Southern Mining, the South African-listed junior which owns the mammoth Corridor Sands heavy minerals deposit in Mozambique, is expecting to have the project's bankable feasibility study completed by next month. The study will test the viability of the $500 million project, which has the potential to revolutionise the dynamics of the world's titanium feedstock industry for at least the next four decades.
Rob Still, the chairman of SMC, says the deposit has a total inferred resource of about 16.5 billion tons, containing more than 7 percent total heavy minerals. To put the size of the project into perspective, the much-vaunted Murray Basin heavy minerals complex in Australia, which has spawned a raft of junior explorers and would-be producers, has only around 100 million tons containing heavy minerals.
"Corridor Sands makes the Murray Basin look like a kid's sand pit," said Still.
"What makes this thing particularly attractive is that there is no stripping ratio, all the operations are in one place, there are no serious environmental issues and we're only 50 km from the coast," said Still. SMC has also managed to negotiate a favourable tax regime with an investor-friendly Mozambican government and has access to cheap South African-generated electricity.
But the sheer size of the project ? the project is large enough to support the projected production levels of a million tons of titania slag for 35 years ?
could also be one of its major drawbacks. Still reckons the start-up costs, which include spending on electricity, road and port facilities, as well as working capital, will come in at around $500 million. "It's a great project, but the one drawback is that it can't be started small and grown bigger ? we have to start large" said Still.
First things first; WMC
First hurdle for SMC, which currently owns 100 percent of the project, is to secure the involvement of Aussie-diversified WMC in the project. WMC is scheduled to split into its component aluminium and mining divisions later this year and, although the mining business is expected to spin out $350 million in cash each year, there are some question marks over its appetite for a project the size of Corridor Sands. Issues may also arise over whether by demerging WMC remains compliant with the terms of its participation option in Corridor. (SMC will also have to vet any new partners, given WMC is expected to be taken out after the demerger by one of the diversifieds.)
Still says in terms of the agreement WMC will have to make a decision on whether it will go ahead with the project by March next year. That option can be extended by six months at a cost of $8 million. "So you could probably expect a decision [on whether to proceed or not] by January 2004," said Still.
Assuming WMC stays on board, the financing requirement of the first phase of Corridor, which will take production up to 375,000 tons of slag a year, will come in at about $500 million. $222 million of that will be financed in the form of equity provided by SMC ($20 million for 36 percent), WMC ($180 million for 54 percent) and South African finance parastatal The Industrial Development Corporation ($22 million for 10 percent). The balance of the funding would come from export credits provided by the South African and various European governments and straightforward project finance.
But the ability of a smaller WMC to raise $180 million and the willingness of lenders to chip in somewhere north of $200 million in project finance needs to be tested. With global economic and political uncertainty reigning supreme (just look at the gold price), banks will be loath to take a punt on whether titania slag demand will hold up during the critical first phase of the project. SMC expects to be producing Rutile and Zircon after 18 months and, although the two minerals will ultimately represent only 10 percent of the project's revenues, they will provide welcome cash flows in the early phase of construction before the first smelter comes on line, producing saleable slag.
Sign up for free AllAfrica Newsletters
Get the latest in African news delivered straight to your inbox
The first smelter will come on line about three years after the first rutile and zircon rolls off the production line, with the remaining two shortly thereafter.
Letters of intent
Word is that SMC has received letters of intent from pigment producers, ostensibly keen to enter into long-term offtake agreements with SMC. No word yet on who the mystery customers are, but a release from SMC said "offtake contractual negotiations are making encouraging progress". Once that side of the business is in the bag, finance should be that much easier to wrap up. But, just as with Aussie junior BeMax, which has one of the more promising projects in the Murray Basin, financing will hinge on the conclusion of a watertight offtake agreement.
