The economic and strategic significance of the Elandsfontein phosphate deposit and its ranking in the South African phosphate fraternity.

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1 The economic and strategic significance of the Elandsfontein phosphate deposit and its ranking in the South African phosphate fraternity. Overview In the early 1800s, it was learned that phosphorus promotes growth in plants and animals. At first, bones, which contain the element phosphorus, were used as an agricultural fertilizer. Today, phosphate rock provides fertilizer s phosphorus and became a very large sector of the mining industry worldwide. Phosphate rock was first mined in England in 1847 for use as a fertilizer. Manufacture of fertilizer in South Africa dates back to 1903, when the South African Fertilizer Company in Durban commissioned the first phosphate plant, using animal bones. In 1906 the first good deposits of rock phosphate was discovered in South Africa. This lead to the commissioning of the Kynoch superphosphate plants at Umbogintwini in 1919, and two years later Cape Explosives (CAPEX) (originally called De Beers Explosives) at Somerset West (Ratlabala, 2003). Phosphates are the naturally occurring form of the element phosphorus found in many phosphate minerals in rocks containing phosphate ions from where it is mined to obtain phosphorus for use in agriculture and industry. More than 95% of phosphate rock mined is used to manufacture wetprocess phosphoric acid and superphosphoric acid, which are used as intermediate feedstocks in the manufacture of granular and liquid ammonium phosphate fertilizers and animal feed supplements. The balance of the phosphate rock mined is used for the manufacture of elemental phosphorus, which is used to produce phosphorus compounds for a variety of food-additive and industrial applications (USGS, 2012). Strategic significance Phosphate as an irreplaceable component of agricultural fertilisers is in ever increasing demand to feed the world s growing population. The importance of phosphate for the future existence of humanity was realised some decades ago when phosphate was declared a strategic mineral based on its significant role in food production (USGS, 1984). Food security not just in South Africa but the world over became an ever growing issue in the last decade. But, recent reports revealed that supplies of phosphate rock are running out faster than previously thought and that declining supplies and higher prices of phosphate are a new threat to global food security (Soil Association, 2010). Phosphate prices increased more than six fold in the last decade despite the large scale global economic slump during much of this period. In May 2002 a metric ton of phosphate cost (based on Morocco phosphate rock) around USD$ 36 per ton. In April 2007, a ton of phosphate cost USD$ 39/ton. In October 2008, that same ton of phosphate cost close to USD$ 410/ton. Prices have since stabilized around the USD$ range. The sharp rise of 2008 and early 2009 was prompted by a surge in crude oil prices and a food shortage crisis. The food crisis of 2008 may have been the trigger but prices of phosphate are being driven by concerns of rapid population growth.

2 In order to feed the world, farmers are led more and more to use marginal land that demands more fertilisation to keep up agricultural productivity. On an average year the world uses about 100 kg of phosphate per hectare (ha). In OECD countries alone, average use is some 200kg/ha. The importance of phosphate has also not been lost on China, the country with the largest population. Food price inflation was a concern to Chinese authorities in 2011 as it reached 6.5%; the rising soybean prices have contributed to sustaining fears of high food prices. Chinese farmers demand for fertilizers has also increased in response to an overall increasing prosperity. China s Ministry of Commerce has listed phosphate as the third most important strategic resource. The Chinese government set rules to regulate phosphate mining, consolidating production within a handful of large players and has set strict export quotas. The result of this combination of factors affecting as vital a sector as agriculture has been to sustain demand for mineral fertilizers such as phosphate, an increasingly strategic mineral (FIM, 2012). The worst of all is the realisation that there is no substitute for phosphate in the manufacture of fertilisers. All of this contributed to set the stage for the well publicised Phosphorus Peak Theory that suggests that a peak in phosphorus production will be reached in the foreseeable future resulting in tragic consequences for humanity. Some researchers believe there is no Phosphorus Peak. However, the debate has had the constructive purpose of focusing thoughts on the strategic value of this nonrenewable resource. In 1981 the International Strategic Minerals Inventory (ISMI) was launched by government representatives from the USA, Canada, Germany, South Africa and Australia forming the ISMI Working Group that listed phosphate as a strategic mineral and identified phosphate deposits in the world that are of strategic importance (USGS, 1984). Phosphate supply Estimates of global reserves of phosphate suggest that supplies may last from years. However, problems with resource supply begin when production reaches its peak, and long before supplies actually run out. Physicist Patrick Déry estimates that U.S. peak phosphorus occurred in 1988 and for the world in Signs of volatility have recently appeared in phosphorus markets, and may already be contributing to higher food prices. We are approaching a threshold where world agricultural requirements may begin to outpace available supplies of phosphorus. This is well illustrated in figures 1 and 2 showing the trend in food prices and the correlation with population growth and phosphate production. The accurate determination of peak phosphorus is dependent on knowing the total world's phosphate reserves and the future demand for rock phosphate. Although many estimates for when peak phosphorus will occur have been made, many of them are marred by inaccurate knowledge of the quantity of world phosphate reserves. This is largely in part due to distrust in phosphate mines' reports of total reserves, with the expectation that these values will be inflated to protect their business interests. It is generally believed that, without new sources for high quality mineable phosphorus agriculture will face major problems within the next years. According to the Global Phosphorus Research Initiative (GPRI) phosphate reserves will last 75 to 200 years. Therefore, exploring for and developing new phosphorus resources, is of vital importance. 2

