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PERFORMANCE

MANUFACTURED CAPITAL
   

MATERIAL ISSUES

  • Health and safety
  • Project execution
  • Pricing and the availability of electricity
  • Raw material availability
  • Business continuity and profitability
  • Investing in new technology to increase energy efficiency
  • Industrial action
  • Community issues
Manufactured capital in the mining context relates to the mining and smelting process and how it is conducted, and the assets, which are being mined and benefi ciated. It is important to an organisation’s sustainability because its effi cient use allows an organisation to be fl exible and innovative and increases the speed at which it delivers.

We enhance our manufactured capital by: forms of capital. We enhance our financial capital by:

The Venture enhances its human capital by:

KEY POINTS – 2019

   

Merafe's attributable ferrochrome production

371kt

(2018: 407kt)

1 fatality

(2018: 1)

       

Mined chrome ore production down by

8%

No industrial action

       
   

Improved TRIFR performance of

2.56

(2018: 3.39)
Glencore-Merafe Chrome Venture operations
1
  Rustenburg ferrochrome plant and Tswelopele pelletising and sinter plant
2
  Boshoek ferrochrome plant and Motswedi pelletising and sinter plant
3
  Boshoek mine
4
  Wonderkop ferrochrome plant and Bokamoso pelletising and sinter plant
5
  Waterval (east and west) and Marikana mines
6
  Kroondal mine
7
  Thorncliffe mine
8
  Lion ferrochrome plant
9
  Lydenburg ferrochrome plant
10
  Helena mine
11
  Magareng mine

Overview

Attributable ferrochrome production decreased to 371kt during 2019, which is equivalent to installed capacity utilisation of 77%. An oversupply of ferrochrome in the market as a result of increased capacity outside of South Africa and an uncompetitive local operational environment (i.e. high energy cost, power interruptions, introduction of carbon tax and beneficiation of chrome ore outside of South Africa by global lower cost producers) necessitated a cutback in production. Eskom issued load curtailment Stage 3 and 4 instructions during March and December 2019 where all smelters were forced to reduce power input to manage the power crisis in the country. The plants also operated on essential load for a period of approximately 13 hours during the month of December 2019. Community unrest adversely affected the Eastern smelting operations, which resulted in the forced shut down of the Lion Smelter during the first week of September 2019.

The performance of all smelters was negatively impacted by the reduction in energy input.

The increase in total unit production cost year-on-year was contained to 12%, mainly due to increased reductant costs (higher coke prices and increased imported anthracite consumption), coupled with the introduction of carbon tax. Coke prices decreased towards the second quarter of 2019 as a result of increased local supply. The 13.87% electricity tariff price increase in April 2019 was mitigated by the reduction in winter production. Reduced volumes negatively affected fixed costs.

Safety

The Venture continues to place maximum focus on safety. Despite this effort, we had an unfortunate fatality at one of our underground operations in February 2019 which was caused by a fall of ground as more fully reported in the reports of the CEO and the Chairperson. The Venture is working tirelessly towards achieving zero harm in all our operations.

Safety campaigns have supported ongoing efforts to improve on the safety performance. This is evident in the five-year performance graph below where the total recordable injury frequency rate (TRIFR) has reduced to 2.56 in 2019.

PSV safety performance
TRIFR 2005 – 2019

Eskom

As previously advised, efficient smelter operations require a stable and competitively priced electricity supply. Unfortunately, the Eskom supply to our smelters was not particularly stable with several periods of load shedding and load curtailment early in the year and more frequently and severely later in the year. Both these periods are classed as summer periods when the smelters are targeted to operate at maximum output (i.e. outside of the customary winter maintenance period).

The power system continued to be vulnerable and generally unpredictable with high levels of unplanned breakdowns (often above 12 500 MW) particularly in the last quarter of 2019. In total, some 1 352GWh of energy was shed by Eskom in 2019 via the rotational load-shedding programme, being the highest level of energy shed in a year, with an undisclosed but similarly large amount of energy curtailed by large customers during this period.

With load shedding and curtailment increasing in frequency and severity towards the end of the 2019 year, with for the first time, a stage 6 event declared on 9 December 2019, some negative impact on production output was experienced. The combination of demand side management (including load curtailment), typically requested by Eskom in collaboration with large industrial customers was exercised far more extensively. In total, production volume output was negatively influenced by 0.6% which was achieved with prudent manipulation of load and maintenance activities.

