The Lamergyre Alloys Project has been conceived and designed to synergise South Africa's potent industrial capacity with Internationally proven, leading edge environmental integration strategies on an unprecedented scale, as a targeted assault on the massive underemployment spawned by capital investment starvation, market estrangement and the fragmentation of process technology.
It is simply no longer feasible to attempt piecemeal solutions. In order to succesfully realise meaningful outcomes, we are compelled to "go big or go home". There is no practical middle ground.
Conventional wisdom asserts that "the bigger they are, the harder they fall". Current economic thinking posits the notion that something can be "too big to fail".
Whilst the former would appear to be axiomatic, there are some serious questions about the latter. Generally, the actual meaning is that something is too big TO BE ALLOWED to fail. That is a crucial semantic difference, as it automatically throws a burden for that thing's survival onto an external support mechanism, or bailout. It is very much misaligned with any free or open market principles.
So, the question then becomes "How can we be too big to fail WITHOUT external bailout in an open market?".
The answers to this question are what underpins every facet of the Lamergyre design philosophy. In seeking those answers we were compelled to explore factors far beyond the extent of the alloy plant itself, and expand the scope of the project to include control or ownership of those factors.
Materials, Logistics, Energy, Water and Labour are obvious factors to include, as a breakdown in any one of them would result in failure of the entire project. Materials and logistics can be acquired or controlled relatively easily. Energy and Water supply present the biggest technological challenges, and the most complex factor, by far, is Labour.
These issues are addressed by the team in our feasibility documentation, which defines the viability and ensured success of the project.
- Build a sustainable means of production.
- Develop skilled, loyal, well-motivated employees.
- Enable employees to work and live with dignity.
- Exercise exemplary environmental neighbourliness.
- Be an asset to the broader community.
Materials & Logistics
Direct provision to proximate tertiary and downstream enterprises extends the integration, creating entrepreneurial "opportunity nuclei" for wider distribution of the Lamergyre product range.
The Human Element
Lamergyre Alloys Limited will provide a training, employment and living environment of such exceptionally high standard, nurturing employees and their families from cradle to grave, that it will foster fierce loyalty and generational commitment to the continued success of the project - the win/win/prosper gambit.
The DNA of Risk Mitigation
The Big Fish - Sustainability
In addressing such critical component to the Cost-structure it would be imperative for the future of the plant-facility that the cost and future resource be controlled (management or equity controlled) and guaranteed as far as humanly possible.
That being said this can only be achieved by controlling the resource itself and the proactive improvement of beneficiation-cost. Improving the beneficiation cost of one of the most expensive components to the cost-mix would require a massive drive in relation to R&D.
It is the belief of the board that the required cost-levels will be achieved in the very near future and as such is in the process of final investigations into ground breaking technology.
It is the opinion of the Board that the impending implementation of regulated government policy to phase out carbon rebar in favour of Stainless Rebar will propel exponential market growth in the very near future. This will surely be a "Game-Changer".
Stainless Steel not a traded commodity on the LME or FME. The utilization of Commodity Traders is envisaged, including possible offtake by the LME and/or FME, to market and sell the product from Lamergyre. Lamergyre does not exclude the option to establish its own trading platform to secure market penetration.
The major aspect of Sovereign risk in many developing economies relates directly to the outcomes of desperate measures taken by those States to prevent egregious profit transfers and the denuding of the State natural resources without provision for the sustainability of the local economy and without contributing to the fiscus of that State the funds required to create a viably sustainable local economy itself.
The result is often draconian legislation that incorporates racial, environmental, social and fiscal measures that are so onerous that in the international community of investors and miners, there are simply no takers. The outcome of such measures is generally industrial shrinkage, as many emerging economies rely on their natural resources for foreign direct investment and sustained economic growth.
This in turn leads to political unrest which leads, in several instances, to the violent overthrow of the government and its replacement with an institution that once again allows for the effective looting of the country’s resources in order to obtain a temporary economic re-growth. The cycle then tends to repeat itself [Zambia, the DRC, and Zimbabwe are good current examples of this cycle in the African context].
For Lamergyre, the response is multilateral –
Firstly, and most importantly, the corporation commits to working with unequivocal integrity in all its dealings with State, parastatal, regional and municipal institutions.
Secondly, the corporation will assert and maintain a clear and succinct mutual understanding of the meaning and application of “good corporate citizenship” of the sovereign States in which it carries out its operations. This includes addressing issues of sustainable development and being transparent in all aspects of its fiduciary responsibility.
