EVRAZ FEATURE

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E v r a z H i g H v E l d

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Ian armitage talks with Evraz

Highveld CEO Scott MacDonald and executive Cathie Lewis about how

the company aims to return to profit and reach

maximum potential.

maximumpotEntial

R E A C H I N G

Evraz Highveld FEATURE

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Evraz Highveld Steel and Vanadium Limited is South Africa’s second largest steel producer and part of one of the world’s largest vertically

integrated steel, mining and vanadium businesses, Evraz Group. On 19 July 2010, the Company’s name changed to Evraz Highveld Steel and Vanadium Limited, completing the integrated global rebranding strategy of the Evraz Group.

Evraz holds an 85.11 percent stake in Evraz Highveld, which was previously owned by Anglo American, and the company is today a renowned integrated iron-ore miner, and producer of vanadium slag and steel products.

“2006 saw Evraz Group and Credit Suisse purchase Anglo American’s shareholding in Highveld, each acquiring 24.9 percent of the issued share capital. In 2007 Evraz exercised an option to acquire the share capital held by Credit Suisse and the remaining Anglo American plc shareholding and Highveld became part of the Evraz Group in 2008,” says Scott MacDonald, who was appointed to the position of chief executive officer of Evraz Highveld on 1 March 2010. Prior to joining, he was an executive director in the Corus Group, now Tata Steel. “My background is certainly benefiting me in this exciting new challenge,” MacDonald explains. “I’ve held a number of senior roles within the steel industry and have extensive international experience.”

MacDonald believes in keeping things simple and values loyalty, commitment and accountability, as well as good communication. “What would I like to achieve in terms of a legacy? Well, I look forward to building on the achievements of the past and helping the business to reach its maximum potential.” He has identified, amongst other things, BEE and Transformation, alternative energy sources, productivity and efficiency improvement and the optimisation and development of Highveld’s customer base as “key priorities” and Evraz Highveld is busy tackling those issues. “We are indeed.”

evraz Highveld FEATURE


OUR SERVICES:• Opencast mining of steeply dipping ore bodies

• Removal of overburden

• Surface blasting design and execution

• Rehabilitation and developing box cuts

• Particular experience in narrow ore bodies

• Capacity to undertake both small projects and those which involve moving in excess of a million cubic metre per month

• Consulting services in the mining sector

MINING RIGHT CONVERSIONEvraz Highveld owns and operates the Mapochs mine and is currently working with the Department of Mineral Resources to convert its old-order mining right to a new-order right. Mapochs produces titaniferous vanadium–bearing magnetite iron-ore.

“We have submitted our mining rights conversion application with the Department of Mineral Resources, having made our submission,” says MacDonald.

“Evraz Highveld has a $230 million black economic empowerment transaction with BEE investment holding company Umnotho weSizwe, as well as the local community through the Mapochs Mine Community Trust,” Cathie Lewis, Evraz Highveld executive adds.

“Mapochs Mine (Pty) Limited, which was created as a special purpose vehicle, is the empowered component,” says Lewis.

Umnotho weSizwe has 23 percent of Mapochs Mine (Pty) Limited, and Mapochs

Mine Community Trust the remaining three percent.

“We haven’t received confirmation from the DMR when our conversion application will be granted with the Mineral and Petroleum Resources Development Act (MPRDA),” says MacDonald. “But we are hopeful the application will be approved in the near future.”

Evraz Highveld believes that the Mapochs mine has sufficient iron-ore for 30 years and is a key part of future plans. “Mining is an important part of what we do because, in effect, we’re vertically integrated, and having an iron-ore mine is a major advantage,” says MacDonald. “Vertical integration is strategically important to both Evraz Highveld and the bigger Evraz group, which has similar mining/steelmaking balances in Russia and the Ukraine.

“The Mapochs mine is unique,” he adds. “There are not many other people who could use this iron-ore, and the whole iron-steel process was developed around the ore.”



RETURNING TO PROFIT?Evraz Highveld posted a R255 million operating loss in the six months to June, but MacDonald expects to be back in the black in the first quarter of 2011.

“At the moment, there is over-supply of steel in the South African market and I can’t see any change to that until next year,” MacDonald says. “That is my estimate.”

What’s causing this? Well there are several factors, one being that, according to MacDonald, the implementation of South Africa’s major construction projects has been slower than anticipated, weighing on growth of the local steel industry.

Then you have factors like the strong Rand. “We currently sell 75 to 80 percent of our production in the domestic market,” MacDonald says. “In the short-term we have raised exports and have expanded our African markets, especially in Botswana, Kenya, Mozambique and Zambia.”

South America is another market where he sees opportunities. “The other main one we are looking at is the Middle East,” MacDonald says.



Evraz Highveld’s theoretical steel output is around one million tonnes and its production for rolling products is approximately 800,000 tonnes. The company’s major products in the vanadium segment are vanadium slag and ferrovanadium. “The slag is a waste product from the steelmaking process and it is transferred from the steelworks to the vanadium plant, where it forms the input of the vanadium business,” says MacDonald. “That gives us a huge competitive advantage.

“We’ve talked about export and the domestic market, and, yes, while demand will be the main driver of a return to profitability for us, we are also looking to the contribution from efficiency and productivity improvements,” he continues. “We are focussed much more on improvements in productivity and efficiency.”

Evraz Highveld, MacDonald says, is also looking closely at the issue of electricity security, including possible cogeneration and energy reduction projects, in light of South Africa’s sharply rising power tariffs. “We could make huge savings in this area.”

South Africa’s electricity tariffs will rise by 25 percent a year between April 2010 and March 2013, which would place major cost pressures on energy intensive businesses like Highveld.

“Our power costs have risen considerably and will continue to rise,” MacDonald says. “So, yes, we are exploring cogeneration, which could help reduce its power costs. We have had quite a lot of discussions with people for co-generation opportunities; it is still a priority. But these things take time.”

The steel market is difficult to predict at the best of times, but MacDonald is optimistic. He sees a return to profit in 2011 but would err on the side of caution.

The World Steel Association recently announced that steel demand growth will decelerate to 5.3 percent next year, following an upwardly revised 13.2 percent demand expansion.

Steel use contracted by 6.6 percent in 2009. “While the company isn’t performing as I would like, I am pleased with how things are going and am very excited by the future,” MacDonald concludes. eND

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