3 Figure 1: Food Price Index during 1990 and (Source: Food and Agricultural Organisation, UN) Figure 2: The correlation between population growth and phosphate production (Source: United Nations Environmental Program, 2011). 3

4 Indisputably the world is heading for a sharp decline in resources of phosphate rock that can be mined at reasonable cost with today s technology. Up to now, the United States has been a big producer, but its reserves are declining. China has significant resources, but its domestic use is soaring and it is not a big exporter. North Africa has the biggest reserves, but some of them are in politically unstable regions like the Western Sahara. World phosphate resources In 2012, the United States Geological Survey (USGS) estimated that phosphorus reserves worldwide are some 70 billion tons, while world mining production in 2011 was 0.19 billion tons (USGS, 2012). The largest sedimentary phosphate rock deposits are found in northern Africa, China, the Middle East, and the United States. Significant igneous occurrences are found in Brazil, Canada, Russia, and South Africa. Large sedimentary phosphate resources have also been identified on the continental shelves and on seamounts in the Atlantic Ocean and the Pacific Ocean, but cannot be recovered economically with current technology (USGS, 2012). According to the US Geological Survey (2007), U.S. phosphate rock production and use dropped to 40-year lows in China has surpassed the United States as the largest phosphate rock producer. It is likely that production capacity will continue to decline gradually owing to depletion of reserves in Florida and increased global competition in the fertilizer industry. Three new mines are planned to open in the next decade in Florida, but only as replacements for existing mines. Figure 3: World phosphate reserves (Source: USGS, 2013) 4

5 Reserves refer to the amount assumed recoverable at current market prices. Phosphorus comprises 0.1% by mass of the average rock and consequently there are quadrillions of tons of phosphorus in Earth's 3 * ton crust, albeit at predominantly lower concentration than the deposits counted as reserves from being inventoried as feasible to extract. Depletion rate of reserves At present there is not a shortage of phosphate, and the global supply is believed to be large enough to meet several hundred years of demand at the current rate of use. The concerns are around the anticipated rapid growth in demand for phosphate. The US is no longer self-sufficient in phosphate production; it no longer produces enough to supply its own domestic agribusinesses, and one recent report speculates that at the current rate of production and with the anti-mining bias of environmental activists the country could exhaust its accessible and currently worked reserves in as little as 15 years. Thus, the North American domestic supply of phosphorus is dwindling rapidly. Until 2003, the United States was an exporter of phosphate. Now, Morocco supplies nearly 10% of the phosphate rock used in the US. In Canada, the Kapuskasing (Ontario) mine owned by Agrium that produces around 1.5 million tonnes of phosphate rock annually is known to be nearly depleted, with only a few years of reserves remaining in the ground (Table 1). Table 1: Phosphate Production and Consumption Projections (Millions of Tonnes) Phosphate production and consumption projections (millions of tonnes), REGION Annual Production (in Mt) Annual Growth % Annual Consumption (in Mt) Annual Growth % Surplus - Deficit as at Europe % % 8.5 Africa % % North America % % 2.8 Latin America % % 0.9 Middle East % % -3.7 Asia-Pacific % % 8.6 World % % 0.1 Source: British Sulphur Consultants, Phosphate Rock, 10 Year Outlook Report. Growth based on annual growth rate. The availability of phosphate is reflected in the price of fertilizers and in the cost of food. In , the price of phosphate rock increased dramatically worldwide due to increased agricultural demand and limited supplies of phosphate rock. Regardless of whether peak global phosphorus production occurred in 1989, or will occur by 2033 or sometime in between these two years, it is clear that policy responses are necessary soon to prepare society for declining phosphorus supplies. 5

