Cheap Resources and Power Plus Active Incentives Bring Business to South Africa

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Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). Japanese and Indian companies have moved in the same week to secure control of ferrochrome companies in South Africa.

Mitsubishi (TOKYO SE:8058T) (Tokyo, Japan) has paid $42 million, to increase the company's total stake in Hernic Ferrochrome (Brits, South Africa) to 53.5%. Hernic is the world's fourth largest ferrochrome producer and has ore reserves to support a one million ton per annum operation over the next 40 years. Mitsubishi is looking to expand its operations and expects a decision on whether to build new fifth and sixth furnaces to be made in the next six months. The local Industrial Development Corporation (IDC) is to take a 25% stake under an agreement under which it may sell its interest to a black empowerment partner. Mitsubishi and the IDC have developed a working relationship through their shareholdings in the Mozal aluminum plant in Mozambique. ELG Haniel (Germany) has renewed its exclusive marketing rights in North America and Europe with Hernic. The deal makes Mitsubishi the first Japanese company to hold a controlling stake in a South African metal resources company.

Tata Iron & Steel (BOMBAY SE:TATA) (Bombay, India) is to invest $60 million in a ferrochrome plant that will probably be sited at Richard's Bay, which is a major mineral shipping and processing junction on the Indian Ocean coast of South Africa. The South African government's investment incentive scheme has finally kicked in and helped to divert the Tata investment from an original siting location for the project in Queensland, Australia. South Africa's cheap electricity was also a key factor in selecting a site, as was cheap chromite, a by-product of platinum extraction, which can be blended in during ferrochrome production.

South Africa has 75% of the world's economically viable chromite reserves and with a relatively weak currency has the lowest ferrochrome production costs. As a result of a pick up in the stainless steel market and a reduction in global ferrochrome capacity over the past two years, a price rise from $0.03 to $0.04 per pound is expected before the end of the third quarter.

The government's trade and industry department has met its undertaking to process applications for the investment incentive scheme within sixty days of application being made. The department was jolted into action last year when the Malaysian textile manufacturer Ramatex (Kuala Lumpur SE:RAMA KL) (Kuala Lumpur, Malaysia) chose to site its $100 million factory in Namibia after incentive negotiations with South Africa had dragged on and sapped the company's confidence. Since re-invigorating the scheme, South Africa has processed $250 million worth of applications with others coming in. Successful project applicants include a $19.3 million fiber optic plant in Cape Town and a $20.8 million floor tile plant near Vereeniging in Gauteng Province.