Set your clock: Later in 2019 another huge plant will close
Giant manganese smelter and alloy producer in Meyerton cannot operate under Eskom’s conditions
The Metalloys smelting plant in Meyerton was once a source of pride to global resources giant BHP. Then BHP spun out its SA and other assets into the newly formed South32 and didn’t look back at SA.
Metalloys was described by BHP in 2014 as one of the world’s largest manganese alloy producers. BHP invested R1bn in a new furnace at Metalloys a year earlier. The plant had a capacity of 410,000 tons a year of high-carbon ferromanganese and 90,000 tons a year of medium-carbon ferromanganese.
However, tough market conditions for manganese alloys and a fatality in 2015 meant the reduction of operating furnaces to one from four and the plant has not recovered.
The hike in electricity prices by Eskom of more than 520% since 2006 all but sealed Metalloys’ fate – made worse by the variability of supply as Eskom struggles with an old generating fleet and bringing new units into production in an atmosphere of misgovernance and corruption.
Unless there’s a buyer with an appetite for risk, particularly given the above-inflation increases Eskom is passing onto its customers to pay for a poorly managed business, and the unpredictable nature of supply and future costs, Metalloys is probably destined for closure.
South32 will review its manganese alloy businesses in SA and Australia later in 2019 – the decision to close, sell or mothball will come at about the same time it exits its SA thermal coal business.
As much as President Cyril Ramaphosa wants to attract investment, any potential investor would look long and hard at the electricity situation in SA and be very cautious. If investors the size of South32 are drawing a line under what should have been a gem of an asset at Metalloys, then there’s a clear unspoken message that the government would do well to listen to and act upon.