Kumba Annual Report 2003

IRON ORE

Sishen South is an important iron ore project in the Kgalagadi region of the Northern Cape, and 70km south of Sishen mine.

A R55-million study to confirm the technical and economic potential of the project in a bankable format is nearing completion and this, together with the environmental and social impact assessments required to secure a mining permit, will be completed by December 2003.

If treated on a stand-alone basis, Sishen South would be developed as an 8-10Mtpa open-pit mine at a capital cost of around R2 billion, including beneficiation facilities that would render its output compatible with the high-grade ore produced from Sishen. Under this scenario, Sishen South ore would be railed via Sishen to the export terminal at Saldanha Bay.

Alternative development scenarios involve the exchange or amalgamation of iron ore assets owned by the two main operators in the region, and are the subject of continuing discussion between the parties concerned. Subsequent to the year end, a heads of agreement was signed with Assmang.

Conversion to bankable status of the technical feasibility study into the Hope Downs iron ore project in the Pilbara district of Western Australia has continued since the completion of a value-engineering exercise early in 2003. The project is a joint venture between Kumba and Hancock Prospecting (Pty) Limited, a Perth-based company that discovered and undertook the initial evaluation of the property.

The present study commenced in 1998 on the assumption that access to existing privately-owned rail infrastructure could be secured that would facilitate the export of 10-15Mtpa of high-grade Marra Mamba ore from Hope Downs via one of three terminals along the Australian west coast, some 350km distant. When it became apparent that this option might be difficult to achieve, the rail owners being competing iron ore producers, the study was extended to include provision for the construction of new rail infrastructure and a terminal at Port Hedland. This resulted in an increase in the capital cost of the project to its current level of AUD1,6 billion, necessitating in turn, an increase in the scale of operations to 25Mtpa. The reserve base of 450Mt, with substantial additional adjacent resources, would be sufficient to sustain an operation of this size; and forecast market growth would be able to accommodate such output without difficulty.

The project team is currently compiling an information memorandum, which selected potential equity investors will be invited to receive during the second half of 2003. In the meantime, efforts continue to be made to identify mutually-beneficial rail-access agreements with the owners of existing infrastructure.

In West Africa, a due diligence study on three iron ore deposits in Gabon concluded that resource quality and the absence of rail and port infrastructure detract from their development potential. Other deposits in closer proximity to existing rail infrastructure are currently under investigation.

In Senegal, a due diligence study of the Faléme deposit showed that the property could have commercial potential only if infrastructure development were to be funded by government or international organisations. Discussions in this regard are continuing.

COAL

Kumba’s coal business unit and empowerment company, Eyesizwe Coal, have concluded an agreement to develop jointly an open-pit coal mine at Kalbasfontein, north-east of Witbank in Mpumalanga, for an expected capital investment of R300 million. Development of the mine, which is planned to produce 1,0Mtpa of export-quality steam coal, will commence as soon as the long-awaited approval of the port authorities has been obtained for the phase V expansion of the coal terminal at Richards Bay.

A feasibility study was undertaken to determine the viability of second-stage washing in the number 2 beneficiation plant at Grootegeluk to increase production of semi-soft coking coal. The project envisages the production of an additional 0,7Mtpa of material destined for supply to the coke-making facilities of Suprachem, as well as to other domestic and international customers. A decision to proceed with the modification of the plant will be taken once Suprachem confirms its own expansion plans.

A pre-feasibility investigation into the production of char/formed coke, also at Grootegeluk, is nearing completion and it is expected that a full feasibility study will be conducted during the coming year. The scope of this project includes the open-cast and possible high wall underground mining of benches 11 and 13 in the current Grootegeluk pit, together with the construction of a separate beneficiation plant and three char-manufacturing facilities. The latter would cater for the reductant requirements of the ferrochrome, ferromanganese and titanium slag industries. A second phase will consider the manufacture of formed coke for the ferroalloy sector. At full production, the overall project could produce 0,6Mtpa of char and 0,4Mtpa of formed coke.

A strategy to develop additional coal reserves in the Waterberg Field in a phased programme has been drafted and is currently being discussed with relevant government departments and potential partners.

BASE METALS

Exploration for further ore bodies to augment the reserves available to Rosh Pinah mine continued, with significant new resources discovered during the past year.