6 Overview of the phosphorus industry in South Africa Foskor, mining the world class Phalaborwa deposit, is the only phosphate producer of significance currently in South Africa. Phosphate rock concentrate is sold locally to fertilizer producers and used as a raw material input to produce phosphoric acid, which is then exported to different countries. South Africa s production of phosphate rock increased by 19.9 % to kt in 2011 compared with kt in 2010, as a result of market demand on the back of depleting stock levels (Table 2). Local sales mass increased by 14.6% to kt compared with kt in 2010, due to the stronger demand from phosphoric acid and granular fertilizer producers (Muravha, 2012). The overall picture, however, shows a steady decline in production over the past decade (Table 2). South Africa used to play a major role in the phosphate production in the global arena but in recent years export decreased drastically (Table 2). Contributing factors for this decline in production are probably the advanced stage of development of the Phalaborwa mine resulting in unfavourable yield conditions and increased mining cost. At present Foskor s mining cost ranks among the highest of phosphate producers in the world. TABLE 2: SOUTH AFRICA'S PRODUCTION AND SALES OF PHOSPHATE ROCK, South African PHOSPHATE ROCK - Production and Sales YEAR PRODUCTION LOCAL SALES EXPORTS Mass (kt) Mass (kt) Mass (kt) TOTALS Source: Foskor Apart from the Phalaborwa mine, 14 more phosphate deposits of appreciable size occur in South Africa (Table 3). Just a few of these deposits can be considered as potentially economically viable based on grade and resource size. The deposits can be divided into two geographical areas namely the Northern Provence igneous phosphate deposits and the Western Cape Province or West Coast sedimentary phosphate deposits. The largest deposit after Phalaborwa is the sedimentary deposit at Elandsfontein. This is also the deposit with the highest grade still unexploited and viable to be mined. Furthermore, the Elandsfontein deposit, together with Phalaborwa are the only South African deposits declared strategic phosphate deposits by the ISMI Working Group (USGS, 1984). Apart from the few West Coast deposits being developed, the remaining deposits are either too small to be viable as phosphate mines or have been sterilised by being located in areas declared as conservation land. 6

