For decades, South Africans have mined and processed chrome and platinum separately and never the twain have met, but now the Kermas-linked Finnish company, Ruukki, has ambitions to do otherwise.
The little-known Ruukki, of Finland, has swooped on two businesses in the last three months.
The first was Mogale Alloys, the old Palmiet Chrome in Krugersdorp, for which it paid R2-bilin for the bulk of the shares, and the second chrome-dump retreating company, Sylvania, with which it is proposing a R2,9-billion merger. It remains acquisitive and there is speculation that a third deal may be in the offing.
For Ruukki also read Kermas, the East European company that took over Samancor Chrome and which is the main source of Sylvania’s platinum-bearing dump material. Kermas is the single biggest shareholder of Ruukki with some 3o%.
Ruukki is thinking big and has at the helm former JSE-listed financial services boutique Decillion, Alwyn Smit, 48, now resident in Switzerland.
Smit says he wants to list Ruukki in London and Johannesburg and is already listed in Helsinki, and that he wants to create the hitherto avoided integration of platinum-group metals (PGMs) and ferrochrome production processing, on the basis that both chrome and platinum are generally hosted by the same orebody.
Key to the success of the full mine-to-metal ambition this is the direct current (DC) furnace technology that was developed by South Africa’s State-owned mineral research organisation, Mintek, which is based in Randburg, and which is used by Samancor and Mogale Alloys on the West Rand.
After BHP Billiton closed Palmiet Chrome, some of those who were retrenched created the
black-empowered Mogale Alloys and used Mintek technology and the Palmiet furnace to recover nickel, chrome and iron from stainless steel waste.
Now Ruukki wants to use Mogale Alloys to spearhead the development of a new integrated mine-to-metal platinum smelting and refining route as well as continue with the ferrochrome production activities already under way.
The jury is still out on all of this and those involved are still unknown quantities in the heady world of new metallurgical technology.
The skeletons of metallurgical technology pioneers are strewn far and wide across South Africa’s processing landscape and some former industry leaders, notably Brian Gilbertson would not touch unproven metals technologies with a barge pole. Technology had to be tried and trusted and proven before he would go near it.
Is it a question of fools rushing in where angel’s fear to tread? Ruukki and Sylvania clearly believe it is not
Smit tells Mining Weekly that Mogale recently built a small DC furnace, which many in the industry speculate will be used exclusively for PGM production, but he says that Mogale will produce ferrochrome in that furnace while investigations are set in motion to ascertain whether that furnace is the most appropriate for PGM production, or whether the construction of a new furnace for PGM production must be built.
“The big benefit that we get at Mogale is the know-how to build DC furnaces and effectively it costs us about a half of what it would cost us if we had to commission somebody else to build the plant,” Smit says.
Ror ferrochrome, Ruukki is also investigating the feasibility of building a 60 MVA furnace at Mogale and is also looking to expand the number of DC furnaces that it has under its management.
When Ruukki sought Mogale it acquired the right to use Mintek’s DC technology, but not its exclusive use.
The other enterprise using the DC technology currently is Samancor Chrome, which has two DC furnaces, one operational and the temporarily suspended.
Without being prepared to quantify the value of the synergies between PGMs and ferrochrome, he describes then as being “very big” and the opportunity to unlock them as being “phenomenal”.
On quantification, he says it depends who you ask: “Some get so excited about the future, they talk about a many times bigger market capitalisation for our group. I’m a bit more conservative and cannot talk numbers at this stage.
“But add into that our German operation, our mine in Turkey, which is also quite advanced in the chrome and alloy industry, the skills and DC technology that we have in Mogale as well as the skills that Sylvania has, and we believe we have all the know-how to deliver and exploit these very obvious synergies.
“In fact, from a commercial perspective, I a surprised that nobody else has positioned their business to exploit the fact that you have chrome miners mining chrome and you have platinum miners mining and refining platinum and they share an ore resource and they share electricity and roads, but none of them has an integrated business model, which is fundamental to our strategy.
“We are not only going to be an integrated mine-to-metal producer, but we are looking to be an integrated mine-to-metal producer of ferrochrome and PGMs out of the same orebody. On top of that, and it gets better, not only will we use the same orebody, but we will use the same furnaces. So, for us, it’s very compelling,” Smit says.
