Malawi Limestone Project
Mining and Lime Manufacturing
Feasibility Study
Summary
G.W.P.MALUNGA
page i
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SUMMARY OF THE BWANJE VALLEY LIMESTONE
FEASIBILITY STUDY
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Malawi Limestone Project
Summary
Mining and Lime Manufacturing
Feasibility Study
Page 1
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1.0
INTRODUCTION
1.1
Presentation of the Study
The present summary covers MET-CHEM's assessment recommendations of the
technical, financial, environmental and economic viability of establishing a
limestone mining and limeworks at Bwanje Valley,Ntcheu district, Malawi.
1.2
Limestone Resources of Malawi and Production Figures
Limestone is currently the most valuable mineral commodity extracted in Malawi.
It is mainly used in the production of cement. Limestone is also the raw material
for lime used in the construction and agricultural industries.
Several types of limestone occurrences have been documented, of which the
most important are marble bands in the basement complex gneisses. Large
occurrences exist also in carbonates and sedimentary rocks (Table 1.2).
The marble bands are mainly dolomitic and pure calcitic have been observed only
at Changalumi, Chikowa - Liivwezi and Bwanje Valley (near Golomoti). The
Changalumi marble is the only source of limestone for cement production in
Malawi. Cement production is around 130,000 tonnes per year. For quality
reasons, some limestone has been extracted from Chenkumbe to blend with that
from Changalumi. About 20,000 tonnes per year of cement are officially imported
into Malawi. Unofficial figures, however, are estimated to be closer to 50,000 tpy.
Chikowa - Livwezi calcite marbles occur to the Northeast of Kasungu Boma.
Shayona Cement Company have Mining Rights there but seem to have financial
and technical problems which are delaying the development of a cement factory.
The main lime producing areas in Malawi are concentrated in the Middle Shire
area within Chenkumbi - Ulongwe and Lirangwe - Kholombidzo areas. On
average, it is reported that 3,000 tonnes of lime are produced annually. A general
decline in lime production has been noted over the last ten years, attributed to the
scarcity of fuelwood from these lime-producing areas.
Dolomite production in this area is heavily dependent on demand in the
construction industry. An average production of 2,000 tonnes has been noted.
Table 1.3. gives picture of limestone production figures between 1989 and 1993.
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1.3
General Overview of the Mineral Resources of Malawi
Mineral exploration in Malawi started with industrial minerals. Among these
industrial minerals are vermiculite, kaolin, iron sulphides, graphite, kyanite,
apatite, coal and limestone. Most of these minerals require more quantification to
justify the heavy capital investment (Table 1.1) required for exploitation.
1.4
Institutional Framework of the Mining Sector
The institutional framework for mineral development in Malawi comprises: Ministry
of Energy and Mining; Department of Geological Survey; Department of Mines;
Malawi Development Corporation and the Malawi Promotion Agency.
Mining Investment and Development Corporation Limited is charged with the task
of spearheading mining in Malawi. Its role includes the initiation of technofinancial feasibility studies of selected mining opportunities and to promote,
mediate and initiate mining investment.
Malawi Development Corporation has, as part of its mission, the mandate to
develop the mineral resources of Malawi through joint ventures with both local and
foreign investors.
The Corporation is currently producing Portland Cement through its subsidiary the
Portland cement Company of Malawi. It has also formed a Consortium with INDE
Bank, which is operating Mchenga Coal Mines Ltd. located in Northern Malawi.
Malawi Investment Promoting Agency undertakes investment promotion from both
within and outside Malawi and is also charged with facilitating mining investment
by local and foreign investors.
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Summary
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Feasibility Study
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TABLE 1-1 -THE LEVEL OF EVALUATION OF MALAWI'MINERAL DEPOSITS
(Source: Ministry of Forestry & Natural Resources Brochure & Malunga,1992)
MINERAL
LOCATION
ANALYSES
Bauxite
Mulanje
Mountain
Ceramic clays
Linthipe
AI 203-43.9%
Free
Quartz-13.3%
AI 203-33.8%
SiO2-46.7%
Coal
Mchenga
Mwabvi
Graphite
Ngana
Katengeza
Tuinchi
Heavy sands
Kyanite
Limestone
Chimutu
Tengani
Salima
Kapiridima
Chikowa/
Livwezi
Chenkumbi
Niobium
Phos[phate
PROBABLE
RESERVES
Chilwa Is.