7 TABLE 3: SOUTH AFRICAN PHOSPHATE DEPOSITS RANKED ACCORDING TO CONTAINED P2O5 SOUTH AFRICAN PHOSPHATE DEPOSITS - RESOURCE DATA Deposit Tonnage (ore) Grade (P205 %) Tonnage (P205) Mining Status 1 Phalaborwa 1,372,000, ,296,000 Being Mined Foskor 2 Elandsfontein 90,000, ,810,000 Prospected 3 Glenover Complex 10,000, ,000,000 Mined Out 4 Duyker Eiland 33,000, ,376,000 Prospected 5 New Varswater Quarry 25,000, ,125,000 Mined, Prospected 6 Schiel Complex 36,000, ,836,000 Prospected 7 Bushveld Complex 25,000, ,625,000 Prospected 8 Elandsbaai 16,700, ,336,000 Prospected 9 Zandheuwel, Witteklip 20,000, ,120,000 Prospected 10 Muishondfontein 5,000, ,000 Prospected 11 Old Varswater Quarry 5,000, ,000 Mined, Prospected 12 Gravens Gift 1,000, ,000 Prospected 13 Langeberg Portion 7 1,000, ,000 Being Mined Gecko 14 Baard Quarry 1,000, ,000 Mined Out 15 Spitskop Complex 1,500, ,000 Mined Out Northern Province igneous deposits Western Cape Sedimentary deposits Source: Council for Geoscience The significance of the Elandsfontein phosphorus deposit The Elandsfontein deposit is a sedimentary phosphate deposit on the West Coast of South Africa with a resource of some 90 million ton ore at a grade of 10.9% P 2 O 5. It is the second largest phosphate deposit in South Africa after Phalaborwa and the economically exploitable deposit with the highest grade in South Africa (Figure 4). By being listed in 1984 as a strategic phosphate resource the International Strategic Minerals Inventory (ISMI Working Group), of which South Africa is member, regard this Elandsfontein deposit is a phosphate resource that is important to the nation s economy that needs to be safe guarded. The Elandsfontein deposit is listed as one of 139 phosphate deposits that are of strategic significance to world economy. The Elandsfontein deposit will be able to supply the international and domestic industry with phosphate at very competitive prices. Unlike the Phalaborwa phosphate ore the extraction of sedimentary phosphate will not require the same degree of high cost components of mining such as blasting, crushing and milling. Not only will the mining cost be substantially lower than that of Phalaborwa phosphate but also the logistics component will be very favourable. The Elandsfontein deposit is located a mere few kilometres from Saldanha Harbour, one of South Africa s major bulk handling ports and also a short distance to the largest fertilizer manufacturer in the Western Cape, Nitrophosca. 7

8 In Situ Grade (P 2 O 5 %) 100 1,000,000 Tonnes P 2 O 5 500,000 Tonnes P 2 O 5 5 Mt P 2 O 5 10 Mt P 2 O 5 50 Mt P 2 O Mt P 2 O Mt P 2 O Mt P 2 O 5 5 Bt P 2 O 5 100,000 Tonnes P 2 O 5 50,000 Tonnes P 2 O 5 South African Phosphate Deposits - Resource Diagram Gravens Gift Glenover Carbonate Complex Laneberg Portion ,000 Tonnes P 2 O 5 Baard Quarry Muishondfontein Old Varswater Quarry Elandsbaai ELANDSFONTEIN New Varswater Quarry Spitskop Carbonate Complex Zandheuwel, Witteklip Duyker Eiland Bushveld Complex Schiel Complex Phalaborwa 5,000 Tonnes P 2 O 5 Being Mined, Foskor Being Mined, Gecko Mined Out Mined, Prospected Prospected 1 100,000 1,000,000 10,000, ,000,000 1,000,000,000 10,000,000,000 Phosphate Ore Tonnage Figure 4: Grade and tonnage plots of South African phosphate deposits

9 Being so well positioned in terms of good quality phosphate, proximity to the harbour and location on the international trade routes places the Elandsfontein deposit in a very favourable position to earn good foreign revenue for South Africa. The advantages for the Western Cape agricultural sector and the Western Cape economy at large are self evident. Just the savings on road transport of phosphate feedstock from Mpumalanga compared to local supply makes this a very attractive prospect for the role players in the Western Cape. In terms of environmental considerations the Elandsfontein deposit is located in an area that is manageable in the hands of responsible miners with no endangered vegetation or animals in the area. The sosio-economic benefits that are expected from the development of the deposit are enormous for all residents of the area with job creation and social upliftment prospects for a severely deprived part of South Africa. References: Fertilizer international magazine, May August 2012 Foskor Annual Report 2011 and 2012 Muravha, M South African Mining Industry South Africa Department of Mineral Resources, Mineral Economics Directorate, P Patrick Heffer and Michael Prud homme, Fertilizer Outlook International Fertilizer Industry Association Ratlabala, M.E., 2003, An Overview of South Africa s Mineral Based Fertilizers,: South Africa Department of Minerals and Energy, Mineral Economics Directorate MB Bulletin, March, p United States Geological Survey, Circular 930 C, International Strategic Minerals Inventory Summery Report - Phosphate, United States Geological Survey, Mineral Commodity Summaries, Phosphate Rock, January 2012 United States Geological Survey, Mineral Commodity Summaries, Phosphate Rock, Dr. J. Hattingh Ph.D. (Geology) SACNASP 15 November