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Transnet, South32 sign manganese-ore deal

Transnet and global mining conglomerate South32 have signed a manganese-ore bulkshipping agreement worth R10.4bn in revenue to the stateowned transport entity.
Photo: South32
Photo: South32
The deal will allow Transnet to invest in greater bulk-shipping capacity, specifically between Hotazel in the Northern Cape and Port Elizabeth, and the deep-water port at Coega in the Eastern Cape. As part of the deal, 15% of Transnet's capacity would be allocated to new entrants to the manganese export market, Transnet's chief new business development officer, Gert de Beer, said on Thursday.

SA's export capacity has been severely constrained by a slowdown in Transnet's capital spending programme. This meant that SA's bulk commodity producers - the iron-ore and manganese producers in particular - could not gai nthe full benefit of a resources sector boom led by demand from the rapidly industrialising Chinese economy.

In 2012, Transnet launched a market-demand strategy that would see it invest about R300bn in infrastructure over seven years. Of that amount, about R200bn was earmarked for Transnet Freight Rail to expand its rail infrastructure to create capacity and increase cargo volumes.

SA accounts for about 75% of the world's manganese reserves and is the biggest supplier of chrome and manganese used in China's stainless-steel production. Demand for manganese from China rose 39% in 2017, prompting South African producers to ship much of their ore by road at much greater cost than rail.

The Transnet-South32 agreement, in terms of which South32 guarantees a capacity uptake of 2.6-million tonnes of export manganese a year for seven and a half years at a fixed price, provides contractual security to Transnet to allow it to develop its infrastructure.

The agreement is back-dated to September 2015.

Transnet's resulting investment would include upgrading railway-line ballast to handle the weight of manganese ore and adding second tracks to existing lines. It would also allow the development of facilities to handle open skip-containers and the construction of a new bulk terminal at the port of Ngqura.

Kalagadi Manganese, a potential beneficiary of Transnet's expanded capacity, is expected to produce about 2.4million tonnes a year of sintered manganese from October 2019, Business Day reported on Thursday. South32 is the only other South African mine which produces sintered manganese.

Lucas Msimanga, South32's South African vice-president, said the contract provided a stable base for export sales, with no significant exposure to the business market down-cycle.

De Beer said that, as a partner to South32, it recognised the risks associated with a fixedterm fixed-price agreement, and that it would be open to arrangements if commodity prices fell below sustainable levels, as it had done before when mines experienced difficulties. Transnet would not, however, be willing to write that into a contract.

Macquarie has identified manganese prices as the most volatile among commodities over the past year. An industry insider said, however, that the deal would benefit South32 because it reduced the risks posed by Transnet's capacity constraints. "It would allow further investment and expansion in the industry. This deal benefits both parties," he said.

Source: Business Day


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