Sonatrach unveils $15bn Algerian steel project

07 December 2007
Algiers is seeking an international partner to develop what could become the biggest iron ore mine in the world, as part of a $15bn steel project.

The three-part project involves the development of iron ore dep-osits in Gara Djebilet, near the border with Mauritania, construction of an 800-kilometre railway line to transport the ore, and a steel plant on the coast to process the iron. The deposit contains an estimated 1.7 billion tonnes of ore, with 57 per cent iron content.

“We hope it will be not only the largest iron mine in Algeria, but the largest in the world,” Energy Min-ister Chakib Khelil told MEED on 2 December, on the sidelines of the country's first international mining conference in Algiers.

“It is a key structural project for the Algerian economy,” says Mourad Belhadj, head of the project at state energy company Sonatrach. “It will also develop the southeast region, help the diver-sification of the economy away from hydrocarbons and create tens of thousands of jobs.”

Three international companies are in negotiations with Sonatrach to take a majority stake in a joint venture to develop the mine. Sonatrach is also looking for more companies that are interested.

The Algerian company intends to sign a memorandum of understanding with its selected partner by September 2008.
Talks are also under way with IMC Consultants and Snowden Mining Consulting, both of Australia, and UK firms SRK and Scott Wilson, to carry out pre-feasibility studies, expected to take six to eight months.

An appointment is planned by the end of January. Feasibility studies will follow and are expected to take up to two years.

The scheme is expected to be carried out on an engineering, procurement and construction basis, and includes the construction of an onsite iron ore crushing plant, likely to take two to three years; a steel processing plant, most likely at Beni Saf, which will take four to five years to build; and associated transport infrastructure.

Steel production is expected to start by the end of 2014, with the majority to be absorbed by the local market. Any surplus will be exported.

“We aim to transport 20-40 million [tonnes a year] t/y of iron ore to the north where we will produce 5-10 million t/y of steel,” says Belhadj. “We do not have the water resources to do the concentration on site.”

The project also involves the creation of a new town at Gara Djebilet. “To support a mine producing 10 million t/y of iron ore will require a town of 5,000 people,” says Belhadj. “To produce 40 million t/y will need a population of 15,000.”

Several studies and drilling projects have already been carried out on the resource, which was first discovered in 1952.

“The deposit is well known in terms of its geological and technical aspects,” says Belhadj.

“Almost 400 holes have been drilled, which substantially reduces the exploration risk.”

But the project faces significant challenges - notably its location, 1,600 kilometres from the Mediterranean coast, and the high phosphorus content of the iron ore.

To transport the ore to the north will require a railway from the mine to Bechar, 800 kilometres to the northeast, and probably an upgraded railway between Bechar and Oran in the northwest.

“It is unlikely that the existing railway can cope with carrying 40 million t/y of ore,” says a senior executive at one international mining company. “It would make more sense to go through Mauri-tania to the Atlantic.”

But the Algerian government has ruled out transporting the ore to a Mauritanian port and then shipping it to plants worldwide.

“For strategic reasons, Sonatrach wants to do the project inside Algeria,” says Belhadj. “The impact of the project is not just commercial, it is important for the country as a whole. We do not want to just export the raw materials, we want to have the added value in Algeria.”

The development of infrastructure is likely to depend on government support. “Transportation costs will be included in the project scope, but if they are the last hurdle in discussions with the government, I am sure a solution can be found,” says Belhadj. “If we need to appeal for government assistance, we will. I am sure the government will do whatever it can to make everything easier.”

Questions have also been raised over the viability of processing iron ore with an estimated phosphorus content of 0.8 per cent. To produce steel, this element needs to be almost completely removed.

“It is not easy to reduce the phosphorus levels to acceptable international standards,” admits Belhadj.

“But new techniques mean that it is feasible. The only concern is a financial one, because it is a costly process.”

Sonatrach was appointed as promoter of the integrated project in January 2007 following the unsuccessful tender in 2005 of a contract to develop the iron ore mine alone.

A second deposit at Mechri Abdulaziz, just 250 kilometres from Gara Djebilet, contains an estimated 700 million tonnes of 52 per cent iron ore. Sonatrach does not have the development rights, but it could be brought in to the project at a later stage.

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