Iilomba
Nanthache
Nanthache
Chingale
Mlindi
Chilwa Is
kangankunde
0.37% Nb2O3
15 - P2O5
3.7% - P2O5
7.8% - P2O5
2.5% - P2O5
2.8% - P2O
REMARKS
Md
Fs
1.4Mt
5Mt
Ps
2.2Mt
150Mt.
Ps
70Mt.
Ps
Fs
15.5 Mt.
C-4.2PSD
(>.25mm)
-63.2
C-6.0
PSD (>.25mm)
75%
Rutile - 3.%
Iimenite - 3.0%
POSSIBLE
RESERVES
60Mt.
14.1Mt
Ash-14%
CV-Kcal/Kg
7226
Ash - 40%
MC-Kcal/Kg
4100
Ash-40%
CV-Kcal 4799
15%
51.0 CaO
0.7 Mgo
46.1%CaO
6.3% MgO
53.6%CaO
1.4%MgO
0.95 Nb2O3
0.30% Nb2O3
Malowa
PROVEN
RESERVE
28.8 Mt.
.03Mt.
Ep
Ep
Ps
.3Mt.
2.5Mt.
67Mt.
>1 Mt.
30,000t
10.0 Mt
314,000T
10.0Mt
300Mt.
Fs
0.5Mt.
3.0Mt.
Fs
375,000 t
104,000 t
(ore)
9000,000 t
1.25 Mt.
Ps
0.9 Mt.
8.75 Mt.
2.4 Mt.
Fs
Fs
Fs
Fs
Ep
Ep
Ep
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MINERAL
LOCATION
Pyrite/Pyrrohitie
Chisepo
Malingunde
Nkhanyu
Kadamasana
Kangankunde
Nanthache
Songwe
Rare earths
Strontianite
Talc
Uranium
Vermiculite
Kangankunde
Muso
Joshua
Mzimba
IIombo
Kayerekera
ANALYSES
PROVEN
RESERVES
8.4 S10.7% S
8.0% S
10.0% S
34.0 Mt.
10.0 REO
7.0 % REO
1.7% REO
0.3 Mt.
0.6Mt.
1.4 Mt.
17.9%
58,078t
PROBABLE
RESERVES
32.0 Mt
10.0Mt.
POSSIBLE
RESERVES
4.5 Mt.
4,000 t
2,000 t
511g/t eU3O8
0.17%U
53,000 t
10,000 t
Ps
Ps
Fs
Ep
Fs
Fs
Fs
Fs
Fs
Ep
Ps
Md
Feremu area
Mlindi
REMARKS
Fs
5.0 120 Kg/m3
DBD
9.0%
125 Kg/m3
DBD
1.5 Mt.
450,000 t
Ps
Table 1.2
Main Limestone Occurrences in Malawi
GROUP
Basement Complex
Sovite Carbonatite
+Karroo
LOCATION
Changalumi
Chilwa Island
Mwesia
ESTIMATED QUANTITY
100 million
Very large
Large quantity
Nigana
Very large
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REMARKS
MgO<1%
MgO<1%
MgO <2%
Total Carbonate
43 - 55%
variable MgO content
Total Carbonate 72 - 82%
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Table 1.3
Limestone Production Figures (tonnes) in Malawi, 1989 - 1993
YEAR
Dolomite
Cement
Lime
1989
1,003
122,545
3,456
1990
2,483
138,630
4,096
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1991
3.06
173,103
5,329
1992
1,747
179,404
3,280
MET-CHEM
1993
2,789
120,000
2,468
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2.0
PROJECT BACKGROUND
2.1
Project Description
The Feasibility study presented by MET-CHEM consists of a comprehensive
technico-economic evaluation of an operation of limestone mining and lime
manufacturing based on the Bwanje valley limestone deposit. The drilling and
chemical; analyses were executed by Malawi Geological Survey based on the
programme established by MET-CHEM geologists. Metallurgical tests were
performed by several laboratories in North America and Europe in order to select
the most suitable calcination technology.
The study presents the optimal capacity of the limeworks operation to produce the
products with specifications based on the findings of the market survey. The
overall aim of the study is to determine the followings:
a,
the optional production of the operation which includes pulverised lime
requirements as well as hydrated lime and other specific products.
b,
The products and specifications which can be produced using the Bwanje
Valley limestone.
c,
The technical and financial viability of different possible scenarios.
d,
the benefit which could accrue to Malawi from this limestone operation.