Thirdly, the corporation's exposure to central bank restrictions on the movement of funds will at all times be proactively managed to ensure maximum limitation of risk to corporate trading sustainability.
Despite these measures, it is clear that the growth pains of developing countries, as they emerge from third world poverty and deprivation, manifest in the implementation of legislation that may be short-sighted or even totally destructive to any existing enterprise or to the investment in any developing enterprise.
To address this issue the mitigation of Sovereign Risk will be implemented by Sovereign Risk Insurance over the Debt-borrowing-term. Subsequent non-financial guarantees, such as land-security from the National Government will provide more relief on this aspect.
In respect of engagement with Government on these issues, the Lamergyre Alloys Limited business model is strategically aligned with entrenched South African Constitutional imperatives for social upliftment, providing a further bulwark against political or legislative threat to the project sustainability.
Sovereign Risk is not exclusive to the African market and it is the opinion of the Board that this will not slow the investment from Europe or East-Asia, as the abundance of resources and development opportunity in Africa will more than outweigh the risk.
The Moody’s Rating for the South African economy is currently just above Investment Grade, and there is a definite resource beneficiation investment-drive into Africa from India, China and the United States of America.
The Wider Net - Profitability
NICKELNickel is a scarce resource that is extremely volatile in terms of supply and demand. Because of the high cost of extraction of nickel as soon as demand lessens the supply drops off drastically with all but first cost quartile mines being mothballed. Scarcity then kicks in and the inelastic portion of the market demand forces the price up – with the result that the mothballed facilities are reopened and in a comparatively short period there is a glut of nickel on the market that promptly forces the price down….to repeat the cycle.
Total nickel annual demand is of the order of 2 million tons per year. With the planned production of Lamergyre alloys at full spate after completion of phase 3, and based on concentration of production in the austenitic arena, the Lamergyre additional demand for charge nickel will be 660 000 tons per annum. This represents an increase of 33% of global production levels.
Tied in to this volumetric increase [which will occur, let it be said, whether the Lamergyre project proceeds or not – it is predicated on an austenitic stainless-steel growth curve that is consistent for 30 years or more] is the application of nickel to electric battery-driven vehicles. Nickel forms from 45kg to 90kg+ for the batteries in each and every vehicle that is electrical battery dependant for its energy.
In 2016 70 million new motor vehicles were produced. If all new motor vehicle production were to be battery driven and even if each vehicle used a paltry 45kg of nickel for its drive system, the demand for nickel would be 3 150 000 tones, or 50% more than the current total annual production on 2 000 000 tons.
Add to that austenitic stainless-steel organic market growth of 5% per annum compounded [this is a conservative value for illustrative purposes only – actual average growth can be regarded recently as being 8% per annum] represented by Lamergyre 660 000 tons and there is credible potential for a significant market shortfall developing in the global supply of nickel.
Austenitic Stainless steel cannot be made economically without nickel. Up to 70% of the cost of manufactured austenitic stainless steel is the cost of the nickel that is incorporated into that steel.
The board of the company has determined that this risk be managed by taking control of the supply of nickel to the plant through vertical integration of nickel mining and processing activities into the overall Lamergyre environment.
As with the Nickel, Molybdenum is a high value alloying material and expensive to mine and process into a usable product, therefore, while the requirements of +/- 125,000 tpa is relatively small, it will need new mining and processing capacity to be installed.
The material is available but because of vagaries of the trading organisations, supply and demand will cause shortages and volatile prices. To avoid this we have started discussions with a new North American mining company who are in the process of developing a new mine which is capable of supplying +/-30% of our requirements. They also have access to other resources which they indicated could supply all of our needs.
The approach will be the same as that of the Nickel strategy, to partner with the mining companies where we supply the processing equipment, run the mine and operate the mineral extraction equipment on a BOT basis, tied to a 30/50 year off take agreement.
This will ensure and secure our long term supply chain and control the price of Molybdenum concentrate.
LNG GAS SUPPLY
Lamergyre Alloys will install an off loading terminal and tank farms both at the dock and at the steel works to hold 3 months of gas usage.
Currently LNG is being produced and delivered globally mainly from Australia, the US and the Middle East. The Mozambique LNG facilities are also coming on line and we will negotiate bulk supply with them.
Offshore drilling is ongoing on the East coast of South Africa and promising resource has been located and is undergoing development, when this is ready we would of course use this gas in our plant.
Currently there is sufficient gas readily available to meet requirements and the prices are relatively stable.