What now for Corridor Sands?

the future of the r3,4bn corridor sands titanium project in mozambique now lies in the hands of bhp billiton, which has taken over the project's owner, australian group wmc resources.


what bhp billiton intends is the subject of much speculation. in corridor sands' favour is that bhp billiton is positive about mozambique's investment climate; its mozal aluminium smelter complex at maputo has been a success. that takes country risk out of the equation.


on the negative side, bhp billiton is a 50-50 joint venture partner with rio tinto in richards bay minerals (rbm), which is one of the world's largest titanium producers but is managed by rio tinto.


it's understood that rio tinto's view on corridor sands is unfavourable, because of the initially negative impact this large new producer would have on the world titanium market. bringing corridor sands on stream would affect profits at rbm, as well as rio tinto's canadian titanium operation, quebec iron & titanium.


rio tinto is also looking at developing its own new titanium mine in madagascar at an initial cost of us$458m. it would have an estimated economic life of 40 years. a decision on this project is expected by the end of the year.


the main demand for titanium comes from the paint and paper industries, which use it as a pigment in the form of titanium dioxide.


bhp billiton's options range from holding back on corridor sands in the interests of its current joint venture with rio tinto, to pushing ahead with development of the project, which it would own and manage itself.


bhp billiton spokesman michael campbell confirms the group has appointed murray & roberts to conduct a "peer review" on the project, which has already been through full evaluation, including completion of a favourable bankable feasibility study by wmc. that's the final hurdle that must be cleared before the decision is taken to proceed on any major project.


southern mining did the initial development at corridor sands and brought in wmc as a senior partner because the project was too big for it to tackle alone. wmc eventually bought full control in february 2003.


after completing the bankable feasibility study, the group decided to delay development by at least a year, apparently because it was looking for a partner to share costs and because of the soft state of the titanium market.


campbell says corridor sands would have to be put through the rigorous bhp billiton projects approval process. if it passed the tests, he says, the project could be put to the board for a decision towards "the end of the calendar year".


a point made by industry sources, and confirmed by campbell, is that the supply of power to corridor sands will be a key issue. when the project was first discovered in 1997 there was abundant electricity and eskom was prepared to cut favourable supply deals to big consumers.


that's no longer the case, because demand has surged as a result of sa's revived economy. eskom has delayed its response to the point where mining industry sources say there's a power crisis looming, though eskom denies it.


"whichever way you look at it, the power contract for corridor sands is going to be a lot tougher than originally planned," says one source.


corridor sands is 190 km north of maputo and 50 km inland. the deposit is vast and high-grade. wmc was planning a plant that would reach production of 375 000 t/year of titanium slag by year three and 1 mt/year by year 12 at a total investment cost of us$800m.


as already noted, the problem with a plant that size is that it will cause a surge in titanium supply that could negatively affect titanium prices for a year or so until the market grew sufficiently to adjust.


by comparison, the smaller moma titanium project, now under construction in northern mozambique by aim-listed kenmare resources, is expected to be able to fit into the market without causing a price disruption.