Steel giant bursts into mining activity

This week has seen a number of announcements from ArcelorMittal confirming a greater involvement of the world’s largest steel company in mining projects. These developments are in molybdenum in the US, manganese in South Africa and coal in Mozambique.

That last was announced today, a joint venture partnership with the Mozambique registered company Black Gold Mining. Under the terms of the agreement ArcelorMittal will acquire a 35% equity in the joint venture company, Rio Minjova Mining and Exploration Co, for an initial payment of $2.5 million. Black Gold Mining will transfer its coal licences, totalling 49 360 ha, in the Rio Minjova Area situated at the eastern end of the Moatize-Minjova sub-basin in the Tete Province of Mozambique. ArcelorMittal has an earn-in option to become the majority shareholder in the joint venture company, subject to a further payment of $2.5 million and the confirmation of proven and probable coking coal reserves.

Elsewghere, the company, is to acquire a 12.6% equity stake (10% of fully diluted shares) in General Moly, for a total consideration of $70 million. General Moly is a US based molybdenum mineral development, exploration and mining company. Its primary asset is the Mt Hope project located in central Nevada. Combined with a second molybdenum property, the Hall-Tonopah project, also located in central Nevada, the company’s aim is to become the largest primary molybdenum producer worldwide by the middle of the next decade.

In addition to the equity purchase, ArcelorMittal has signed a letter of intent to enter into a long term off-take agreement. This agreement, subject to final documentation, would allow for the supply of some 6.5 Mlb/y of molybdenum, or 26% of ArcelorMittal’s anticipated annual required consumption, for five years, beginning once Mt Hope commences production, which is expected in the 2nd half of 2010.

As a result of the acquisition, ArcelorMittal has become the second largest shareholder of General Moly. The funds will be primarily used in the development of General Moly’s Mt Hope project, one of the world’s largest and highest grade undeveloped molybdenum projects. The deposit contains 1,300 Mlb of Proven and Probable reserves. A Bankable Feasibility Study was completed on the property in late August, indicating a project Net Present Value (NPV) of $1.4 billion. Permitting at the site is ongoing and the company expects to receive all permits in the first quarter of 2009, enabling construction to begin. The company expects production at Mt. Hope to begin in the second half of 2010. Mt. Hope will produce more than 38 Mlb/y over its first five years of operations and has a 44 year mine life. High grades in the early years of production are expected to make Mt. Hope one of the lowest cost producers, enhancing project economics and shareholder returns.

General Moly acquired the Hall-Tonopah project, a second world-class molybdenum project, in 2006, also located in central Nevada. Current drill results have confirmed 150 Mt of mineralisation at a grade of 0.09% Mo. Additional high grade molybdenum mineralisation has also been identified at 0.10% and 0.20% Mo. A prefeasibility Study is expected to be completed before the end of the year. While the pre-feasibility will provide detail regarding capital and production cost estimates, the company currently expects that Hall-Tonopah could produce approximately 15 Mlb/y for approximately 20 years at cash costs slightly higher than those at Mt. Hope.

Also, ArcelorMittal has announced a strategic equity partnership with Kalagadi Manganese in respect of the development of Kalagadi’s manganese resources. The 50/50 joint venture will see the development in South Africa of a manganese mine, beneficiation plant and sinter complex in the Northern Cape Province and a smelter complex in Coega.

Malay Mukherjee, Member of the Group Management Board, Responsible for Asia and Africa, Mining, Stainless, at ArcelorMittal: "We are pleased to have been selected as the joint venture partner on this exciting project. The Kalagadi Manganese project will not only prove to be an important and competitive source of manganese for our plants but a notable contribution to the economy of South Africa."

Daphne Mashile-Nkosi, Chairperson of Kalagadi Manganese: "We are delighted to have attracted a strategic equity partner of the calibre of ArcelorMittal who are the biggest player in the steel industry in the world. The deal is particularly important as it comes at a time when we are spearheading the trend towards backward integration into raw materials. We believe our new partner will add enormous value to the business particularly in respect of enhancing efficiencies. ArcelorMittal’s operating track record in South Africa is a significant advantage to the implementation and operation of the project."

Kalagadi Manganese’s project is situated in the Kuruman/Hotazel district of the Northern Cape Province. The Parties intend establishing a manganese ore mine and sinter plant at Hotazel which will ultimately produce 2.4 Mt/y of sinter product. It will also see the establishment of a 320,000 t/y ferromanganese alloy production facility in the Coega Industrial Development Zone in Port Elizabeth, which will account for at least 50% of ArcelorMittal’s needs. Drilling to-date has confirmed the presence of a high grade manganese ore resource sufficient to support a life of mine in excess of 20 years.

The project, which is due to come on-line in 2010, overlies the Kalagadi Manganese Basin, a world renowned source of manganese ore containing 80% of the world’s known manganese resources. Kalagadi Manganese is 80% owned by Kalahari Resources, a majority black women owned and controlled company. The remaining 20% is be held by the South African state-owned Industrial Development Corp.

ArcelorMittal brought together the world’s number one and number two steel companies, Arcelor and Mittal Steel. An industrial presence in 27 European, Asian, African and American countries exposes the company to all the key steel markets, from emerging to mature, positions it will be looking to develop in the high-growth Chinese and Indian markets. ArcelorMittal key pro forma financials for 2006 show combined revenues of $88.6 billion, with a crude steel production of 118 Mt, representing around 10% of world steel output.