Rich resources
A domestic monopoly doesnÔÇÖt necessarily mean that hard-headed business decisions arenÔÇÖt on the agenda at Foskor, as Alan Swaby learns.
Foskor, South AfricaÔÇÖs only miner of phosphate rock, was set up in the 1950s by the South African Industrial Development Corporation when it felt the need to have an internal supply of raw material for fertilizer rather than having to rely on imports.
Phosphates make up the P in every N:P:K: mix found in plant fertilizers. Globally, the biggest source of phosphates comes from fossilised pre-historic fish bones and other organic matter. Most of it is found in Northern Africa: Morocco, Tunisia, Algeria and Togo, where phosphates are found in sedimentary layers. This source is reasonably rich in phosphate: around 26 to 30 per cent P2O5. It doesnÔÇÖt take much effort to get it out of the ground by strip mining; and upgrading it by rudimentary screening and washing (to remove unwanted organic material and the largest rubble and residues) produces a saleable product of up to 35 per cent P2O5 at low cost.
Roughly 85 per cent of the worldÔÇÖs phosphate comes from this source in sedimentary horizontal layering; in South Africa, it comes from mining a vertical pipe of igneous rock of volcanic origin. Instead of strip mining, the mineral-bearing hard rock is open cast-mined from an inverted conical pit which, because the seam is a downward vertical intrusion, requires opening up the top by ever larger and larger circles of hard waste rock being removed at the surface, an altogether more intensive and costly operation.
FoskorÔÇÖs rock starts at six per cent P2O5 and requires considerable processing, involving drilling, blasting, crushing, milling and eventually flotation, to improve the mineral content to 37 per cent P2O5. Fertilizer per se is not made from phosphate rock but rather phosphoric acid, which is produced when sulphuric acid is added to the rock. ÔÇ£But the phosphate rock we have,ÔÇØ explains vice president of Mining Johan Horn, ÔÇ£has a real advantage at the refining stage. The process is far more efficient and produces a better quality product than the sedimentary alternative.ÔÇØ
Fertilizer requires only merchant-grade quality acid, while Foskor can make a much purer technical grade more suited to a wide range of products, from fizzy drinks to cosmetics. For Foskor, the processing stage takes place in Richards Bay, a magnificent natural harbour some 800 kilometres away from the mine in Limpopo, the most north-easterly part of South Africa. ÔÇ£ItÔÇÖs not ideal,ÔÇØ says Horn, ÔÇ£and means we have to shift two million tonnes of phosphate rock a year to our plant in Richards Bay. But as we have to import sulphuric acid and much of the output of the processing plant is exported, it means that either way we would have to use the rail system extensively.ÔÇØ
Foskor mines roughly 30 million tonnes of phosphate bearing ore per annum to produce 2.6 million tonnes of phosphate rock concentrate, from which the 2 million tonnes are transported to Richards Bay for conversion into phosphoric acid and 500, 000 are sold to the domestic market. To put that amount of material in context, to send it by road would mean a 30-tonne truck being dispatched every six minutes, around the clock, every day of the year.
Although South AfricaÔÇÖs population is growing in size and affluence, thereby creating more demand for agrochemicals, Foskor can comfortably satisfy the countryÔÇÖs fertilizer manufacturers with the phosphates they need. It has therefore remained the countryÔÇÖs only internal supplier; however, this monopoly doesnÔÇÖt mean it can set whatever price it wants. Foskor negotiates annual contracts with manufacturers that are tightly linked to international prices which, on the face of it, are currently in a hole. ÔÇ£Four months ago,ÔÇØ says Horn, ÔÇ£acid prices dropped around 75 per cent. But you need to be realistic. They had gone through the roof in the previous year and have now settled back to where they were 18 months ago. The drop affects the bottom line performance but demand for our product remains constant.ÔÇØ
What is of greater concern to Foskor is how to capitalise better on the higher grade acid it can make. Within the company, the drive is to change its role from a commodity supplier to a value added processor; as such, Foskor has a number of expansion programmes on the go.
ÔÇ£The above-ground, previously stockpiled source of material weÔÇÖre processing at the moment will be depleted by the end of the year,ÔÇØ explains Horn. ÔÇ£The company has decided to invest R550 million (US$69 million) opening a new mine which has higher grade ore. Therefore, without upgrading anything on the processing side, it will give us more concentrate from next year.ÔÇØ
However, for some time Foskor has been hampered in getting the most out of its plant. A decade ago it invested heavily in what was thought to be state-of-the-art milling technology that has never lived up to expectations. ÔÇ£It means we have a flotation plant capable of 650 tonnes per hour being fed by a dry milling plant only delivering 400 tonnes per hour,ÔÇØ says Horn.
As such, the board decided to go back to conventional wet milling and is investing another R650 million on a supplementary milling line which will eventually come on stream in 2011. When expansion plans one and two fall into place, it will give Foskor circa 300,000 tonnes of product it can then sell on the open export market, which should widen margins considerably.
ÔÇ£Foskor is a great growth story,ÔÇØ says Horn, ÔÇ£having been turned around by a strong and capable new management team. From 2003 to 2005, Foskor made huge losses; but under the stewardship of the CEO, Alfred Pitse, a new performance-driven culture was introduced to raise efficiencies and cost controls. Foskor will soon announce record profits that were achieved on the back of dedicated work and extreme fiscal discipline,ÔÇØ he says.
