Investments | Steel Feed Corporation : Manganese

The global steel industry has evolved tremendously in recent years.

Leading producers such as ArcelorMittal, Tata Steel, Posco, and Chinalco have engaged in backward integration to secure vital raw material input. Future competition for raw material input to the steel industry is likely to increase, particularly in respect of iron ore, coking coal, manganese, and other carbon steels.

The vision of Pallinghurst Resources is to create an independent and integrated global platform to guarantee raw materials to the steel industry, and in doing so, produce returns well above the industry average.

The Kalahari Basin of South Africa’s Northern Cape Province contains approximately 80% of the world’s known manganese reserves. The industry has fragmented ownership and presents considerable consolidation opportunities.

Pallinghurst Resources, with its strategic equity partners, collectively called the Manganese consortium concluded a joint venture with an empowerment entity named Ntsimbintle, a black empowered company that has manganese exploration properties in the Kalahari basin.

This joint venture seeks to create a world class manganese producer within a few years. It is anticipated that operational synergies will be unlocked with other manganese assets in the Kalahari basin.

The Manganese Consortium will acquire 49.9% in the properties, and has operational control of the joint venture. Pallinghurst Resources has acquired a 10% effective interest in the properties.

Pallinghurst Resources continues to explore opportunities with particular emphasis on ferroalloys, industry coking coal in Africa and Australasia and iron ore in Australia.

Investments | Steel Feed Corporation : Iron Ore

Pallinghurst owns a 28.5% stake in Jupiter Mines (an Australian SFC consolidated vehicle) with pre-emptive rights to take its stake to 59% in Jupiter.

Yilgarn Strategy

• The steel producers are looking for alternative iron ore suppliers to BHP, Rio Tinto and Vale. They are also targeting integration towards their raw materials to achieve more self-sufficiency.
• Pilbara is an expensive entry point with uncertainty about infrastructure and large capital costs.
  
• Our vision is to build an Australian Steel Feed Company (SFC) via a strategy incorporating:
  
  • Consolidation and development of small, fragmented, early stage, iron ore (IO) companies and projects in the Central Yilgarn area of Western Australia (CYIOP)
    
  • Leverage upon the Portman’s infrastructure at Esperance to fast track production, CYIOP assets are located 170km from existing railhead at Leonora leading down to Esperance which can export up to 15 million tonnes per annum of iron ore.
• On a standalone basis, all these projects are unviable due to lack of scale (resources) and financial and technical wherewithal.
• Consolidation in the Yilgarn is a low risk and a more certain development strategy as it minimizes the capital and operating costs on a per unit basis – attractive cost economics.
• Jupiter targets for 2009 are firming up the resources at its iron ore and manganese assets and implementing the consolidation vision.

CYIOP – Description of Project

• Currently there is only one iron ore producer in the Central Yilgarn Area of Western Australia – Portman (Cliffs Natural Resources), current production of 8.0 million tonnes per annum.
• Jupiter Mines Limited (JMS) has discovered 6.0 million tonnes of iron ore at Mount Mason and a large and high quality magnetite resource (approx. 500 million tonnes) at Mount Ida.
• From recent corporate transactions, JMS has acquired the nearby Mount Alfred tenements, a 10% shareholding in Mindax Ltd (holder of the Mount Forrest tenements) and tenements in the Pilbara prospective for manganese ore.
• JMS aims to consolidate prospective iron ore tenements at Mount Mason, Mount Alfred, Mount Bevan (Hawthorn Resources) and Mount Forrest (Mindax) into a single ownership or joint venture structure.
• Finally, JMS plans to operate the CYIOP consolidation in conjunction with Portman’s Projects (Koolyanobbing, Mount Jackson, Windarling and the recently acquired Mount Richardson) lifting overall iron ore productions from the Central Yilgarn to 15 million tonnes per annum or higher. Commitment of capital for this sustained expansion requires a resource base of 300Mt between Portman and Jupiter.
• Pallinghurst/ Jupiter are targeting 150mt via its CYIOP consolidation strategy.
• Portman has contributed capital to the upgrading of the rail line between Kambalda and Esperance, rolling stock and similar capital contributions would be required for upgrades to the Leonora – Kambalda line.
• Esperance has a prescribed Environmental Approval Limit of 8.0Mtpy of iron ore. Increases above this limit will probably require the provision of the new ore-handling facility planned to be installed some 7km from the Port with connecting conveyors to the existing storage sheds and ship loader but would add more than 15Mtpy in capacity.
• Operating Costs A$40 – 50/t.
• Capital Costs of A$50/annual tonne of capacity.
• Project capacity of 3.0 million tonnes per annum (in addition to Portman’s production).