Mining: Phosphate, the green ore glimmers
Is renaissance in the air for the phosphate sector? Multinationals are jockeying for position, seeing potential in the continent’s push for food security and its current low fertiliser use: 4.7kg per resident compared to 200kg in India or China. While phosphate prices have fallen, with good-grade ore costing about $100 per tonne compared to $400 in 2008-2009, investment remains buoyant.
In early September, Togo awarded the huge Kpeme project to extract and process carbonated phosphate to Elenilto, the Israeli group led by Jacob Engen. With one of the largest deposits in sub-Saharan Africa (reserves are estimated at 2bn tonnes), the $1.4bn project will see the construction of a phosphoric acid plant and a fertiliser plant in the next three years.
Togo may have up to 2bn tonnes of phosphate reserves, the largest in sub-Saharan Africa
In the long term, the 30-year concession is expected to yield more than $28bn in revenue, with annual export of 3m tonnes of concentrated phosphate, 500,000 tonnes of phosphoric acid and 1.3 million tonnes of fertiliser products.
And, it is hoped, it will create 1,000 new jobs. It is a phoenix-like moment for an industry that was once a pillar of the Togolese economy, representing 40% of state revenues. Production fell from 3m tonnes in the 1990s to under 1m currently.
While this contract reinforces Elenilto’s stake on the continent, where the company already has oil and mining projects, for its Chinese partner Wengfu this is a first. The state-owned group, a world leader in phosphates and fertilisers, will provide about 40% of the funds for the Kpeme project.
The company is expanding internationally, and Wengfu is seeking further opportunities on the continent. The firm is said to be in discussions with Morocco, Tunisia and Senegal.
Several days after the announcement of Elenilto’s and Wengfu’s arrival in Togo, Toronto-based GB Minerals said it would invest in Guinea-Bissau’s Farim phosphate project, which it calls “world-class”.
According to CEO Luis da Silva, the deposit would allow the production of 1.75m tonnes of phosphates per year for 25 years. Initial start-up costs would be low, around $193.8 million.
“The market price of rock phosphate is at its lowest level since 2007 and no one is sure that it will rise significantly. Under these conditions, investments carry a lot more risk and investors are reluctant to follow through,” says Imad Bouziane, vice president for Africa and the Middle East at US chemical and fertiliser trader Nitron Group.
“Given the current market situation, the production costs of the Farim project in Guinea-Bissau remain, from my point of view, high,” he continues. “There is little chance that we will see this project develop in the short term. The same holds true for Togo, where the layer of carbonated phosphate targeted in ongoing discussions is deep and expensive to extract”.
The market price of rock phosphate is at its lowest level since 2007 and no one is sure that it will rise significantly
The problem, according to Bouziane, a former African director for the Moroccan group Office Chérifien des Phosphates (OCP) and the US firm Transammonia, is that although it makes sense, in theory, to process phosphate into fertiliser locally, investments would have to be made in high-capacity units that can benefit from economies of scale and compete with market leaders.
But the global fertiliser market is currently in over-capacity and the world’s largest producers, whether Russian, American or Chinese, are themselves seeking markets on the continent. “These competitors have a major asset: back home they produce fertilisers at competitive prices and have, for the most part, amortised their industrial investments”, says Bouziane. Buy coursework of high quality from custom coursework writing service . All custom courseworks are written from scratch by professional writers with no plagiarism approach.
This has not cowed the industry leader, Morocco’s OCP, which owns over half of global reserves. Though previously focused on American and Asian markets, OCP announced a partnership in 2014 with Gabon’s Société Equatoriale des Mines to build two factories in Gabon.
A total of $2bn is allocated for the projects and joint output is anticipated at 2m tonnes by 2018. OCP also wants to build another Moroccan plant in Jorf Lasfar for $600m. Its production of 1m tonnes would be earmarked for sub-Saharan markets.
Onto this packed stage arrives Indonesia’s Indorama. The firm bought up 78% of Industries Chimiques du Senegal (ICS) in August 2014. The Indonesian conglomerate took over as majority shareholder from the Indian co-operative IFFCO, which retains a 6.78% stake, by offering what ICS needed most: more cash.
One week after signing the agreement, Indorama spent $100m on clearing the debt owed to subcontractors and refurbishing the group’s three main sites in order to relaunch production. These are Taiba, a mineral deposit 100km from Dakar, Darou, a phosphoric acid production site near Taiba, and Mbao, a fertiliser production site in a Dakar suburb.
In all, says Alassane Diallo, CEO of ICS, “Indorama is committed to investing $225m to ensure a total renovation of all the production units.”
These efforts are beginning to pay off. The Taiba mine, whose reserves are estimated at 60-70m tonnes, produces 3,500tn per day of marketable phosphate. And the production capacity of phosphoric acid at the two Darou plants has doubled to 2,030tn per day. Most of the production is sold to India.
ICS has a fertiliser production capacity of 300,000tn per year, which is greater than Senegal’s current needs. A second fertiliser plant is planned for the Mbao site, which will boost capacity to 1m tonnes and allow export to the 16 members of the Economic Community of West African States (ECOWAS), as well as to the rest of Africa.
But can they remain cost-competitive and get their product to farmers? Elenilto and Wengfu say they can produce at low cost due to a connection to the West African gas pipeline near the Autonomous Port of Lomé.
GB Minerals says its production costs will be, on average, $52 per tonne for the lifetime of the Farim deposit, which is located near the Atlantic Ocean, providing access to international and African markets.
As for OCP, it is engaged in an ambitious policy to invest $1bn per year through 2020 and is counting on its underground pipelines to reduce transportation costs. The group is relying on regional corridors, including Dakar-Bamako, Abidjan-Ouagadougou and Cotonou-Niamey, to distribute fertiliser produced for African markets. ●