Black Mountain Mining

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Black Mountain Miningwww.vedanta-zincinternational.com/operations/black-mountain/

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Black Mountain MiningBlack Mountain Miningwww.vedanta-zincinternational.com/operations/black-mountain/

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Mining

Based in Northern Cape, Black Mountain Mining has

just broken ground on its second major zinc mine, the Gamsberg

Project. takes a look at the history of the company and its position in the South African

mining sector.

Black Mountain Mining’s parent company, Vedanta Zinc International, is on a mission to

achieve sustainable production of 1 million metric tonnes of metal. While the fi rm is set to lose one of its major assets later this year — the Lisheen mine in Ireland, which will close in October — a new open-pit mine under construction in South Africa should set them back on track.

Located in the Northern Cape Province, Black Mountain Mining now consists of two assets: the Black Mountain mine, which has been productive for over three decades, and the Gamsberg Project, which is set to produce its fi rst ore in early 2018. While the majority of South African mining operations have been in decline for the past few years, Black Mountain continues to prove itself as an eff icient producer of zinc, in addition to copper, lead, and silver.

Black Mountain Mine is the largest private employer in the Bushmanland and Namaqualand region. Of the 1500 people it provides with


stable employment, 80% are local. The town of Aggeneys was established in 1976 to service the mine, and now provides accommodation and company-funded municipal services to the majority of its employees.

30,000 tonnes of zinc in concentrate is produced each year at Black Mountain, and while the potential is there to continue production for another 20 years, steady production levels will not help Vedanta Zinc International to meet its one-million-tonne target. Reporting a 38% decline in operating profit in the quarter ending June 2015, and citing volatile commodity prices as the primary cause, Vedanta’s focus on the comparatively stable zinc mining seems a wise decision — its Zinc International business posted a fall of just 3% in EBITDA (earnings before interest, taxes, depreciation, and amortisation), as opposed to the 12% for its iron ore business, 78% for Konkola Copper Mines in Zambia, and 102% for its aluminium segment.

in the Northern Cape/South Namibia area alone — but while copper found investment early on due to the size and ease of identification of resources in the Copperbelt, zinc has historically failed to attract such interest.

However, with a record shortage of zinc set to grow even larger in the next two years, it seems entirely possible that South Africa’s zinc deposits will begin to attract the attention they deserve. Analysts Kenneth Hoffman and Sean Gilmartin predict a global deficit of two million tonnes by 2017, as mines continue to close at a rate faster than new ones are opening.

While the majority of South African mining operations have been in decline for the past few years, Black Mountain continues to prove itself as an efficient producer of zinc

“Zinc has held up quite well in view of its strong fundamentals and is now largest contributor to our EBITDA,” said Vedanta CEO Tom Albanese.

Southern Africa has one of the world’s largest undeveloped zinc deposits — with 40 million tonnes

of zinc in concentrate is produced each year at Black Mountain

tonnes

email: [email protected]


“Looking a little further out, there’s a strong argument that zinc prices will rally as we go into 2016,” said mining analyst Stefan Ioannou in an interview with The Gold Report. “We’ve seen a number of large zinc mines shut down over the last couple of years. The market continues to face an undersupplied medium-term outlook, which will drive prices higher.”

“In the medium term, say the 2016–2018 timeframe, there is potential to see spectacular prices on the order of $1.50/lb to $2/lb. That said, one thing to remain cognizant of is that higher medium-term pricing will prompt additional production over the longer term, which will eventually balance the market and regulate zinc pricing.”

There are concerns, though, that a decrease in demand in China will negate the shortage in supply and keep zinc prices from rising. An estimated half of all zinc is used to galvanise steel, and with China’s steel output — which accounts for 51% of crude steel production globally — reporting the worst first quarter in 20 years, these concerns are valid.

Southern Africa has one of the world’s largest undeveloped zinc deposits — with 40 million tonnes in the Northern Cape/South Namibia area alone


“We’ve seen a lot less restocking than we’d normally get this time of year,” said Bart Melek, head of commodity strategy at TD Securities. “There’s concern that China’s steel output will be lower because of a glut of steel, and that means you’re going to use less galvanised product, which means less zinc.”

But the extent to which this will affect zinc prices is still unclear. Wayne Taylor, managing director of Heron Resources, suggests that ultimately the impact will be negligible.

“The zinc market fundamentals are really great. There is a supply side issue which is improving and despite discussions about China’s economy, globally we are consuming more zinc,” he said.

“We are not talking about a balanced market price going up and then fresh supply coming on, we are talking about supply coming off and a demand side that is continuing to grow.

Additional supply will come on when prices surge but forecasts suggest that for those curves to come together, we are going to see a big increase in price.”

For Vedanta, work on the Gamsberg project could not have begun at a better time. Ground was broken earlier this month to mark the beginning of Zinc International’s plans to develop an open-pit zinc mine.

“We are very excited to have reached this stage of the project. We believe that this region has the highest concentration of zinc on the African continent and that we can develop integrated zinc and lead complex here, anchored around Gamsberg and the

Skorpion Refinery, which will boost economic growth and create sustainable employment,” said Albanese.

“Vedanta believes strongly in the philosophy of sustainable development and we commit to protecting the unique ecosystem around Gamsberg for future generations.”

In 2014, Vedanta announced its plans to invest $782 million into the mine over the next three years. With an estimated ore reserve of 186,000 metric tonnes, and more than 250,000 metric tonnes of potential reserves, the opportunity here is considerable — and while it can’t fill the 18.9-million-tonne void left by the Vedanta’s Lisheen

In the medium term, say the 2016–2018 timeframe, there is potential to see spectacular prices on the order of $1.50/lb to $2/lb

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Mining

Mine in Ireland, or come close to closing the deficit, the impact it will have on the local economy is still quite impressive.

“We’re developing Gamsberg in a phased manner using cash generated by the VZI operations, while remaining focussed on sustainable cost reduction at both Gamsberg and Skorpion,” said Vedanta Zinc International CEO Deshnee Naidoo.

“The Gamsberg project will help us to create future opportunities and to ensure that our operations create value for the communities in the region. It is expected to generate approximately 500 permanent jobs, with the potential to create a further 1,500 temporary jobs during the construction phase.”

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Black Mountain Mining (Pty) Ltd.

Postal Address: Private Bag X01

Address: 1 Penge Road, AggeneysNorthern Cape Province, South Africa

E-mail: [email protected]: +27 54 983 9202/ 9203Fax: +27 54 983 9244

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