He says that Ruukki’s confidence in the used of DC technology is the current smelting of upper-group-two (UG2) reef that it is already doing for a third party.
The company is still deciding whether it should retrofit DC technology on to the new DC at Mogale or to build a fully integrated facility that includes the DC technology both before the furnace as well as a refining component after it.
Smit says that the speculation in the industry is that DC technology can bring about cost savings of between 25% and 45% over traditional smelting.
Sylvania chairperson Richard Rossiter tells Mining Weekly that there were obvious synergies at the mining end through chrome-ore economics being decided from dual-metal viewpoint and not from the traditional single-metal approach.
“You are able to put a separate set of glasses on when you look at the traditional hard-rock resources,” Rossiter says.
He says that Ruukki-Sylvania will be in a position to consider taking up chrome-metal rich resources that have been overlooked by the big four because they are unsuited to the smelting technology that they use.
Smelting capacity has also traditionally been available for low-grade resources on platinum-industry dumps that yield low-grade concentrates.
“There is massive resource potential as well as synergies,” Rossiter says.
Having flexible ferrochrome-platinum smelting for which electricity has been secured accelerates schedules, enabling the combined entity to save on capital expenditure and on time.
“There is also potential for revenue enhancement in being able to take the products further down the value chain, and putting all these people together, with all their skills ranging from mining to hydrometallurgy and marketing, will certainly yield further synergies,” Rossiter adds.
Smit says that previously uneconomic high-chrome, low-grade material in tailings dumps, current arisings and from conventional hard-rock deposits will be the material targeted.
Ruukki, he says, is on the lookout for additional resources, whether from tailings dumps or joint ventures.
He expects the company to change the traditional chrome-industry business model through the DC technology that facilitates the use of lower-grade material and does not need the mineral reserves that are considered valuable by the likes of major ferrochrome producers such as Samancor and Xstrata.
UG2 is available from many sources, either as dump material or from old mining operations and the company will take steps to ensure sufficient supply.
“Our business model is to focus on high-margin smelting operations. We don’t want to have the biggest smelting operations, but we want to have the most profitable ones, and adding PGMs to an already very profitable ferrochrome-producing unit is very logical for us.
“On the PGM resources front, we want to ensure that Sylvania’s acquisition of the SA Metals and the Great Australian assets goes through. It is not a condition precedent to the merger, but we are supportive of it because we don’t want to be dependent on third-party providers and we need eventually to enter into mining,” Smit says.
The most important rationale is the use of low-cost technology to process low-cost PGM and chrome material.
Ruukki and Sylvania have entered into a merger implementation agreement in which Ruukki will acquire all the issued share capital of Sylvania.
The scheme is not conditional on the success of Sylvania's off-market takeover offer for all of the ordinary shares in SA Metals nor its off-market takeover offer for all of the ordinary shares in Great Australian Resources Limited, but was conditional on the closing of those takeover offers.
The scheme has been unanimously recommended by the Ruukki independent directors and by each of the independent directors of Sylvania, other than Terry McConnachie, who is also a director of Ruukki.
The offer involves one Ruukki share for each 1,81 Sylvania shares, totalling EU 268-million.
The company wants to be listed in jurisdictions where the capital markets are well developed and in markets where it has assets.
While it is not looking to list on the JSE to raise capital, it is looking to be in listed in Johannesburg in order to facilitate acquisitions.
While it does not want to rule out being on the ASX in the future, it is not on the cards for the first quarter of 2010.
The Ruukki-Sylvania transaction provides for a liquidity solution so that investors are able to trade out of their shares or remain invested.
Ruukki currently has 261-million shares in issue and it is anticipated that 120-million Ruukki shares and the market capitalisation of the combined entity will be Eu 850-million.
Sylvania has all of its operations in South Africa and is listed on the London Aim and Australia’s ASX.
The Ruukki Group has two focus areas, wood processing and minerals. The wood business is based in the northern part of Finland and the minerals business also has mining operations in Turkey and specialty grade ferrochrome refining operations in Germany.