In China, work on the expansion of the Hongye zinc refinery at Chifeng in Inner Mongolia is progressing well following the approval of the Kumba board to proceed with the project. This entails doubling the capacity of the refinery to 50 000 tonnes of zinc metal per annum, a target that is scheduled to be met towards the end of 2004. Kumba’s 60% participation in the venture, which includes construction of a roasting plant and overall management of the total business, limits its total exposure to Yuan140 million (R125 million); other participants are the owners of the Hongye refinery and the principal suppliers of concentrate feedstock.

Despite continued efforts on the part of the South African government and other brokers to halt hostilities in the Democratic Republic of Congo (DRC), it has so far proved impossible to secure the unqualified support of all protagonists. This, together with the reluctance of important constituencies within the DRC to accept the new mining code developed by the government in collaboration with World Bank, has delayed a return to conditions conducive to investment. Consequently, it has not been possible either to proceed with a feasibility study on the refurbishment of the Kipushi zinc/copper mine or with an update of the feasibility study conducted in 1998 on the Kamoto copper/cobalt mine during the last year.

The ZnERGY plant in which Kumba has a 85% interest was established late in the financial year and is in the process of ramping up to full production. The R16 million plant, with an annual design capacity in excess of 200 000 units, produces environmentally friendly zinc-air fuel cells under licence from ZOXY Energy Systems AG of Germany. The product is destined predominantly for Europe, while the African market, for which the company has exclusive marketing rights, is developed.

HEAVY MINERALS

During July, Kumba’s Australian subsidiary Ticor Limited announced that it had concluded an agreement with Madagascar Resources NL to conduct feasibility studies on the Tulear mineral sands deposits in south-western Madagascar. Preliminary indications are that the extent of mineralisation at Tulear has the potential to support an expansion of the Empangeni smelting operation near Richards Bay.

IFCON™

In the previous annual report, reference was made to research being undertaken on the development of a new process technology, IFCON™, that appeared to have potential for the low-cost production of metals from a variety of feedstock. During the last year, this work continued to the point where a demonstration furnace, designed to test the commercial viability of the process, was commissioned at the close of the reporting period. A number of smelting campaigns are scheduled for the coming year, with particular emphasis on determining the application of the process to ferroalloy manufacture.

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	GROWTH OPPORTUNITIES

	IRON ORE
	Sishen South is an important iron ore project in the Kgalagadi region of the Northern Cape, and 70km south of Sishen mine.

	A R55-million study to confirm the technical and economic potential of the project in a bankable format is nearing completion and this, together with the environmental and social impact assessments required to secure a mining permit, will be completed by December 2003.

	If treated on a stand-alone basis, Sishen South would be developed as an 8-10Mtpa open-pit mine at a capital cost of around R2 billion, including beneficiation facilities that would render its output compatible with the high-grade ore produced from Sishen. Under this scenario, Sishen South ore would be railed via Sishen to the export terminal at Saldanha Bay.

	Alternative development scenarios involve the exchange or amalgamation of iron ore assets owned by the two main operators in the region, and are the subject of continuing discussion between the parties concerned. Subsequent to the year end, a heads of agreement was signed with Assmang.

	Conversion to bankable status of the technical feasibility study into the Hope Downs iron ore project in the Pilbara district of Western Australia has continued since the completion of a value-engineering exercise early in 2003. The project is a joint venture between Kumba and Hancock Prospecting (Pty) Limited, a Perth-based company that discovered and undertook the initial evaluation of the property.

	The present study commenced in 1998 on the assumption that access to existing privately-owned rail infrastructure could be secured that would facilitate the export of 10-15Mtpa of high-grade Marra Mamba ore from Hope Downs via one of three terminals along the Australian west coast, some 350km distant. When it became apparent that this option might be difficult to achieve, the rail owners being competing iron ore producers, the study was extended to include provision for the construction of new rail infrastructure and a terminal at Port Hedland. This resulted in an increase in the capital cost of the project to its current level of AUD1,6 billion, necessitating in turn, an increase in the scale of operations to 25Mtpa. The reserve base of 450Mt, with substantial additional adjacent resources, would be sufficient to sustain an operation of this size; and forecast market growth would be able to accommodate such output without difficulty.

	The project team is currently compiling an information memorandum, which selected potential equity investors will be invited to receive during the second half of 2003. In the meantime, efforts continue to be made to identify mutually-beneficial rail-access agreements with the owners of existing infrastructure.



