Gamsberg project cost lowered as zinc price outlook brightens

JOHANNESBURG (miningweekly.com) – Zinc International, the subsidiary of the London-listed and India-rooted Vedanta, is managing to achieve what both Anglo American and Gold Fields failed to do before it – build a zinc mine that has been 40 years in the making at Gamsberg in the Northern Cape.

Zinc International, headed by CEO Deshnee Naidoo, has managed to shave close to $200-million off the project’s original capital estimate to take it down to $400-million.

The company is planning to use revenue generated during the Gamsberg project’s first phase to help fund Phase 2, which is likely to include a new 300 MW to 350 MW zinc refinery at a cost of nothing less than $500-million to $600-million.

Meanwhile, the $400-million, first-phase capital expenditure under way will fund a four-million-tonne-a-year opencast mine and a plant capable of producing 250 000 t of zinc metal-in-concentrate (MIC) a year.

Zinc, which was one of the last base metal prices to fall, was also one of the first to recover, and so far this year the zinc price has shown a 60%-plus price appreciation. (Also watch the attached Creamer Media video interview).

Unlike many other commodities, where demand growth is still awaited, zinc demand is buoyant on a fall-off in supply, exemplified by Vedanta’s own closure of the Lisheen zinc mine in Ireland.

Now, Gamsberg is seen as a major future zinc complex and its neighbouring Black Mountain associate operation a leading lead producer.

While project debt was hard to come by last year this time, a significant difference is being noticed currently for zinc in particular, and Naidoo is confident that local banks should be able to provide the company with the debt quantum needed.

“We’re setting ourselves up for success because we can use the revenue that we generate from Phase 1 to build what will be a very capital intensive Phase 2,” Naidoo told Mining Weekly Online.

To expand the opencast mine to ten-million tonnes a year as well as more than double the plant capacity will require another $300-million to $350-million.

But the phased approach gives the company a way of de-risking such an investment over a period of time.

At current zinc prices, which are considerably higher than the project’s hurdle rate, the first phase should pay for itself in less than three years.

The energy solution for the refinery will take into account the independent power projects currently under way in the Northern Cape.

To power a refinery on coal-fired electricity alone in this day and age in the sunny Northern Cape is seen as unlikely. The location of the refinery will all come down to proximity to port and electricity wheeling; logistically it makes sense to use renewables.

The manganese content of Gamsberg’s zinc ore, formerly seen as an impediment to the project’s go-ahead, has been resolved by removing the MIC's higher manganese fraction at the company’s modified Skorpion operation in neighbouring Namibia.

The other game-changer has been Zinc International’s modular approach to the project, which is a deviation from former owner Anglo Zinc’s mega vision of a 10-million-tonne run-of-mine, 450 000 t plant and refinery, from the outset.

The Vedanta subsidiary is also opting for less-capital-intensive contract mining rather than the originally planned owner mining, with additional capital savings being achieved by re-engineering, redesigning and negotiating lower-priced contracts.

Once Phase 1 is developed, manganese challenges are fully understood and cash flow is generated, full consideration will be given into investing in a refinery that will deliver into South Africa’s beneficiation strategy.

So far, more than 11-million tonnes of overburden have been moved by 300-plus contract personnel on site.

Expected any day now is the appointment of a bulk mining contractor and the awarding of an engineering, procurement and construction contract for the zinc concentrator plant and associated infrastructure.

More than 80% of the $400-million will be spent in South Africa; all the equipment will be local and a local mining contractor will be appointed.

From the outset, Naidoo is determined to do the right thing in her dealings with employees, communities, suppliers, local government and national government.

“We’re going to be an inclusive operator,” says Naidoo, who spoke to Creamer Media’s Mining Weekly Online in the attached video interview.

To date, the company has met its commitment of building the Gamsberg zinc mine within five years of buying Anglo Zinc for $1 338-million in 2010.

The company’s Black Mountain mine employs 1 500 people, who live in the mining town of Aggeneys, 113 km north-east of Springbok.

The Gamsberg project will employ another 850 to 900 people when operational and 1 200 people are expected to be employed during first-phase construction.

Naidoo is confident that the price fundamentals will be there over the next three to four years, when key decisions need to be made on the next growth steps.

Meanwhile, she anticipates that Gamsberg will be one of the first new greenfields zinc projects to market at a time of structural zinc under supply.