Eskom’s schedule of planned maintenance was negatively affected by the particularly high levels of unplanned breakdowns during 2019. However, a revised policy of deep maintenance is being targeted by Eskom from early 2020 which should see the return of the power station fleet to a more predictable state. However, this strategy is likely to result in a persistently constrained supply through 2020 and likely well into 2021. An increased likelihood of load shedding and load curtailment will likely affect our smelters to an even greater degree over this period.

The regulator allowed a 13.87% electricity price increase for the period April 2019 through to the end of March 2020, with an increase of 8.76% initially cited from 1 April 2020. Eskom has however applied for further increases both in terms of the Regulatory Clearing Account (RCA), for 2019, as well as in terms of the multi-year Price Determination for the financial years 2019/20 through 2021/22. If allowed, such escalations will impact on the increase in April 2020 and in subsequent years. This matter is before the courts with a ruling likely following a number of public hearings by the end of February 2020, with final figures to be set before parliament by mid-March 2020.

A programme of specific engagement with Eskom and various Ministerial Departments on the adverse effect that further escalations in electricity tariffs would have on the ferrochrome smelting industry have been held and are continuing.

Carbon tax

Primary emission of carbon dioxide, a natural consequence of alloy production, became taxable as of 1 June 2019. With discounts that are currently applicable, the net impact is below 0.3% of production costs, but this cost element is due to escalate at CPI+2% as of 1 January 2020 through to the end of December 2022. Phase 2 of the taxation process will be more comprehensive, likely to include thermal electricity production with certain of the allowances likely falling away from January 2023. Details of such are still to be finalised.

Chrome ore production

Production

The Chrome mines (including UG2) saleable chrome ore production for 2019 at (8%) less than the previous year.

Less volumes (8%) at the UG2 Operations were mainly due to less feed received from external PGM concentrators.

Chrome produced at the Mines in 2019 was 8% less than in 2018 due to section 54 stoppage (one fatality), Eskom power failures, implementation of PVD stop and section 189 at Waterval Mine.

Costs

The Chrome mines (including UG2) saleable chrome ore production cost for 2019 was 10% higher than the previous year (2018) due to mining inflation and less volumes produced.

A Section 189 event at Waterval Mine was declared due to prevailing market conditions.

For the Venture to achieve a 15% scale of cost benefit from volume, it was decided to increase production at Kroondal Mine with employees and equipment from Waterval Mine.

Resources and Reserves

The Venture has in excess of 30 years of ore available at the current rate of mining. Richmond and St George Mining Rights were executed during 2019.

Power and ore consumption efficiencies

The Glencore-Merafe Chrome Venture’s operations

Ferrochrome plants Capacity Technology Mines
 Western Limb (North West province)      
Wonderkop 553 000
tpa FeCr
Bokamoso pelletising and sintering plant using Outotec technology Kroondal, Waterval and Marikana
  6
furnaces
Conventional semi-enclosed furnaces  
Rustenburg 430 000
tpa FeCr
Tswelopele pelletising and sintering plant using Outotec technology Kroondal, Waterval and Marikana 
  6
furnaces
 Conventional semi-enclosed furnaces  
Boshoek 240 000
tpa FeCr
Motswedi pelletising and sintering plant using Outotec technology Waterval, Kroondal and Boshoek
  2
furnaces
Enclosed furnaces  
Eastern Limb (Mpumalanga and Limpopo provinces)    
Lydenburg 396 000
tpa FeCr
Premus – kilns Thorncliffe, Helena and Magareng
  4
furnaces
Three enclosed furnaces and one semi-enclosed furnace  
 Lion Phase I 360 000
tpa FeCr
Premus – kilns Thorncliffe, Helena and Magareng
  2
furnaces
Enclosed furnaces  
 Lion Phase II 360 000
tpa FeCr
Premus – kilns Thorncliffe, Helena and Magareng
  2
furnaces
Enclosed furnaces  

The Venture has access to various UG2 plants, in the Western Limb including EPL, Kanana, Kl, K2, K4 and Rowland, and Mototolo in the Eastern Limb.