	In West Africa, a due diligence study on three iron ore deposits in Gabon concluded that resource quality and the absence of rail and port infrastructure detract from their development potential. Other deposits in closer proximity to existing rail infrastructure are currently under investigation.

	In Senegal, a due diligence study of the Faléme deposit showed that the property could have commercial potential only if infrastructure development were to be funded by government or international organisations. Discussions in this regard are continuing.

	COAL
	Kumba’s coal business unit and empowerment company, Eyesizwe Coal, have concluded an agreement to develop jointly an open-pit coal mine at Kalbasfontein, north-east of Witbank in Mpumalanga, for an expected capital investment of R300 million. Development of the mine, which is planned to produce 1,0Mtpa of export-quality steam coal, will commence as soon as the long-awaited approval of the port authorities has been obtained for the phase V expansion of the coal terminal at Richards Bay.

	A feasibility study was undertaken to determine the viability of second-stage washing in the number 2 beneficiation plant at Grootegeluk to increase production of semi-soft coking coal. The project envisages the production of an additional 0,7Mtpa of material destined for supply to the coke-making facilities of Suprachem, as well as to other domestic and international customers. A decision to proceed with the modification of the plant will be taken once Suprachem confirms its own expansion plans.

	A pre-feasibility investigation into the production of char/formed coke, also at Grootegeluk, is nearing completion and it is expected that a full feasibility study will be conducted during the coming year. The scope of this project includes the open-cast and possible high wall underground mining of benches 11 and 13 in the current Grootegeluk pit, together with the construction of a separate beneficiation plant and three char-manufacturing facilities. The latter would cater for the reductant requirements of the ferrochrome, ferromanganese and titanium slag industries. A second phase will consider the manufacture of formed coke for the ferroalloy sector. At full production, the overall project could produce 0,6Mtpa of char and 0,4Mtpa of formed coke.

	A strategy to develop additional coal reserves in the Waterberg Field in a phased programme has been drafted and is currently being discussed with relevant government departments and potential partners.

	BASE METALS
	Exploration for further ore bodies to augment the reserves available to Rosh Pinah mine continued, with significant new resources discovered during the past year.

	In China, work on the expansion of the Hongye zinc refinery at Chifeng in Inner Mongolia is progressing well following the approval of the Kumba board to proceed with the project. This entails doubling the capacity of the refinery to 50 000 tonnes of zinc metal per annum, a target that is scheduled to be met towards the end of 2004. Kumba’s 60% participation in the venture, which includes construction of a roasting plant and overall management of the total business, limits its total exposure to Yuan140 million (R125 million); other participants are the owners of the Hongye refinery and the principal suppliers of concentrate feedstock.

	Despite continued efforts on the part of the South African government and other brokers to halt hostilities in the Democratic Republic of Congo (DRC), it has so far proved impossible to secure the unqualified support of all protagonists. This, together with the reluctance of important constituencies within the DRC to accept the new mining code developed by the government in collaboration with World Bank, has delayed a return to conditions conducive to investment. Consequently, it has not been possible either to proceed with a feasibility study on the refurbishment of the Kipushi zinc/copper mine or with an update of the feasibility study conducted in 1998 on the Kamoto copper/cobalt mine during the last year.

	The ZnERGY plant in which Kumba has a 85% interest was established late in the financial year and is in the process of ramping up to full production. The R16 million plant, with an annual design capacity in excess of 200 000 units, produces environmentally friendly zinc-air fuel cells under licence from ZOXY Energy Systems AG of Germany. The product is destined predominantly for Europe, while the African market, for which the company has exclusive marketing rights, is developed.

	HEAVY MINERALS
	During July, Kumba’s Australian subsidiary Ticor Limited announced that it had concluded an agreement with Madagascar Resources NL to conduct feasibility studies on the Tulear mineral sands deposits in south-western Madagascar. Preliminary indications are that the extent of mineralisation at Tulear has the potential to support an expansion of the Empangeni smelting operation near Richards Bay.

	IFCON™
	In the previous annual report, reference was made to research being undertaken on the development of a new process technology, IFCON™, that appeared to have potential for the low-cost production of metals from a variety of feedstock. During the last year, this work continued to the point where a demonstration furnace, designed to test the commercial viability of the process, was commissioned at the close of the reporting period. A number of smelting campaigns are scheduled for the coming year, with particular emphasis on determining the application of the process to ferroalloy manufacture.

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