Exciting news hit the manganese space on Monday when Transnet announced that it has secured loans worth $853 million (12 billion rand) with five major financial institutions.
In the next decade, the state-owned freight transport and logistics company is looking to spend up to US$27 million (380 billion rand) to expand and upgrade rail and port capacity in South Africa, and the loans announced Monday will specifically help fund its locomotive fleet acquisition program. According to Transnet, that’s the “single-biggest item of Transnet’s record-breaking infrastructure investment programme – the Market Demand Strategy.”
The five lenders include Absa (JSE:ABSP), Nedbank (JSE:NED), the Bank of China (HKEX:3988), Futuregrowth and Old Mutual (LSE:OLM), all of which have agreed to a term of 15 years of competitive rates, including a five-and-a-half year grace period while locomotives are under construction.
The new loans are in addition to a $1.5-billion loan facility agreement set up with China Development Bank (CDB) in June 2014. Transnet has the option to further increase the loan with CDB up to $2.5 billion as part of an memorandum of understanding between China and South Africa.
Manganese market impact
At 150 million tonnes, South Africa holds the largest-known manganese reserves in the world; the country has also been the top manganese-producing country in the world since 2011, and last year produced 4.7 million tonnes of the metal.
While that’s impressive, Transnet’s rail and port updates are likely to make the country an even bigger player in the market. Case in point: in March, former Transnet CEO Brian Molefe told Reuters that he sees the country’s manganese production tripling by 2019, hitting 16 million tonnes.
That said, there’s still a ways to go until Transnet’s upgrades will be completed. The company has spent an unmatched US$77 billion (1.09 trillion rand) on rail, port and pipeline infrastructure since its Market Demand Strategy was launched in 2012; however, as mentioned, over the next 10 years it plans to spend up to US$27 million (380 billion rand) more.
Transnet’s locomotive fleet acquisition program was announced in 2014, when the company was contracted to build 1,064 diesel and electric locomotives for four global equipment manufacturers. All the locomotives except 70 will be built at Transnet Engineering’s plants in Pretoria, South Africa and Durba, Ethiopia.
In terms of where those locomotives will be traveling, the company’s proposed rail expansion includes the extension of several existing rail loops in Northern and Eastern Cape, the installation of two new rail loops in the Northern Cape and the construction of a new compilation yard near Hotazel.
Securities Disclosure: I, Kristen Moran, hold no direct investment interest in any company mentioned in this article.