The study covers all aspects of the projects such as the market, transportation of
the product, limeworks location, ore reserves evaluation and mining, limeworks
process and economic profitability, personnel requirements, operating agency and
construction schedule, concluding with the overall project justification and
recommendations.
2.2
Project Location
Bwanje Valley marble deposit lies to the South -western arm of Lake Malawi. The
nearest Trading Centre to the deposit is Golomoti and is about 7 kilometres to the
West.
The deposit lies around the intersection between Longitude 34o 40' and latitude
14o 25' South (FIG. 2.1).
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Mining and Lime Manufacturing
Feasibility Study
Summary
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Bwanje Valley marbles rise from an altitude of about 480 metres to an altitude of
520 metres. The Valley is a continuation of the southwestern arm of Lake Malawi
and extends between Bilila Fault Scarp in the West and the Nothern Chiripa
Plateau in the East.
A Lake shore road (M17) and rail line are about six (6) kilometres from the marble
deposit. The road starts from the Blantyre - Lilongwe road, near Balaka, and joins
to the Northern Corridor road at Mzuzu. The rail line goes as far as Lilongwe and
Mchinji near the Zambian Border and provides access to the port of Nacala in
Mozambique.
The distance between Zomba and Bwanje Valley Marble is 173 Kilometres while
from Lilongwe it is 209 Kilometres.
Access to Bwanje limestone deposit (Malowa hill) is very difficult during the rainy
season because the area around becomes water logged or marshy.
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Figure 2.1.
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Malawi Limestone Project
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3.0
Page 9
GEOLOGY AND CARBONATE ROCKS RESOURCES
The marble deposit occur in the Bwanje Valley, about 7-9 Kms east of Golomoti in
Ntcheu district, in an area near the main Lilongwe-Blantyre highway and the
railway line which links Balaka and Salima. The deposit consist of four hills, the
most important ones being Malowa and Khungule Hills. The hills are found in the
centre of a dambo, which consists mainly of a flat lying area of clay and silt size
material which are cracked during the dry season and waterlogged in the rainy
season. The mining concession is of irregular shape and covers an area of 2.8
km2.
3.1
1995-1996 Exploration Program
The 1995-1996 exploration program resulted in a 2,500 metre drilling campaign
on the Malowa and BAB hills with core description and sampling, followed by
physical and chemical analyses. In the addition to the drilling and analyses,
geological mapping has been undertaken so as to better understand the geology.
3.2
Drilling Program
The drilling program was designed based on core drilling using NX size core, was
undertaken by the Geological Survey of Malawi using two boring machines. A
total of 79 holes have been drilled between October 1995 and December 1996
representing a meterage of 2483 meters. On the main of Malowa Hill (particularly
in the North part between L1 and L10) drill holes have been more or less drilled
according to a 60m x 30m pattern in calcitic zones and in BAB Hill area, the
spacing was increased as the drilling was only done for indication purposes.
A total of 663 samples totalling 1351 metres have been analysed for CaO, MgO,
SiO2, Fe2O3, SO3, P2O5, K2O, Na2O, insoluble, and L.O.I. In addition, core
recovery percentage, as well as Rock Quality Design (RQD) index, have been
evaluated for each rock unit segment.
3.3
Carbonate Rocks Resources for Malowa
Based on the geology interpreted from the surface mapping and the drill holes, a
3-D block model have been built which had served to evaluate the area resources.
The overall undiluted carbonate rocks resources for the Malowa main , L1 to
L14, have been evaluated at 14.85 millions tons @ 46.83% CaO, 1.36% MgO
inside the calcitic rocks bands (Lcode =2) and 17.53 millions tons @ 36.61% CaO,
7.14% MgO inside the dolomitic and impure rock bands (Lcode =3). This includes
all resources, regardless of the category, without any external dilution; but a
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deduction of 23% have been applied to account for the cavities. The density used
is 2.66 t/m3.
Summary of the resources as well as categories are presented in the table 3.1.
3.4
Resources Categories per Market Class
In addition to its classification according to lithology, (inside the identified rock
bands) the resources of Malowa Main have been classified according to the
following table, which takes the market requirements into consideration. The
classes are based on the chemical composition variation of calcite, dolomite and
non-carbonate materials. The codes (ORE) used here under correspond to the
seven (7) rocks codes (market types) identified in the 3-D blocks model.
