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How Vedanta kept the Gamsberg project alive

CEO says company culture has put it in a great position to enjoy the upside of the commodity price

Vedanta Zinc International CEO Deshnee Naidoo on why they are bullish on zinc, how they are going to preserve the biodiversity in Gamsberg, and what they did to weather the storm of low zinc prices.

Vedanta Zinc International CEO Deshnee Naidoo says struggles before the commodity price decline are what drove the company to cut costs aggressively, even before many other miners started doing the same.

As a result, Vedanta’s Gamsberg project in the Northern Cape, which is one of the world’s largest undeveloped zinc deposits, and the only Greenfields mining project in South Africa, remains on track to start production of zinc ore in 2018.

Naidoo says that, while many companies would have stopped or deferred a $630 million investment in an open-pit mine, especially in a falling price environment, they were able to slow down the project and are now poised to take advantage of a resurgence in the zinc price.

“Last year the price went to $1 500 per tonne from $2 400 at the start of the year. And that’s when you have to have more interventions,” says Naidoo. “I started a war room to let the general managers know cost saving had become critical for the company. I gave them all targets and asked them to find another $20 million worth of savings for me. They all came up with plans and we managed those plans at weekly meetings over a six-month period.”

She also says the London-listed company had been very effective in engaging with its stakeholders, particularly with labour at Black Mountain Mining, where workers accepted a single-digit salary increase, starting from the second half of the year, in order to make it possible for the Gamsberg project to continue.

Now that the zinc price has turned around, the company is well positioned to take advantage of a market that is currently in structural supply deficit. Naidoo says zinc was one of the unloved commodities of the last couple of decades so, in terms of project pipeline, there aren’t many new zinc projects coming on stream.

“We closed Lisheen mine in Ireland in December last year, which took away around 180 000 tonnes from the market. Century mine in Australia, which is one of the largest open-pit mines in the world, also closed, taking about 500 000 tonnes out of the market,” says Naidoo, adding that there are insufficient projects coming on stream to replace what the industry is already losing. For that reason they are bullish in the short and medium term that the zinc price will exceed the $2 300 per ton mark it has been hovering around lately, putting the year-to-date increase at 60%.

“In addition to that, at Vedanta, we don’t use consensus price to approve projects. We use a very conservative internal price, which is way below current prices, to make investment decisions. So, not only are we quite bullish on where the commodity is going, we’re not using that to justify the project pipeline that we are busy working on.”

Exxaro’s exit

Exxaro’s plans to exit the asset will have no bearing on operations in the short term. Naidoo says that the company will stay in the transaction for as long as they have to and that they are in no hurry to divest particularly given the lack of certainty on the regulatory front via the amendment to the MPRDA and changes to the mining charter, which are yet to be finalised.

She has a commitment from Exxaro that they will be consulted when they sell their 26% stake in the Gamsberg project, but points out that finding another BEE partner will not simply be about compliance, but rather about doing a deal that will be linked to the economy of Northern Cape.

Says Naidoo: “I would like a deal that has one BEE anchor partner, just to make sure that there is leadership in whatever deal gets put together, but to also include women’s groupings, communities, entrepreneurs and youth. We must think very carefully about how to construct that transaction…Exxaro’s exit will give us room to do something that is far more meaningful than some of the other `BEE transactions in this industry, but I am certain it will be focused on the Northern Cape.”

 

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