South Africa Leads World in Chromium, but China Fears Growing

By Karan Kumar — Exclusive to Chromium Investing News

Discovered in 1762 in Siberia’s Ural mountains, and described as an orange-yellow mineral, chromium was called crocoite because it resembles the color of egg yolk. In 1797, a French chemist named Nicolas-Louis Vauquelin identified a new metallic element in this mineral and called it chromium. According to the International Chromium Development Association, which has members in 26 countries across five continents, an important chromite discovery was made in South Africa and Zimbabwe in 1865, but was only exploited 50 years later. South Africa is the world’s biggest producer of chromite ore today, and the mineral is used mainly to produce stainless steel.

According to a January 2012 report from the US Geological Survey (USGS), world resources for chromium are greater than twelve billion tons of shipping-grade chromite, sufficient to meet conceivable demand for centuries. “About 95 percent of the world’s chromium resources is geographically concentrated in Kazakhstan and southern Africa,” the report said. However, according to a recent report, South Africa’s chromium industry is under threat from Chinese ferrochrome production, despite China having no chrome reserves of its own. This is happening as a result of China importing about 50 percent of its chrome ore from South Africa.

The benchmark price for the South African charge chrome delivered in Europe during the first quarter of 2012 was agreed at $115 a pound, down about $5 a year from the preceding quarter, Steelguru reported.

Economic and geopolitical concerns

South Africa is classified as an upper-middle income country by the World Bank, with a 2010 gross domestic product of $364 million and a population of about 50 million.

South Africa is one of the world’s leading mining and mineral-processing countries, according to a report by the USGS. In 2008, for example, South Africa’s estimated share of world platinum production amounted to 77 percent and 45 percent for chromium. The output of the mining industry accounted for 9.5 percent of the gross domestic product in 2008. Crude and processed mineral products accounted for 41 percent of the value of total exports. Most of the country’s mining industry is privately owned.

African National Congress (ANC) leader Jacob Zuma became president of South Africa in 2009, despite corruption charges. Zuma is an economic leftist who supports wealth redistribution, but has assured foreign investors that their interests will be protected. The nationalization of mines in South Africa is an ongoing debate. While the ANC has reiterated that nationalization is “not government policy,” critics, such as the Congress of South African Trade Unions, a key ANC ally, sees nationalization of mines as the perfect solution to South Africa’s deepening economic and social woes. According to a Citigroup report, South Africa’s mineral deposits, worth an estimated $2.5 trillion (excluding energy minerals), are the richest in the world. Yet a third of the country’s 50 million people are poor, according to an article in the Economist.

China’s growing threat

China is South Africa’s largest trading partner. It imports mainly raw materials from the African country and exports manufactured goods. Media reports say that South Africa is concerned that China is stockpiling chrome, mainly sourced from South Africa, to dictate future market prices. Of the eight million tons of chrome ore imported by China in 2010, 3.1 million tons were sourced from South Africa. Critics believe that China is positioning itself as one of the lower-cost ferrochrome producers through the import of cheap ore from South Africa, a move that will lead to job losses and less investment in South Africa’s chromite sector.

Mining and exploration opportunities

A USGS report details the following exploration opportunities in chromium in South Africa:

Xstrata (LSE:XTA): The Swiss company and its joint-venture partner Merafe Resources (OTC Pink:MRAFY) operate the Boshoek, Helena, Horizon, Kroondal, Thorncliffe, and Waterval Mines, which had a total capacity of 5.57 million metric tons per year of chromite as of 2008.

Samancor Chrome Ltd.: A subsidiary of Kermas Group Ltd. in the United Kingdom, Samancor produced about 3.5 million metric tons a year from the Eastern Chrome Mines in Mpumalanga Province and the Western Chrome Mines in North West Province.

Assmang Ltd.: A 50-50 joint venture between African Rainbow Minerals Ltd. (OTC Pink:AFRBY) and Assore Ltd. (JSE:ASR), Assmang operates the Dwarsrivier Mine in Mpumalanga. In fiscal year 2008, production increased to 849,000 tons from 710,000 tons in fiscal year 2007. The Dwarsrivier Mine had an estimated remaining life of 30 years.

African Rainbow and its joint-venture partner Norilsk Nickel (OTC Pink:NILSY) of Russia operate the Nkomati chromite mine. In 2008, production increased to nearly 1.18 million metric tons from 631,000 tons in the year-ago period.

ASA Metals Ltd.: The private company produces about 360,000 tons of chromite a year from its Dilokong Mine at Burgersfort in Mpumalanga Province.

Hernic Ferrochrome Ltd.: A subsidiary of Mitsubishi Corp. (TYO:8058) of Japan operates a ferrochromium plant with a capacity of 420,000 tons a year at the Maroelabult open pit mine from 1996 to 2000. Development of a new underground mine at Bokfontein was planned in mid-2008.

International Ferro Metals Ltd.(LSE:IFL): IFM opened its new Buffelsfontein chromite mine and ferrochromium plant in North West Province in 2007. In fiscal year 2008, IFM produced 205,607 tons of ferrochromium. The company planned to expand chromite capacity to 1.8 million metric tons a year by November 2009.

Tata Steel Ltd. (BSE:500470): The Indian company opened a new ferrochromium plant at Richards Bay with a capacity of 120,000 tons a year in early 2008.

Securities Disclosure: I, Karan Kumar, hold no direct investment interest in any company mentioned in this article.