The provincial government estimated that the national economy will derive another R100m a year from the 320000 tons a year project, which would stimulate growth in energy , rail and harbour services for Port Elizabeth, Uitenhage and Despatch.
The proposed Coega smelter is part of an R11bn investment by state-backed empowered resources company Kalagadi Manganese, which is building an integrated mining, primary refining and beneficiating chain between Hotazel in the Northern Cape and a regional hub for SA’s critical automotive sector.
But the motor industry will not directly benefit from the development of the plant, expected to be completed in 2013. It is estimated that spending around the smelter will result in R7,3bn of direct, indirect and associated outputs in the province.
"A number of things that need to be finalised on the project side are now in place," Senzeni Mtetwa, financial economist at Kalagadi Manganese, said .
"From an economic point of view, the idea was to have a complete product for the market — with value added."
The high carbon ferromanganese to be produced by the proposed smelter is a primary ingredient for making structural steel, feeding into a 1,3-billion ton a year global market. The proposed venture dwarfs the 8-million ton a year capacity of ArcelorMittal SA , the South African unit of the giant global steel company.
About 70% of the lumpy ferromanganese product from the smelter will be sold into global export markets, leaving 30% to be sold as alloy to South African steel producers, of which ArcelorMittal SA makes up about 80%.
Rhynhardt Roodt, an analyst at Investec Asset Management, said yesterday it was difficult to understand how prices would be affected by Kalagadi’s output because demand would grow over time, the additional tonnage could be consumed quite easily.
He said prices were settled monthly, and were set between BHP Billiton and the Chinese. But these had been depressed because of oversupply and a large surplus stockpile in China, which equals that country’s annual consumption needs.
It costs about R320 a ton to rail basic ore, and almost double this amount using road transport. The rail link between the Sishen manganese deposit in the Northern Cape and Saldanha on the west coast is a dedicated iron-ore line, so SA exports about 2,3-million tons of its total 4-million tons in exports through the rail link between Hotazel, near Sishen, and Port Elizabeth.
Executive chairman of Kalagadi Manganese, Daphne Mashile-Nkosi, said she could not quantify the number and value of domestic and international customers for Kalagadi’s products, because the overall project is still in the development phase and there is no production yet. But she said ArcelorMittal would take 50% of all the company’s output for its mills around the world.
She said all South African steel companies would ultimately become customers.
Kalagadi’s off-take agreement with ArcelorMittal is pegged at 2007 market-related prices. According to Kalagadi technical director, David Wellbeloved, production of ore and sintered product from the Northern Cape would only come on stream toward the end of next year.
Until then all off-take and pricing agreements will be on hold