Chemical Composition
A.
Name
Code
CaCO3 >80%
a.
CaCO3 >93%
Ultra High Calcium Rock
1
b.
90% < CaCO3 <93%
High Calcium Rock
2
c.
80% <CaCO3 <90%
Medium Calcium Rock
3
B.
MgCO3 >20%
Dolomitic Calcium Rock
4
C.
All other carbonate rocks
Impure marble
5
D.
Carbonates <50%
Non-carbonate Rock
6
E.
Not codified
7
Based on this classification, the Malowa Main area contains 12.29 million of
calcitic rocks (ORE 1,2,3) and 3.69 million of dolomitic rocks (ORE 4). Figure 3.2
is a summary of the results.
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Figure 3.1
Carbonate Rocks Resources by Lithology
a. Carbon >50%
Calcitic Rocks (Lcode =2)
Tonnage x 000's CaO
Dolomitic Rocks (Lcode =3
MgO
SiO2
Tonnage x 000's
CaO
MgO
SiO2
Measured
Indicated
Inferred
3,806
5,844
5,194
48.70%
47.46%
44.74%
1.50%
1.43%
1.18%
6.65%
8.19%
1932%
1,265
6,415
9,981
36,65%
38.70%
35.26%
9.14%
6.49%
7.32%
12.25%
12.91%
14.98%
Total
14,844
46.83%
1.36%
11.69%
17,661
36.61%
7.15%
14.03%
Carbonate Rocks Resources
a. Carbon >80%
Dolomitic Rocks (Lcode =3)
Tonnage x 000's CaO
MgO
SiO2
Dolomitic Rocks (Lcode =3)
Tonnage x 000's
CaO
MgO
SiO2
Measured
Indicated
Inferred
3,303
4,893
3,363
50.33%
49.00%
47.71%
1.49%
1.45%
1.22%
5.92%
6.58%
16.55%
746
4,136
4,887
39.99%
41.69%
38.45
9.91%
7.24%
7.76%
9.31%
10.22%
11.14%
Total
11.559
49.01%
1.39%
9.29%
9,770
39.94%
7.70%
10.61%
Note: Carbon = 1.79*CaO + 2.1* MgO
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FIG 3.2 CARBONATE ROCKS RESOURCES BY MARKET CLASSES
Total Resources
Ore Class
1
2
3
Sub-total
4
Tonnes x 000's
CaO
MgO
SiO2
LOI
AI2O3
Fe2O3
2,396
2,445
7,447
52.72%
51.23%
47.57%
52.72
0.93%
1.67%
5.24%
5.97%
9.75%
41.34%
40.44%
39.04%
0.64%
1.72%
4.18%
0.34%
4.37%
0.66%
12,288
49.30%
1.38%
8.12%
39.77%
3.00%
1.34%
3,686
35.54%
12.18%
9.68%
40.66%
2.54%
0.63%
Measured and Resources
Ore Class
Tonnes x 000's
CaO
MgO
SiO2
LOI
AI2O3
Fe2O3
1
2
3
2,004
2,074
5,248
52.77%
51.27%
47.65%
1.05%
0.93%
1.77%
4.70%
5.72%
8.38%
41.35%
40.40%
39.29%
0.58%
1.39%
3.58%
0.33%
0.44%
0.64%
Sub-total
9,325
49.37%
1.46%
7.13%
39.91%
2.56%
0.54%
4
2,157
36.21%
12.99%
8.60%
41.35%
1.55%
0.65%
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4.0
Market Study
4.1
Introduction
The Malawi Government has been showing concern over the supply of limestone
and lime products to various consumers within in the country. Demand has been
steadily increasing and there has been no indication of any new, local producer of
lime which could meet this demand. Indeed, there is a continued increase in lime
imports. The existing small-scale lime burning operations have been besieged by
costly increases inn energy and their output is on the decline. Most of these local
operations are at Balaka in Machinga district and Lirangwe in Blantyre district.
In an effort to increase the quantity and improve the quality of local production, the
government sought assistance through (Intermediate Technology Development
Group), ITDG, to test and build appropriate technology kilns.
Two such kilns were originally constructed - one at Uliwa in Karonga district and
the other in Balaka.
Although these kilns demonstrated improved technologies, they have not had any
impact on local production. The one in Karonga has been inoperative for the past
three years and the other in Balaka has performed dismally, both due to
management problems.
