The Business Year

Ben James

MOZAMBIQUE - Energy & Mining

Definitively Feasible

Managing Director, Baobab Resources


Ben James is a geologist with over 15 years of experience in the €¨exploration and mining industry. Graduating with a degree in Geology from the University of Otago in 1994, he has since held exploration and €¨development roles in a variety of fields, including in his work in the €¨Archaean Greenstone belts of Western Australia, the Proterozoic gold and €¨base metal systems in Zambia, the porphyry gold-copper deposits of the €¨Romanian Carpathians, and the Ordovician orogenic mesothermal gold mineralization on New Zealand’s South Island. He has also worked for €¨various €¨companies including Oceana Gold, RSG Global, Katanga Resources, Hill 50 €¨Gold, and Herald Resources. After joining Baobab Resources as Exploration €¨Manager in 2006, he then went on to become Technical Director in 2008 and €¨assumed the role of Managing Director in 2009.

"Infrastructure corridors are fundamental, without which the resource sector in Tete cannot expand."

Could you provide a snapshot of your current thinking on the Tete Project?

The Tete Project is strategically positioned at the confluence of all steel making raw materials. Baobab is looking at a long term commitment: the company’s iron ore resources are sufficient to underpin a multi-generational steel making industry spanning 100 years or more. Over time, the steel mill would become the nucleus of a large Industrial Zone, supporting secondary and tertiary enterprises. We are looking to leverage our unique access to captive iron ore (our global resource inventory stands at three-quarters of a billion tons) and the locally-produced thermal coal to establish a vertically integrated, mine-mouth smelting operation producing iron and steel products. By-products of vanadium and possibly titanium will also be produced. Our Pre-Feasibility Study limited itself to the production of pig iron. Moving forward into the Definitive Feasibility Study, the Company has been assessing the viability of full vertical integration beyond pig iron and into the production of high demand steel products to support the rapid growth domestic and regional markets. This would involve the addition of a basic oxygen furnace, a ladle furnace, continuous casting machine and rolling mill to the current pig iron flow sheet. Against a backdrop of slowing global economies and the flattening of Chinese development, Mozambique and the SADC region continue to enjoy strong growth rates of more than 7%. Demand for construction steel in Mozambique is growing rapidly, driven by the commissioning of large-scale infrastructure, mining, LNG and power projects and relentless urbanization. However, the Country is entirely dependent on imports, with prices and availability a significant barrier to consumption.

How have the shifting global commodity and capital markets affected project viability and how has the Company’s strategy evolved to tackle the challenges faced?

It has been made clear during our discussions with potential strategic and industrial partners that their risk appetite is low and that they want to see a highly definitive level of work, with permit-related, logistics, power and metallurgical risks eliminated and a clear plan for execution and financing. Turmoil in the global raw materials market last year, particularly with bulk commodities, coupled with revised growth expectations have also impacted our thinking about the project. While it is impossible to accurately forecast future demand and pricing patterns, the current softening of iron ore and coal prices will affect our cost competitiveness. Global steel demand is decreasing, which will have a knock-on effect on the merchant pig iron market. So the onus on Baobab has been to confirm a project concept, execution strategy and financing plan that will attract strategic partners, access lower development capital expenditure and export finance guarantees, and address commodity market trends. We believe we have found the solution. Baobab recognizes that the key to project success is not simply defining a de-risked technical solution, but also a commercially viable one. In order to reduce the up-front capital burden, the Company has focused on smaller production scenarios, technology options that may open up additional revenue streams and competitive pricing through Chinese sourced equipment, procurement and construction (‘EPC’). By adopting Chinese procurement, a more technically and commercially favorable path to production may now be pursued.

“Infrastructure corridors are fundamental, without which the resource sector in Tete cannot expand.”

When do you expect to begin production?

Although full integration to steel will push out our time frame for completion of the Definitive Feasibility study, it should enable us to reduce project risk significantly and shorten the ultimate route to execution. We have been awarded our Mining Concession and are in the final stages of negotiating a mining contract. Industrial license applications are underway and we have made solid progress on the environmental impact assessment, resettlement action plan and social development action plan. A project of this scale would take 24 to 30 months to construct, so we would be looking at 2018 for first production.

What can the public and private sectors do to bring substance to mining industry development?

Infrastructure corridors are fundamental, without which the resource sector in Tete cannot expand. Power is also key, and we need a much more capacity at competitive prices. There is also a global shift towards in-country channeling of raw materials and we expect to see many value adding industries being established in the medium term.

© The Business Year – October 2014



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