South Africa operating chrome miner Chromex Mining (LON:CHX) has secured US$5 million to provide funds for a DMS (dense media separation) circuit and ancillary plant improvements at its Stellite opencast chrome mine in the Bushveld Complex in South Africa, which will double its capacity to 40,000 tonnes per month.
The improvements are also expected to increase recovery margins and economic efficiencies at the plant.
The money comes in the form of a pre-payment from Chinese steel manufacturer Zuchou Kaiyuan Chemicals, which will be buying all lumpy chrome product for two years following the initial six month construction period. Chromex said that pricing will be “market driven” negotiated on a monthly basis and a percentage of each lumpy chrome consignment will be used to offset the pre-payment.
The construction of the DMS circuit has already begun with cold commissioning planned for October 2010, while a tailings thickener and spirals upgrade are expected to be commissioned in June 2010.
Stellite is expected reach full capacity by the first quarter of 2011 - producing approximately 500,000 run-of-mine tonnes per annum.
“This is a fantastic deal as it provides both a guaranteed off-take to China, our largest market, and allows for expansion without a dilutive effect on shareholders,” said chief executive Russell Lamming.
The company said that it was well positioned to capitalize on the rising demand for chrome with the doubling of production in South Africa, its recent acquisition in Zimbabwe and strong cash flows.
Earlier this month, the company acquired Waylox Mining (Private) Ltd, a chrome mining company operating in Zimbabwe and a wholly owned subsidiary of TransAfrika Resources Ltd for a total of US$1.15 million.
Astaire Securities welcomed the news, saying in its Morning Report the deal was “excellent news for shareholders” as it provided interest free and non-dilutive financing, but also guaranteed chromite sales for two years at market driven prices.
The broker added that the deal reflected the tight conditions in the chromite market.
“This type of commodity loan is only achievable in partnership with industry players like Suzhou, where securing supplies is the lender’s only real consideration,” Astaire said in the report.
Shares in the company rallied more than 16% on the announcement.