A second kiln was built at Balaka, based on the
experiences of the other two. Although this kiln was fully equipped to produce up
to 3 TPD of high-grade lime, the venture was unsuccessful and the local private
company folded up in 1992. The kiln and the related infrastructure have since
been sold for other purposes.
As part of this Feasibility Study, the current drilling programme has shown an
increase in the reserves suitable for a limeworks. See Volume 1, Section 3. The
proposed limeworks should satisfy the local demand and have export potential,
thus allaying the concerns of the Malawi Government.
4.2
LIMESTONE USES
There are many uses of crushed or pulverised limestones and they must meet
certain physical and/or chemical properties. The following is the list of the
applications for limestone products that are relevant to the Malawi and regional
markets.
Agriculture, cement manufacturing, chemical and metallurgical industries,
aggregate, coal mining and dimension stones.
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4.3
Lime Uses
Lime is used in a wide range of applications. The tradition building and agriculture
applications have greatly been overtaken by its uses in the chemical and
metallurgical industries. Listed below are some of the more important uses of
lime.
Iron and steel, non-ferrous metallurgy, environment control, manufacture of
chemicals, bleach power, sugar industry, agriculture, water treatment, sewage
treatment, building and construction, glass industry, etc.
In sugar lime is used in beet sugar and cane sugar refining. Lime removes the
phosphatic and organic acid compounds from the sugar containing juice. The
compounds are then removed by filtration. From purifying beet sugar 0.25 tonnes
of lime are required for 1 tonnes of sugar. Similarly 0.002 to 0.004 tonnes of lime
are required for 1 tonnes of sugar. Similarly 0.002 to 0.004 tonnes of lime are
required for 1 tonne of cane sugar.
Most of the agricultural liming utilises ground limestone. Some farmers or farming
institutions still use lime - quicklime or hydrated. Lime is more expensive than
limestone but reacts faster, neutralising soil acidity rapidly. This added cost is
persistent magnesium deficiencies.
Lime is also used as detergent in whitewashing dairy barns, for composting,
chicken litters, etc.
High grade lime is used in the treatment of municipal potable water and industrial
process water. Lime is used to remove temporary bicarbonate hardness from the
water. When there are both temporary and permanent (sulphate) hardness, lime
is used along with soda ash.
The high pH of 11.5 from lime in water acts as sterilising agent since retention for
3 to 10 hours at this pH will destroy 99 + % of the bacteria and most viruses. The
pH is lowered to accepted levels by introduction of CO2, precipitation lime solution
as a carbonate sludge.
4.4
Total Lime Supply
Total lime supply from both local and imports over the last five years is shown in
the table below.
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YEAR
LIME
TABLE - TOTAL LIME SUPPLY 1990 - 1994
1990
1991
1992
1993
7,522
7,981
8,150
3,491
1994
10,521
A part from the anomaly in 1993, the figures confirm the Government (Ministry of
Commerce) projections that lime supply should grow by an average ten(10)
percent per annum. Assuming this trend is correct then the following projections
can be made:
YEAR
LIME
4.5
TOTAL LIME SUPPLY 1995 - 2000
1995
1996
1997
1998
1999
11,573
12,730
14,000
15,400
16,944
2000
18,640
DEMAND OF LIMESTONE AND LIME PRODUCTS
4.5.1 Limestone products
The demand for limestone is reflected by the various different users. These
industries include agriculture, cement manufacture, chemical industries and paint
manufacture. Table below summarises the demand for limestone.
TABLE - CURRENT DEMAND FOR LIMESTONE
INDUSTRY
COMPANY
CONSUMPTION
MIPA
CEMENT
Portland
28,000
Grain Mill
540
Rab Processors
110
Veterinary Services
300
Optichem
1,200
Press
100
CHEMICALS
Lever Brothers
1,650
PAINT
Dulux
300
Rainbow
100
Valmore
300
MINING
Mchenga
120
TOTAL
32,820
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New Opportunities
1.
Agriculture is and will remain the mainstay of the Malawi economy.
Limestone will play a significant role in this economy. Liming of the soils is
needed due to excessive use of ammonium sulphate fertilisers which
identify the soil.
Optichem, the company that supplies pulverised
limestone for liming, estimates that an annual consumption of 40 000
tonnes is optimum if the sector is adequately sensitised.
2.
