Xstrata to build a new US$710m smelter

Xstrata plc has approved the construction of a new R4.9 billion (US$710 million) ferrochrome smelter in South Africa, the second phase of its Lion complex in the country.

The 360,000t/y smelter will increase the capacity of the Xstrata-Merafe joint venture to over 2.3Mt/y. Construction is scheduled to begin in the first quarter of 2011, with commissioning planned for the first half of 2013.

The project was first considered three years ago but suspended after South Africa’s electricity crisis in 2008 as the company was uncertain of security of supply of electricity from state utility Eskom.

The expansion will use the company’s energy-efficient Premus technology, which consumes a third less electricity than other technologies and will reduce the overall cost of ferrochrome production by 6%.

The company added: “In addition, emerging plans within Xstrata Alloys for an ‘own generation’ capability further reduces Xstrata’s concerns on the availability of electricity by the time this plant is commissioned.”

A feasibility study is nearly complete for the first phase of a 600MW power generation plant.

Chief executive, Mick Davis said: “This expansion further enhances Xstrata’s leading position in the ferrochrome market and will allow the Group to benefit from anticipated growth in global demand for stainless steel.”

The expansion budget includes R700 million for the concurrent development of the 1.2Mt/y run-of-min Magareng mine within the Thorncliffe mine complex.

Merafe has the right, in terms of its agreement with Xstrata, to participate in Lion II at cost and in accordance with its 20.5% participation interest, expected to be R1 billion. The company said it will make an announcement by year end, but that the majority of the financing can be sourced from internal cash flows.