Exxaro Resources Considers Fast-Tracking Congo Iron-Ore

Exxaro Resources Ltd. (EXX), a South African coal company, is studying speeding up an iron-ore project in the Republic of Congo after its 20 percent stake in a mine producing the commodity contributed more than half its earnings last year.

“We’re looking at the geology, the plans, the product, the possible start date, the size,” Chief Executive Officer Sipho Nkosi said in an interview in Pretoria yesterday, referring to a revised production schedule due in July.

Exxaro, South Africa’s second-largest coal company, plans to boost profitability by expanding into iron ore at the Mayoko project and elsewhere after a failed bid for Australian producer Territory Resources Ltd. The coal miner’s holding in Kumba Iron Ore Ltd.’s Sishen mine added 4.5 billion rand ($582 million) to after-tax profit in 2011, or 58 percent of the total.

“We’re going to look beyond this one over a period of time for other opportunities,” Nkosi said. “Australia will always be a very good destination, and so is South America.”

Exxaro is reviewing work at Mayoko by African Iron Ltd., which it bought for A$313 million ($321 million) in March, and will negotiate with Congo on access to rail and port facilities and upgrade costs once revised plans are complete, he said.

The port at Pointe-Noire will have to be expanded to handle an estimated 40 million to 50 million tons of ore annually for Exxaro, Xstrata Plc (XTA) and Equatorial Resources Ltd., Nkosi said.

Equatorial Resources

Exxaro has a “very good working relationship” with Equatorial, developer of the adjacent Mayoko-Moussondji project, he said, adding there may be scope for further cooperation.

“Whether that will result in something else, it’s going to depend on what their long-term view is,” he said. “Whether they want to be miners, or they want to do something else.”

Macquarie First South Securities (Pty) Ltd., which last month said African Iron planned initial output by mid-2013 of an annual 5 million tons, sees opportunities for Equatorial and Exxaro to collaborate on infrastructure or merge their projects.

“Such consolidation, which we expect would be driven by Exxaro, would also then give Exxaro the next leg of a broader West Africa iron-ore strategy with access to Equatorial’s Badondo project in the northeast of the Congo, leveraging Exxaro into the middle of another emerging iron-ore project cluster with export options via Cameroon or Gabon,” it said in a note.

Eskom Talks

For its coal business, Exxaro is ready to start delivering from the Grootegeluk mine to the Medupi power plant, being built by South African state power utility Eskom Holdings SOC Ltd., when a supply contract becomes effective this month, Nkosi said.

The two companies are in talks over the supply contract following delays to the construction of Medupi, with the first unit now expected to be commissioned in the next 12 months, according to Public Enterprises Minister Malusi Gigaba.

“Our view and their view is that we deliver,” Nkosi said. “We start deliveries until we finalize” negotiations with Eskom, which are at a “critical stage,” he said.

Exxaro expects the country to grant environmental approval for its Fairbreeze mineral-sands mine in KwaZulu-Natal province by July, after initially expecting output last year, Nkosi said.

The delay won’t affect completion of a deal with Oklahoma City-based Tronox Inc. (TROX) to combine the companies’ mineral-sands assets and benefit from economies of scale, he said.

“The transaction doesn’t hinge on that, but ideally it is important that the project gets approved,” the CEO said.

The deal can be closed once Tronox shareholders vote this month, Nkosi said. The vote won’t be affected by South Africa’s failure so far to approve a transfer of ownership, he said.

Exxaro fell 3.1 percent to 205.50 rand by the 5 p.m. close in Johannesburg, paring its gain in 2012 to 22 percent.

To contact the reporters on this story: Jana Marais in Johannesburg at jmarais@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

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