[miningmx.com] — XSTRATA is set to gain further from the global shortage of ferrochrome, which is expected to worsen as producers struggle to meet growing demand from China and India.
The UK-listed resources group announced on Wednesday the previously postponed second phase of its Lion ferrochrome complex is to go ahead. This will add 360,000 tonnes per year to the smelter’s current capacity of about 2 million tonnes.
Construction is scheduled to begin in the first quarter of 2011, with commissioning planned for the first half of 2013.
Xstrata managing director of its chrome business unit, Deon Dreyer, said higher entry barriers to the ferrochrome market would ensure supply remained tight.
“The fundamentals have changed,’ Dreyer said. “South Africa traditionally had a lot of iron ore and cheap electricity available, but that is no longer the case.’
South Africa produces about 37% of global output.
MERAFE RESOURCES LIMITED, Xstrata’s venture partner in the Lion complex, said in August that global demand for ferrochrome was expected to be 8.22 million tonnes this year, compared to production of 7.92 million tonnes, which underpinned a 35% jump in prices during the second quarter.
The project, with construction originally scheduled to commence in 2008, was able to go ahead after Xstrata secured power supply guarantees from Eskom and uncertainty over demand in the wake of the financial crisis consequently fell away.
“We kept an eye on the market and were speaking to Eskom about the availability of electricity,’ Dreyer said. “We have now got that commitment from Eskom – we’ve signed it, we’ve agreed to it and we’re ready to move forward now.’
In addition, Xstrata is advancing its own currency plans and completing a feasibility study for the first phase of a 600MW termal power generation plant that will supplement future electricity supply.
Dreyer said most of the R4.9bn funding required would come from Xstrata Alloys’ own cash, with the shortfall supplied by Xstrata plc.
