Johannesburg - Kumba Resources and Assmang, the country's largest iron ore producers, have reached preliminary agreement on an asset swap that could trigger the next round of capital expansion in the Northern Cape.
Con Fauconnier, Kumba's chief executive, said yesterday that swapping reserves with Assmang did not preclude full consolidation of the Northern Cape iron ore fields further down the line.
"We have always said consolidation was first prize. But if Assmang wants to remain in the iron ore industry, the asset swap is the next best thing," Fauconnier said. "If that does not go ahead, we will develop Sishen South."
Presenting Kumba's annual results for the year to June, Fauconnier said the company would examine the reserve swap before proceeding with Sishen South, a R1.7 billion to R2.2 billion new mine expansion of Sishen, Kumba's flagship 26.2 million ton-a-year iron ore producer.
Sishen South lies near Assmang's existing Beeshoek mine while Assmang has significant iron ore deposits adjacent to Sishen. Assmang, whose major shareholder is Anglovaal Mining with a 50.3 percent stake, was also reportedly mulling over a R2 billion investment.
Mining Weekly reported that preliminary studies indicated the potential to build a 12 million ton-a-year mine adjacent to Sishen.
Mike Kilbride, Kumba's executive director of operations, said the heads of agreement with Assmang was signed about a month ago.
"The heads of agreement basically says we agree on a model. Valuation of the assets would be the next step.
"The agreement contains tight time lines. We hope to have made meaningful progress by the end of the year," Kilbride said.
Consolidation of Sishen and Assmang's operations was broadly regarded as a necessary trigger for the much-talked about development of the Kalahari iron ore reserves, which are said to be about 2.6 billion tons.
The development of the reserves have taken centre stage in Anglo American's fight to have the Competition Tribunal approve its investment in Kumba.
Anglo holds 20.1 percent of Kumba and has options to lift this to 34 percent but has ambitions to grow this to 49 percent.
But its plans to enter the industry through its investment in Kumba have been stymied by the Industrial Development Corporation (IDC), which holds 14 percent of Kumba.
The IDC argued that allowing Anglo to gain control of Kumba would compromise its plans to bring a 26 percent empowerment partner into the company.
Playing down Anglo's potential to influence its future, Kumba said it expected a tribunal ruling within 10 working days.
"We have taken the view that we will not get involved in shareholder issues," said Fauconnier.
But he said he would intervene if Kumba's free-float was severely reduced. Anything less than a 30 percent to 35 percent free-float blew tradeability out of the window.
Kumba closed 70c up at R36.