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Eskom casts shadow over Vedenta's billions

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One of three pits at the Gamsberg zinc mine in the Northern Cape.PHOTO: Justin Brown
One of three pits at the Gamsberg zinc mine in the Northern Cape.PHOTO: Justin Brown

Indian group Vedanta’s grand plan to grow its southern African zinc metal output by more than six-fold over the next 13 years – which would see billions of rands in investment and hundreds of jobs created – faces an immediate threat.

That pitfall comes in the form of Eskom’s power cuts and its significant financial problems, fuelled by the need for extra power to achieve that goal.

This emerged during a media trip organised by Vedanta to its Gamsberg zinc mine near Aggeneys, a town with a population of about 3 000 that is located between Pofadder and Springbok in the Northern Cape.

Deshnee Naidoo, the CEO of Vedanta Zinc International, said the group was looking to raise its zinc production from its southern African mines from 157 000 tons for the year ending March 2018 to 1 million tons by the year ending March 2031.

However, Naidoo said that while Vedanta was aware of Eskom’s problems, the company could obtain extra electricity from diverse sources, including solar, wind and gas. “Vedanta does build its own power plants,” she added.

Reliable, cost-effective power was essential for Vedanta to expand its local operations, Naidoo said.

Eskom had indicated in initial discussions that it was “quite positive” about delivering extra power to Vendanta.

The mill at the Gamsberg zinc mine in the Northern Cape. Picture: Justin Brown

Vedanta owns the Gamsberg and Black Mountain zinc mines in the Northern Cape and the Skorpion zinc mine in Namibia.

Exxaro Resources is the BEE partner at the Black Mountain and Gamsberg mines, with a 24% stake.

The company has spent $400 million (R5.6 billion) on the first phase of a fully integrated zinc production site at Gamsberg, which is projected to produce 250 000 tons of metal in concentrate annually.

During this phase, more than 3 000 people were involved in the construction of the project and 750 permanent jobs were created.

City Press saw three massive open pits at the Gamsberg mine that were being hollowed out by lots of earth-moving equipment, and huge trucks were moving the rock out of the working areas.

There are longer-term plans to turn the mine into an underground operation.

The area around the Gamsberg mine is stark, dry and ecologically sensitive.

Satish Kumar, the projects director for Vedanta Zinc International, said the international price for zinc metal was almost $2 700 a ton, while zinc at Gamsberg was expected to be produced at less than $1 000 a ton before refining and smelting charges, which would put the cost of producing zinc at the mine in the lowest quarter of world zinc output.

Zinc is used mainly to galvanise metals, such as iron or steel, to prevent rusting.

The metal is also used to produce die-castings and is combined with other metals to make alloys for automotive, electrical and household materials.

Zinc oxide is used in making paints, rubber, cosmetics, pharmaceuticals, plastics, inks, soaps, batteries, textiles and electrical equipment.

Zinc sulfide is used in making luminous paints, fluorescent lights and X-ray screens.

There are longer-term plans to turn the mine into an underground operation.

Work on the Gamsberg mine, forecast to be mined for 30 years or more, is expected to be increased in phases to produce output of 600 000 tons of zinc metal, while Black Mountain and Skorpion are expected to contribute 200 000 tons of zinc each to the overall target of 1 million tons.

Phase two of the Gamsberg mine’s expansion plan is expected to require an outlay of $350 million to $400 million, while the smelter and refinery could cost $700 million to $800 million.

Vedanta is also looking to spend $163 million on its Swartberg phase two project, which will increase the life-of-mine of Black Mountain by 13 years.

Presentation material issued by Vedanta this week showed that the Swartberg project could involve four phases, stretching out to 2029 at an estimated total cost of $365 million.

The Gamsberg zinc deposits were discovered in 1972, but it was only in 2011, when Vedanta bought Black Mountain and Gamsberg mines from Anglo American, that the project was developed.

The Gamsberg project required a 20km power line to be built. A 40km water pipeline from the Orange River also had to be established.

Vedanta is in the process of considering building the smelter and refinery complex at the Gamsberg site. The complex is expected to result in 6 000 jobs being created during construction and in 1 500 permanent jobs.

If the company does go ahead with the smelter and refinery, it will make Gamsberg the first integrated zinc-manufacturing facility in South Africa.

The smelter and refinery will require 200 megawatts of power.

“Refineries are power hungry … We do know that South Africa has some surplus power,” Naidoo said.

Vedanta

The ore that is mined at Gamsberg includes sulphur, which can be used to produce sulfuric acid, Naidoo said. Sulfuric acid is used mainly to produce phosphoric acid, which is used to make phosphate fertilisers.

Kumar said that in South Africa, 85% of the local sulfuric acid supply currently came from Foskor in Richards Bay.

“The critical success factor for the off-take of sulfuric acid from us is ideally that somebody can put up a fertiliser plant nearby. We have already started talking to various people.”

The Industrial Development Corporation is involved in trying to attract an investor to set up a fertiliser plant.

Kumar said that if a local buyer of sulfuric acid did not emerge, the technology used at the refinery-smelter complex would have to change to a technology that did not produce sulfuric acid – or “we will say that this project is not viable”.

Naidoo said that Vedanta would also like the area around the Gamsberg and Black Mountain mines to be turned into a special economic zone.

“There will be a lot of offshoot industries,” Kumar said.

Currently, Vedanta exports its zinc concentrate via the port of Saldanha. The zinc concentrate is then sold to customers in Asia and Europe.

However, the company is looking to export its zinc concentrate via other local ports, including Port Nolloth, Alexander Bay and Boegoe Bay on the West Coast, as the port of Saldanha is dominated by iron ore exports, which means that Vendanta’s zinc exports will play second fiddle.

For exports to go via these ports, it would require Transnet to build extra rail infrastructure.

Indian billionaire Anil Agarwal, who is Vendanta’s founder and major shareholder, has said that he sees a lot of investment potential in Africa.

Agarwal has a 20% stake in Anglo American.


Justin Brown
Business editor
City Press
p:0117139001
w:www.citypress.co.za  e: justin.brown@citypress.co.za
      
 
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