...from the Mineweb:

Xstrata gives South Africa its best mining news of the year

Xstrata rises above the gloom of South Africa's mining sector, and the power crisis, and announces a R4.9bn expansion of its Lion ferrochrome smelter

Author: Barry Sergeant
Posted: Wednesday , 20 Oct 2010

JOHANNESBURG - -

Zug, Switzerland-based, London-listed Xstrata, one of the world's Top Ten miners, by value, has announced a ZAR 4.9bn (USD 710m) expansion of its Lion ferrochrome smelter (and attendant mine supply) in South Africa, lifting above the gloom of damage suffered for much of this year by the country's mining sector. At the same time, Xstrata has risen above the country's power crisis, made more remarkable by the significant consumption of electricity used in the production of ferrochrome, a key ingredient in making specialised steels.

Xstrata pointed out that the Lion expansion is the "first major investment of its kind for South Africa since the government announced the amended Mining Charter". Xstrata has also effectively indicated its relative satisfaction with power supplies: "the absence of security of supply of electricity resulted in the project's approval being held in abeyance until a firm allocation of capacity was received by Eskom for the second phase of the Lion complex".

Just as important, Xstrata has confirmed that it is advancing its own power generation plans and is now completing a feasibility study for the first phase of a 600MW thermal power generation plant that will supplement future electricity supply.

Eskom, the state-owned electricity monopoly, is yet to fully finalise its policy on licensing private sector power suppliers, but Xstrata's announcement indicates that its own plans have been given an unofficial go-ahead, at the very least. Xstrata's potential power plant, even in its first phase, would be significant; Eskom's single biggest plant, Majuba, is rated at 3,843MW.

South Africa is familiar territory to Xstrata; CEO Mick Davis has origins in the country, likewise a good number of Xstrata's top management. Xstrata already ranks No 1 in global ferrochrome output, followed by ENRC, Samancor Chrome, Hernic, and the Assore group. All are South African based, with the exception of Kazakhstan-based, London-listed ENRC, which made its entry to South Africa this year by acquiring a stake in mid-tier platinum miner Northam.

Xstrata's South African platinum division falls under its chrome division. Xstrata also ranks No 1 in the world in the production of thermal (steam) coal, the fuel that mostly finds its way into coal-fired power stations, such as the one on Xstrata's drawing boards for South Africa. Xstrata produces thermal coal in a number of countries, and ranks among the leaders in South Africa.

At least two other major global and South African thermal coal producers, BHP Billiton and Anglo American, have indicated the possibility of becoming involved in private sector power generation. BHP Billiton's Hillside aluminium smelter, at Richards Bay in South Africa, along with its Mozal smelter in Mozambique, rank among the continent's biggest users of electricity.

Johannesburg-listed Merafe, a black economic empowerment company, holds 20.5% in the Xstrata-Merafe Chrome Venture. Merafe today announced that was considering its right to participate in 20.5% of Lion II, a 360,000 tonnes a year ferrochrome smelter in Steelpoort, Limpopo. Merafe anticipates that participation would cost it around ZAR 1bn, and, if given the go ahead, would be financed by a mix of forward cash flows and loan funding.

Earlier this week, spirits in South Africa's mining sector, which has encountered a number of stiff headwinds across 2010, was lifted by news confirming that Royal Bafokeng Platinum (RBPlat) would be listing in Johannesburg on 8 November. RBPlat CEO Steve Phiri has gone to lengths to show that RBPlat's board and management is independent of its two key shareholders, the Royal Bafokeng nation, and Anglo Platinum.

The proposed listing would create a free float of 30% of the shares in RBPlat upon listing, leaving the Bafokeng with 57% of RBPlat, and Anglo Platinum with about 13%. At the anticipated pricing of about ZAR 60.00 a share, RBPlat would list with a market value of just under ZAR 10bn (about USD 1.4bn), raising ZAR 2.7bn in fresh cash, of which ZAR 1bn would be for the account of RPPlat.

....Some might argue that this is OT, but IMHO in view of our corporate history, interests, etc. it well belongs here.

Cheers,

durban1