Government is conscious of the prices of fertiliser being imported for the
crucial agriculture sector of the economy. The country's requirements of
fertilisers are 200 000 TPA, of which 40% is limestone. If the plant comes
on stream this would call for 80 000 TPA of pulverised limestone.
Export Potential
It is not expected that there will be any export potential for limestone or dolomite
due to its low value.
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4.5.2
Lime
Existing Demand
The current demand pattern for lime products is as follows:
INDUSTRY
SUGAR
COMPANY
CONSUMPTION (TPA)
DWANGWA
SUCOMA
1,500
2,000
AGRICULTURE
PRESS
SABLE
100
820
SOBO
7
BATA
104
LIWONDE TANNERY
12
MIN. OF WORKS
MANDALA BUILDING
HARDWARE & GD
CHIPIKU
40
1,500
350
600
7033
WATER
SHOE
LEATHER
CONSTRUCTION
TOTAL
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Malawi Limestone Project
Summary
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Mining and Lime Manufacturing
Feasibility Study
New Opportunities
1.
A new sugar works is on the drawing board by Candlex Limited in joint
venture with a Malaysian Company. Negotiations are complete. The
factory will be in Salima, which is much closer to Bwanje than the other
two sugar plants. If this comes to fruition, the demand for lime for this new
factory is estimated at 2500 TPA. The total demand and requirement for
lime in the sugar industry is expected to remain fairly constant at 6000
TPA. Production is planned to start in 1998.
2.
The water supply in district centres other than Blantyre and Lilongwe use
soda ash with a consumption of 100 TPA. This would also be the
consumption of lime should the Ministry revert to lime in the face of
escalating prices of imported soda ash. If good quality lime was available
the district water treatment centres would switch to lime. Of course this
consumption is insignificant but in the long term there are planned to be
more surface water sources, for instance dams, hence the need for
treatment. As population grows with a commensurate urban growth,
demand for treated water will increase. But water treatment by lime faces
competition from polymers as shown by the two water boards of Blantyre
and Lilongwe. This market for polymers may not survive for long
especially if it is supported by an abundant supply of foreign exchange for
imports as opposed to locally, available, affordable, good quality lime.
3.
Plans are already at an advanced stage to put up a bottling plant by the
Southern Bottlers Company inn Mzuzu in 1996. Consumption of lime is
expected to increase only marginally depending upon increasing demand
of products.
4.
A pulp and paper factory has been on the drawing board for many years
and the project has been modified several times. There strong indications
that this project will eventually be realised. Should this come to fruition it
will call for an estimated extra 2 000 TPA of high grade lime.
Export Opportunities
1.
A limited amount of work has been done on opportunities existing in the
neighbouring countries.
2.
There are fair amounts of imports from Zambia. The country has been
Malawi's traditional supplier of lime. It produces sufficient quantities for its
chemical industry. Zambia would not be a natural target for Bwanje lime.
Zambia's export opportunities give a good indication as to where market
opportunities lie.
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April 1997
Malawi Limestone Project
Summary
Mining and Lime Manufacturing
Feasibility Study
Page 19
3.
Mozambique has just come out of internal instability and civil war. There is
a lot of scope for reconstruction and a subsequent demand for raw
materials. During the civil war all limeworks ceased operations. They
have not yet been restarted. With peace, opportunities will abound for
their rehabilitation. Activities in the mineral sector have also risen
generally. It is a market that should be looked at in detail in the short to
medium term, particularly around the towns of Tete province which include
the Moatize coal mines.
4.
Tanzanian lime production has been declining steadily from 3000 tonnes in
1988 to 870 tonnes in 1992 showing increasing imports to sustain
consuming industries. Figures are not available for the past two years.
The impression at SADC MINING COODINATING UNIT (MCU) is that the
lime industry is in the decline. This is market worth investigating in greater
detail, particularly the Southern part close to Malawi.
5.
Lime in Zimbabwe is being produced by a number of companies both
small and large. There also exist a large number of identified limestone
deposits which are untapped. Unfortunately, they have high impurities of
silica, iron and phosphorous.
A number of industries in Zimbabwe need high grade lime which is not available
locally and is imported from South Africa and Zambia. The main users of imported
lime are ZIMALLOY, water treatment plants, and sugar industry.
4.6
CONCLUSION AND RECOMMENDATION
On a year to year basis, lime production, imports and consumption have
increased only marginally in unison with the economy over the last four years.
The manufacturing sector averaged 13.3% of GDP over the years 1990 to 1994.
