of Johannesburg at the Ruighoek Mine in South Africa's Western Bushveld, Chrome Corporation is preparing to process bulk samples in a trial mining program.
Later this year, it aims to begin commercial production of about 300,000 tonnes of chrome per annum, targeting the global non-metallurgical chrome market.
It expects to be granted a mining right for open cut operations in October or November.
Chrome Corporation managing director Brian Thomas said a chromite seam on the Ruighoek Farm had indicated resources of 5 million tonnes of chromite plus a further 23Mt of inferred resources.
The company has identified a significant resource in another chromite seam which it believes could extend the open cut mine life by another two or three years.
It acquired the Ruighoek mine in 2005, raising the funds by offering $6 million in listed convertible notes and $2.25 million in loan notes.
Chrome Corp has raised a further $5.5 million in equity since from retail investors to fund a feasibility study, site maintenance, permitting, debt servicing and partial debt repayment.
Thomas said getting the mine to an almost operational condition has taken much longer than expected, due mainly to the exhaustive regulatory requirements of the Department of Minerals and Energy.
These have included finding a reputable Black Economic Empowerment (BEE) partner, Aka Capital; transferring the mine's prospecting rights under the new South African Mining Act of April 2005; preparing environmental assessments; and working with contractors in the emerging small company mining consultancy industry to complete feasibility studies.
Thomas said BEE partners must hold 26% equity in mining projects and reputable partners are hard to find.
"One of the great challenges of working in South Africa is finding a good BEE partner. There are plenty of people who purport to be BEE partners but finding good ones is hard," he said.
"We thought we had one back in the middle of 2005 but their demands became absolutely untenable so we broke off negotiations and started the search for another."
That's where having good industry contacts in the country is handy. Chrome Corporation chairman Richard Linnell, who has extensive experience working in South Africa with Billiton and its subsidiary company Samancor, introduced the Chrome team to several other potential BEE partners.
"Eventually we found Aka Resources, owned by Aka Capital and chaired by Reuel Khoza, who has good connections in the South African business community," Thomas said. "He is also the chairman of Nedbank and a board member of the Johannesburg Stock Exchange."
Chrome is a bulk commodity industrial mineral used primarily in the manufacture of stainless steel, with 90% of the world's production of 20 million tonnes (2006) of chromite used in this process. The remaining 10% is consumed in the refractory, chemical and foundry industries.
South Africa's Bushveld Complex holds 80% of the world's reserves of chromite and is the site of more than 50% of the world's production.
The Ruighoek Mine hosts extensive infrastructure, including two decline mine shafts, a decommissioned concentrator, mine offices, stores, workshops and a 42-house township, which have all been maintained securely since the mine's closure in 1993.
The area is serviced by grid power, telecommunications, roads and a railway siding 45km to the south.
The deposit itself occurs in a series of flat-dipping, parallel layers that occur throughout the Bushveld igneous complex.
Most of the mining operations will be carried out by contractors with Chrome Corporation employing a mine manager, samplers and a surveyor.
Chrome had considered building its own treatment plant for chromite at an estimated cost of $5 million, but it is now considering an offer from a neighbouring producer to use its facility and will be processing at least two bulk samples at the plant as part of the trial pit process.
Thomas said after researching the international chrome market, which is dominated by three ferrochrome producers – Xstrata, Samancor Chrome and Kazkrom – the company decided to target the bulk of its product at the smaller non-metallurgical foundry, chemical and refractory market.
"Back in 2005 we had a good think about where we were positioned in the chrome business," he said. "We were originally going to just mine chrome, wash it, stick it on a ship and send it to China, it was going to be real simple.
"But we didn't understand the dynamics of the chrome market which is a managed commodity and is dominated by the three main players which control between two-thirds and three-quarters of the global chrome market."
Thomas said because of the dominance of the big three producers, small chrome producers were virtually price takers. "That is not a nice place to be because you have no bargaining power whatsoever," he said.
"After we had done the research, we realised the big guys are not interested in this end of the market because they are vertically integrated with their own mines, ferrochrome furnaces and sales divisions to the stainless steel industry.
"They are not really set up for what they think of as niche products, which suited us."
Foundry sands are used to make castings in foundries, the chemical grade is used for a variety of products including car accessories, and the refractory grade is used in foundry applications because of the metal's high melting point.
Targeting the global non-metallurgical market, estimated to be about 2Mtpa, also tied in with the mine's estimated annual gross output of 300,000tpa, net non-metallurgical product of about 200,000t.
"We were going to be 10% of the market which is a very big number when you think about an industry which is very well managed," Thomas said.
"We decided that 300,000t was a good target and that would probably get us in that 150,000-200,000t a year of non-metallurgical chrome and wouldn't disturb the market.
"But more importantly it doesn't destroy our own market because there is no point flooding the market."
The company's exclusive sales agent in South Africa, Metalloy Trading, has negotiated letters of intent with three off-take parties to purchase the chrome products and negotiations are continuing with two other groups.
A majority of the chemical and refractory grade product will be sold to consumers in Europe and the US, with the foundry sands being sold to both local South African consumers and global customers.
Chrome Corporation was listed in April 2005 after WA-based mineral explorer Preston Resources acquired a 100 per cent interest in the company, which was previously privately owned.
The original Chrome Corporation was formed to buy the old Ruighoek Mine from private South African company EBCK. The mine was previously owned by Batlhako Mining, a subsidiary of Samancor, which is jointly owned by BHP Billiton (60%) and Anglo American (40%).
Samancor's interest in Ruighoek ceased in early 2004. Plummeting chrome prices had forced the closure of the mine in 1993, when it was producing chrome ore at the rate of 75,000 tonnes per annum using traditional hand-held underground methods.
But times have changed and the chrome price, set through bi-lateral agreements between producers and consumers, has more than tripled in the past 15 years from a low of $US65/t in 1993 to over $US200/t this year.
The price rise is the result of the huge increase in stainless steel production and the recent trend of substituting chrome for nickel in stainless steel due to soaring nickel prices.