Update on Chromex Mining project

It is reported that in the last 2 years, and in spite of regulatory delays, Chromex has succeeded in transforming itself into a producing company with two substantial chromite assets in South Africa both with New Order Mining Rights and a combined total of 24 million tonnes of resources, of which 17.7 million tonnes are attributable to Chromex and the remaining 26% to its BEE partner Umnotho weSizwe.

Stellite chromite project, which started production in July 2008 and Mecklenburg chromite project, scheduled to come on stream in 2009.

Both are located in the Bushveld Complex of South Africa, one of the richest mining districts in the world and best known for hosting 70%+ of the world’s platinum reserves, though it is also home to more than 70% of the world’s chromite resources and 40% of world production. Stellite, on the Western limb of the Bushveld, is adjacent to Xstrata’s Boshoek chromite operation, while Mecklenburg, on the Eastern limb is next door to the Twickenham platinum mine owned by Anglo Platinum.

Chromex’ objective is to mine chromite at the lowest possible cost and to reduce the processing undertaken by the Group to the minimum required to sell the chrome products profitably. Production will rise from 30,000 tonnes per month to 80,000 tonnes during 2010 which it will sell both locally and internationally.

Around 85% to 90% of chromite production is metallurgical grade and used as feed in ferrochrome which in turn is used in the manufacture of stainless steel. The remainder is either chemical grade, used in chemical products such as coloring agents, timber preservatives, leather tanning and chromium plating, or foundry grade which is used primarily for steel castings. There is no economically viable substitute for chromite in the production of ferrochrome, chromium chemicals or chromite refractories. Currently substitutes without chromium either compromise product quality and/or increase costs.

According to consultant Mr Heinz H Pariser, demand for stainless steel, the primary determinant of chromite demand, has been growing at close to 7% per annum for the last decade, and is forecast to grow at an average rate approaching 6% annually until 2020. While the stainless steel market has softened recently in line with the global economic slowdown the long term fundamentals still underpin the market. Demand for ferrochrome is being further bolstered by the relatively high nickel price which is driving the stainless steel industry to substitute away from austenitic 300 series in favor of the chrome rich ferritic 400 series.

Chromite and ferrochrome prices have therefore been rising rapidly. Ferrochrome for example averaged 47 cents per pound in September 2006 when Chromex listed on the LSE but the price is now over USD 2 per pound despite some softening in recent weeks. Prices are forecast to remain high given the prospects of high demand but relatively restricted supply.