ERG's Bamin iron project set to gain impetus from Brazil rail auction

London — Bahia Mineracao (Bamin), a longstanding high-grade iron ore project being developed by Eurasian Resources Group in northeastern Brazil, is set to gain impetus from the forthcoming auction of the rail link essential for its development, sources close to ERG said.

Brazil's Infrastructure Ministry confirmed Wednesday that it will announce details on March 12 of the auction of the first section of the FIOL (East-West Integration) railway, designed to link the greenfield mine site in Caetite to a port site at Porto Sul, Ilheus, Bahia state. The prospectus is to be published in the second quarter of this year and the auction is to take place in the third quarter, when the contract will be drawn up, the ministry said. ERG has already indicated it will bid to win the rail concession.

Ministry officials did not immediately confirm whether there were expected to be interested parties other than ERG.

ERG, a diversified resources company 40% owned by the Kazakhstan government, said last year that Bamin is expected to start production in 2026 and will have the capacity to produce 20 million mt/year of iron ore for export markets. This would significantly reinforce the company's growing position in iron ore: late last year ERG said it was raising iron ore products output at its Kazakhstan-based unit, Sokolov-Sarbai Mining and Processing Integrated Works (SSGPO), by 12% to 14 million mt, to supply customers in Russia and China.

In mid-2019, 62% Fe iron ore market prices hit a five-year high of over $120/mt delivered China following an accident at a Vale tailings dam in Brazil which led to production curbs. Prices for the main steelmaking ingredient have recently stabilized at around $95/mt, a level still considered uncomfortably high by steelmakers facing stagnant steel demand in many markets.

According to the sources close to ERG, it was first announced that FIOL would be put up for concession in 2016, when ERG purchased the rights to the Bamin project. The entire railway is envisaged to stretch 1,500 km across Bahia and Tocantins states, although ERG is understood to be most interested in the first 537 km stretch of the railway, which would link the mine site and Porto Sul.

The Infrastructure Ministry put the investment required in the first stretch of the railway at Real 3.3 billion ($790 million). ERG has said it plans to invest around Real 10 billion in Brazil.

Last year ERG signed a memorandum of understanding with China Communications Construction Company (CCCC) and China Railway Group (Crec) to enable the integrated iron ore project that includes the mine, the FIOL railway and Porto Sul.

According to the sources close to ERG, the port project is in the final stages of environmental approval. Last May, ERG signed an agreement with the Bahia state government to develop the port for export of iron ore, grains and fertilizers, with a 41.5 million mt/year capacity.