The growth in this sector is mainly from agro-processing industries, particularly
sugar and tobacco, fertiliser and chemical manufacture. In the medium term
manufacturing is expected to grow at 3.8%. In the past ten years, the agriculture
sector has averaged 34% of real GDP. Any fluctuations in GDP are due to
agriculture fluctuations. This sector is expected in the medium term, to grow,
ahead of population growth, by an average 10.7% per annum. Limestone,
dolomite and lime products are associated with the agricultural sector and hence
have a similar potential for growth.
In general the economy is expected to
perform positively with growth rates between 4.3 and 4.5% in the medium term.
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Malawi Limestone Project
Summary
Mining and Lime Manufacturing
Feasibility Study
Page 20
The current imports will remain until a local supply source is developed. There
does not seem to be any improvement in sight from the current local small
producers to meet the high grade technical requirements. Unfortunately the small
producers are also hindered by energy and technology problems which will
eventually squeeze them out of the industry creating shortages of low grade
products as well. In addition, there are new projects, particularly the new sugar
factory and the paper and pulp project, both of which will consume significant
quantities of lime.
It is vital for Malawi to be outward looking and participate in external markets. The
Bwanje project provides a great opportunity for export development and it must be
developed with a major aim to export lime and any other products that would
attract external markets. The lime plant would be designed so that it can easily
increase its capacity as market evolve from the initial 15 000TPA. The national
economy may be able to absorb this level of production in the short to medium
term in the absence of a fixed export market.
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April 1997
Malawi Limestone project
Summary
Mining and Lime Manufacturing
Feasibility Study
5.0
FINANCIAL EVALUATION
5.1
Introduction
Page 21
The purpose of this financial evaluation is to measure the financial results and
profitability of MIDCOR's proposed mine manufacturing facility for Bwanje
limestone and lime products, under the present conditions in Malawi and based on
the technical data and costs elements developed during this feasibility study.
The financial analysis has been performed using the model COMFAR III of
UNIDO the financial modelling and economic evaluation of capital investment
project. The model projects the statements of profit and loss and sources and
applications of fund. In addition, the criteria of the project are evaluated, including
the internal rate of return (IRR) and the return on equity. Sensitivity analyses are
also generated on the key variables of the project such as the total revenues, the
operating costs and the investment costs.
Cash flow tables, net income statement and the balance sheet with some
pertinent performance ratios are also generated by the model.
5.2
Bases of the Analyses
5.2.1
Annual Production
The proposed manufacturing facility will produce at a rated capacity of 33,750
tonnes per year with a product mix indicated as follows:
-
Hydrated lime:
18,750 tonnes;
-
Agricultural limestone
9,000 tonnes;
-
Pulverised limestone:
6,000 tonnes.
Maximum capacity will be attained in operating year 1.
5.2.2
Period of the Analyses
The project is analysed over a period of 17 years starting from year one, with the
first two years corresponding to the construction period by 15 years of operation.
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April 1997
Malawi Limestone Project
Summary
Mining and Lime Manufacturing
Feasibility Study
5.2.3
Page 22
Investment Costs
The estimates of the investment costs are presented in section 2.0 of volume II of
the feasibility study.
The model includes all capital costs estimates as
summarised as follows:
-
Mine equipment:
$US 678,029;
-
Crushing/screening plant:
$US 1,173,358;
-
Calcination plant:
$US 5,075,746;
-
Hydration/Bagging plant:
$US 1,374,900;
-
Indirect expenditures:
$US 3,541,927.
Initial Capital Expenditures Disbursement schedule is assumed over the
construction period as follows:
5.2.4
-
Year 1:
40% of total project cost;
-
Year 2:
60% of total project cost.
Capital Structure
The analyses assumes that 70% of the investments costs shall be financed
through long term debt while the remaining 30% shall be contributed by equity
participation.
The debt financing cost is assumed to be an average of 9%, based on a mix of
favourable financing through development institutions such as the African Bank
and commercial supplier credits. The interest is capitalised during the 2 year
construction period and fully amortised over 10 years as for the rest of long-term
debt with a 5 year grace period. The repayment method is based on an annual
constant payment of interest and principal.
5.2.5
Regulatory and Tax Issues
-
Import duty:
exempt.
