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South Africa's major iron and steel producer has found that its mining activities are far more rewarding these days, and is looking further afield to extend its business in iron ore and other minerals, writes Brendan Ryan*.
Iscor - South Africa's major iron and steel producer - is these days attracting far more attention as a mining stock because mining dominates its profits and will continue to do so for the forseeable future.
This is despite Iscor's 50% stake in the R8bn ($1.3bn) state-of-the-art Saldanha Steel plant which is currently going through its commissioning phase (see page 23). The plant is so far about two months behind schedule and the final capitalised cost estimate of R8bn including interest and preproduction losses is 11% above the initial forecast of R7.lbn. Saldanha produced its first hot rolled coil in mid-June and the Corex plant is due to commission late this year.
The latest half year results show that Iscor has dramatically turned around its loss-making steel operations through the "re-engineering" programme aimed at making them internationally competitive but it is making even more hay through iron ore exports from its Sishen mine. In May, Orex (the division of Spoornet dedicated to transporting iron ore) announced a R170m plan to increase the capacity of the Sishen/Saldanha railway line from the current 22m tpy to 27m tpy. Iscor and Associated Manganese share use of the line.
Results for the year to the end of June show that Iscor exported 18.3m tonnes of iron ore from Sishen compared with 15.8m tonnes the previous financial year. Investec Securities analyst Hennie Vermeulen comments: "The quality of Sishen as an asset and income generator is probably the main reason for the hesitancy in Iscor management towards splitting and separately listing the mining and steel divisions."
Vermeulen reckons Iscor will export 19.8m tonnes of iron ore in the current financial year to June 1999 and sell another 6.4m tonnes onto the South African domestic market. He also forecasts that Sishen's profit could rise by more than 40% to around R1.lbn in financial 1999 thereby providing at least 80% of his forecast of total Iscor earnings of 41 cents a share compared with financial 1998 earnings of 28.4 cents/share.
But analysts watching Iscor...