New S African Venture to Lead World's Ferrochrome Output: A Proposed Joint Venture Will Make a New South African Entity the Largest Ferrochrome Producer in the World. the Demand for Ferrocrome, Which Is Used in the Manufacture of Stainless Steel, Is Bound to Rise as the Demand for Steel, Especially in China, Increases. Stephen Williams Reports

By Williams, Stephen | African Business, April 2004 | Go to article overview

New S African Venture to Lead World's Ferrochrome Output: A Proposed Joint Venture Will Make a New South African Entity the Largest Ferrochrome Producer in the World. the Demand for Ferrocrome, Which Is Used in the Manufacture of Stainless Steel, Is Bound to Rise as the Demand for Steel, Especially in China, Increases. Stephen Williams Reports


Williams, Stephen, African Business


While ferrochrome is not regarded in the same league as platinum, gold or diamonds, it's an important part of South Africa's mineral output which accounts for around one third of South Africa's total export revenues. South Africa holds some 70% of the world's reserves of chromite ore, from which ferrochrome is produced, and currently accounts for around 75% of global ferrochrome production.

[ILLUSTRATION OMITTED]

A proposed joint venture to form Xstrata--SAChrome Venture, estimated to be worth some R8bn ($1.22bn), will enable the two partner companies, SAChrome and Xstrata, to both achieve significant efficiencies through the transfer of best operational practices, the optimisation of ore feed from the reserves of the two partners, and the introduction of new technology.

The major end market of ferrochrome is stainless steel, which consumes 90% of all ferrochrome produced, and stainless steel production has grown at an annual average of around 4.5% for the past 10 years. Production is expected to rise from some 21.5m tons last year to approximately 26m tons by 2007.

It is said that the South African ferrochrome industry is the strongest world leader of all South African businesses, outstripping even gold or platinum group metals, while its earnings are of far more potential to the country than diamonds. The major players in the country's ferrochrome industry--other than SAChrome and Xstrata--are Samancor, Assmang, Hernic and ASA.

The Xstrata--SA Chrome Venture will have an annual ferrochrome capacity of 1.45m tons, representing around 26% of the world's current output. This will make it the world's leading ferrochrome producer. The new organisation has also set out to increase black empowerment in South Africa's mining industry, including skills transfer and the social upliftment of the communities surrounding the joint venture's operations.

For example, SAChrome is already investigating the creation of small-scale downstream projects to make use of energy in the form of furnace gas by-products from ferrochrome smelters, to heat boilers and generators. This cheaper form of power is ideal for small and medium size projects that rely on steam--for instance, steam bakeries, tyre retreading, dog food processing and concrete curing.

THE JOINT-VENTURE PARTNERS

SAChrome was established in South Africa in 1987. It's an empowerment company listed on the Johannesburg Stock Exchange and controlled by the Royal Bafokeng Resources Holdings Ltd (RBR) with a 33.2% interest, and the Industrial Development Corporation of South Africa Limited (IDC)--the South African government's development arm--holding a 25.2% stake. Commenting on the company's joint venture with Xstrata, Steve Phiri, the CEO of SAChrome, said: "This deal makes us cash flush, and we incur no debt."

SAChrome's principal asset is the Boshoek smelter in South Africa's North West Province which has an annual ferrochrome production capacity of 240,000t. It also owns a concentrator plant and the Horizon chrome mine, situated 40km northwest of the smelter, which is estimated to have the equivalent of 16-20 years worth of reserves.

SAChrome was the first South African ferrochrome producer to sign a long-term agreement with a Chinese partner. The agreement is with Juiquan Iron & Steel Co, owned by the Chinese government and the largest iron and steel producer in north-west China.

It gives SAChrome a stake in China's stainless steel industry, currently growing at approximately 17% per year. It is generally acknowledged that China will eventually become the world's biggest stainless steel producer (and consumer) and SAChrome will be well positioned to take advantage of this market.

Senior partner Xstrata plc is a major global mining company, listed on the UK and Swiss stock exchanges, with operations in six international commodity businesses: copper, coking coal, thermal coal, ferrochrome, vanadium and zinc, and additional exposures to gold, lead and silver. …

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New S African Venture to Lead World's Ferrochrome Output: A Proposed Joint Venture Will Make a New South African Entity the Largest Ferrochrome Producer in the World. the Demand for Ferrocrome, Which Is Used in the Manufacture of Stainless Steel, Is Bound to Rise as the Demand for Steel, Especially in China, Increases. Stephen Williams Reports
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