All foreign sourced machinery and equipment are duty-
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Malawi Limestone Project
Summary
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Mining and Lime Manufacturing
Feasibility Study
-
5.2.6
Corporate tax calculation:
A constant tax rate of 30% on taxable
income has been assumed with a tax exemption for the first five (5) years
after production start-up.
Revenue Assumptions
The revenues are projected on the basis of an annual sales of the total quantities
produced of 18,750 tonnes of hydrated lime and 15,000 tonnes of limestone
products. Sales of finished products are assumed to be for local consumption at
the following equivalent prices:
5.2.7
-
Hydrated lime:
$US 150 / tonne;
-
Agricultural limestone:
$US 50 / tonne;
-
Pulverised limestone:
$US 50 / tonne.
Depreciation and Amortisation
Depreciation of plant and machinery and amortisation of pre-operating expenses
and capitalised interests during construction have been calculated on the Straight
Line Method (SLM) based on the life indicated below. There is no consideration
for equipment replacement of the period of the analysis.
5.2.8
-
Plant and machinery:
15 years;
-
Mining equipment:
10 years;
-
Pre-production expenditures:
10 years;
-
Capitalised interest:
10 years.
Projections of Operating Costs
The basis for estimating the operating costs is presented in section 3.0 of volume
II and the average costs are summarised below;
-
Hydrated lime:
$US 39.61 / tonne;
-
Agriculture limestone:
$US 17.10 / tonne;
-
Pulverised limestone:
$US 17.10 / tonne.
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April 1997
Malawi Limestone Project
Summary
Mining and Lime Manufacturing
Feasibility Study
5.2.9
Page 24
Discount Factor
The discounted cash flow has been calculated using a discounting rate of 10%.
This rate is higher than the interest cost and will give a conservative Net Present
Value for the project for the purpose of decision making on the investment and
project implementation.
5.2.10 Initial Working Capital
The working capital is the amount of cash which must be available to cover
accounts payable, accounts receivable, and maintain a constant inventory of
supplies and spare parts, raw material either in the production facility, being
processed or finished products in storage, and other cash requirements, including
cash-in-hand.
The COMFAR MODEL assumes that when possible, the working capital
requirements will be funded by internal cash flow. When the capital requirements
are not met, a revolving short-term domestic loan facility is used. This type of loan
is paid back immediately as surplus cash becomes available.
The criteria used for the calculation of the working capital requirements is as
follows:
-
Inventory
Raw materials:
10 days
Factory supplies:
15 days
Work in progress:
5 days
Finished products:
5 days
-
Accounts receivable
5 days
-
Cash-in-hand
2 days
-
Accounts payable:
10 days
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Malawi Limestone Project
Summary
Mining and Lime Manufacturing
Feasibility Study
Page 25
5.2.11 Inflation and Escalation
A 0% inflation rate and escalation rate have been assumed throughout the years
of the financial evaluation. The analyses are done based on constant money
terms.
5.3
Interpretation of Results
The financial projections were performed only in constant dollar terms based on
the assumptions presented above. On the basis of this projections, the internal
rate of return on the investment is established at about 17.0% on an after tax
basis assuming 100% of equity financing. This rate represents the absolute
profitability of the project and with such a level is high enough to justify the project
implementation in view of normal international standards for this type of industrial
project, provided that the Malawi business environment does not present any
abnormal investment risk.
With the assumption of debt financing accounting for 70% of the total investment
the internal rate of return on equity is established at about 28.0% after tax and
financial charges. This value should be sufficiently high enough to attract private
investment from the Malawi and foreign business community to the project.
The net present value with a discount interest rate of 10% is established at $US
4,476,690 dollars. This positive net present value confirms the profitability of this
Bwanje limestone project.
The payback period, which represents the required time for the project cumulative
generated cash flows to be positive, is established at 7 years from the
construction start up. The payback from the production start-up is only 4 years.
The sensitivity analysis of the project IRR to changes in the major elements of the
cash flow, (capital expenditures, operating costs and production sales prices)
have been examined. The results of this analysis are included graphically after
the summary sheets at the end of section 4 of volume II. This makes it possible to
estimate the effect on the IRR produced by variation of any one or any
combination of the key project variables. The project seems to be more sensitive
to variations in revenues and moderately sensitive to the operating and capita
costs.
Under the conditions of these financial projections the Bwanje Valley Limestone
feasibility study confirmed the viability of the project based on an positive IRR and
the ability of the project to generate sufficient cash to cover operating and
expenses and debt repayments.
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April 1997