Thought you might be interested in a question and answer session I had with a reader regarding Tshipi. The names have been omitted to protect the guilty
Question: Just a quick question on the Jupiter mines sale any idea why the bids are so low for an asset throwing off significant cash, a growing production profile and long mine life, are the buyers looking at manganese prices falling, sovereign risk issues, or have i missed something, i would have thought the $750 mil for their 49% holding would have been achievable, but the market seems a mile away.. your thoughts would be interesting.
Answer: Before I wade into the Tshipi minefield, I should give you some color. Last week, I suggested that offers for Tshipi were around $400-million, not the $700-million plus being broadcast. I should have explained that the $400-million was for Jupiter's share, not the entire ownership. I wasn't clear but that's my problem.
To answer your question, are you kidding about political risk? South Africa is another name for political risk. The country's president, Jacob Zuma, has given the country away to his cronies. The ANC is in a shambles and greed and fraud are the watchwords on the government. You should google South Africa and the mining charter or read my blog. To say investing in South Africa is sketchy is an understatement.
Tshipi is a great low-cost deposit and probably one of the three cheapest manganese mines in the world.
So why isn't it attracting high priced bids? The only real restraint in South African manganese ore production is logistics. The country is practically sitting on manganese. Output could easily double and probably triple. There are lots of new miners lined up to achieve riches.
However, all that mine production far outstrips demand and almost all the demand for manganese ore is from China. It also discounts that there are other countries and companies looking to significantly increase ore production. The list is almost limitless.
It was different when there were only two South African miners of note, Billiton and Assmang, but the government forced them to give up their reserves.
So manganese ore is in a permanent surplus and demand comes from one country.
Having a lot of cheap ore reserves only guarantees that you will be still in operation when the price collapses, but little else. With all those reserves, the South Africans don't even have control over the ore price.
(20min delay)