JOHANNESBURG (Reuters) - South Africa’s Exxaro (EXXJ.J) expects to start mining iron ore in the Republic of Congo this year, with an eye to producing up to 10 million metric tons (11 million tons) a year, as the miner diversifies beyond its traditional reliance on coal.
Exxaro’s chief executive Sipho Nkosi told the Reuters Africa Investment Summit he was optimistic it would soon get a permit to begin production at the Mayoko project.
“We will get our mining convention and start mining this year,” he said.
South Africa’s second largest coal producer acquired the project as part of its A$313 million ($328.10 million) takeover of African Iron in an effort to diversify from coal, which has been hit by sharp drops in prices and demand.
Exxaro plans to spend $320 million in the initial ramp up of the mine, with a view to producing up to 2 million metric tons by next year, Nkosi said. Exxaro aims to eventually mine 10 million metric tons of the steel making ingredient per year, although Nkosi declined to give a date for when that would happen.
Mayoko’s success depends on clearing bureaucratic hurdles and securing access to transport links and a port.
Nkosi said officials in Congo right up to the president were very accessible, but there were challenges to breaking ground in a country new to the mining game.
“It is a learning curve for the country, for any investor. Once we have gone through that loop, anyone who comes after us is probably going to find things much easier,” he said.
Nkosi said Exxaro would invest in upgrading a railway line leading to the deep-water port at Pointe Noire to handle 2 million metric tons of cargo per year and will manage the line jointly with the government.
He declined to comment on whether Exxaro would be interested in buying Equatorial Resources, which has a project adjacent to Mayoko, but he did say that the two companies often talked about a possible collaboration, notably in infrastructure.
A sharp drop in coal prices and lower export volumes hit Exxaro’s earnings last year and it expects the outlook for that industry to remain challenging.
Nkosi said the group was keen to invest in new coal mines in South Africa, the continent’s biggest economy, where some 85 percent of the electricity generated by power utility Eskom is based on coal, but the timing of any project would depend on demand, prices, the regulatory environment and infrastructure.
“We will spend a significant amount of money, there are big projects that we are looking at,” Nkosi said, mentioning the Thabametsi mine, which could supply coal to a plant run by an independent power producer, and underground coal gasification.
Lack of sufficient capacity on railway lines leading to the export terminals at the coast has been a major hurdle for South Africa’s miners. Nkosi said state-owned logistics group Transnet should allow private firms to invest in railway links and ports.
“If you can’t take those goods to the market, you are wasting your time. So logistics is critical and that is where we have failed to take advantage of the high commodity prices that we have seen in the last seven to 10 years, because the infrastructure has always been bad,” he said. (Follow Reuters Summits on Twitter @Reuters_Summits) ($1 = 8.9203 South African rand) ($1 = 0.9540 Australian dollars)
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Additional reporting by Benon Oluka and Tiisetso Motsoeneng; Editing by Ed Stoddard and Louise Heavens