Glencore, Vedanta battle over Nam zinc deposit

 

Windhoek –  Glencore Xstrata Plc, the world’s largest mined zinc producer and Indian metals giant, Vedanta Resources, are locked in a bitter dispute over an undeveloped Gergarub zinc sulphide deposit in Namibia, which has forced the two companies to seek arbitration in South Africa.

Glencore’s 80 percent owned Rosh Pinah zinc and lead mine and Vedanta Resources’ Skorpion zinc mine and refinery, are adjacent operations in southern Namibia, about 800 kilometres from the capital Windhoek.

The two mines also share development of Rosh Pinah, a town dependent on the operations of the two mines.

Glencore lodged an appeal to try and win back control of the zinc deposit from an initial arbitration ruling, earlier this year, which structured a joint venture shareholding of Gergarub giving Vedanta’s Skorpion mine a controlling 51 percent and its Rosh Pinah a 49 percent, a source familiar with details of the ongoing dispute, said in an interview.

The shareholding structure means that Skorpion mine would also be “entitled to 51 percent of the profits” from the planned mine at Gergarub, the source said.

The tussle over the zinc deposit between the two majors has its origins in a memorandum of understanding for joint a exploration entered into between Skorpion zinc and Rosh Pinah in 2004, when the mines were still under the ownership of Anglo American Plc and Exxaro Resources, respectively.

Skorpion, which mines and processes zinc oxide, agreed to explore for oxide deposits at Rosh Pinah’s licence area while the later explores for zinc sulphides in licence areas belonging to the Vedanta unit.

The joint exploration resulted in Skorpion discovering the Gergarub zinc deposit on an exploration licence area (EPL 2616), which belongs to Rosh Pinah zinc.

Skorpion, which produces 150 000 tonnes of special high-grade zinc per year, was to explore for zinc oxide deposits in the licence area, while Rosh Pinah searches for zinc sulphides in Skorpion licence area.

“The agreement is clear that if Skorpion discovered zinc oxide, it would be theirs to process, of course, under a joint venture and vice versa. The interpretation of the same contract differs and when arguments arose in meetings, both parties decided to go for arbitration,” the source said.

“If the Gergarub deposit was zinc oxide, there wouldn’t be any arbitration. Rosh Pinah does not do zinc oxide. Ongoing arbitration is about the different interpretation of original agreement signed between Anglo American and Exxaro Resources,” the source added.

“Contract had nothing to do with Gergarub but about joint exploration on one another’s EPLs. Vedanta does not want to accept what is in the contract,” the source said.

Decisions towards the development of Gergarub would be finalised in October and initial studies estimate that the ore body could support a mine for around 10 years.

Glencore spokesperson, Charles Watenpul, said the company would not comment on the dispute while Vedanta did not respond to questions.

Vedanta chief executive officer, Tom Albanese, said at the Mining on Top summit in London a week ago that it aims to create an integrated zinc/lead business in southern Namibia and Northern Cape, South Africa, where it has Black Mountain mine and a yet to be developed Gamsberg zinc deposit.

Vedanta wants to “create an integrated zinc smelter/refinery complex at Rosh Pinah”, Albanese said.

Skorpion zinc mine is planning a refinery conversion to handle zinc sulphides and prolong the life of its operations, initially slated to end in 206/17, managing director Satish Kumar said on February 28.

Skorpion is pushing for the development of Gergarub “with severe urgency” to extend operations beyond 2017, the source alleges.

Vedanta has been vague on the future of Skorpion mine, which publicly known information says it will run out of commercially mineable ore by around 2016/17.

Vedanta hopes that the Gergarub deposit “would be able to prolong its Namibian operations”, the source said.

The two companies have also differed on whether the joint venture should build a new concentrator at Gergarub, or use an existing one at Rosh Pinah, which is located 18 kilometres away, which “could bring down the cost curve”.

The timing of developing the project is another source of contention with Glencore arguing that its resources are committed to Rosh Pinah, which is currently undergoing restructuring.

“For Glencore, it’s not a priority, it’s not the main thing; it’s important yes, and could be viable if run correctly, but normally pricing, commercial viability determines project timeframe. If it’s proven that it’s a viable project, it will go ahead,” the source said.

July 2014
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