mclellans phase i report

Delta Steel Modernisation

Due Diligence Study – Phase 1 Visit Report

September 2007 Confidential

Warri, Nigeria

CONTENTS

PageEXECUTIVE SUMMARY

1. INTRODUCTION 1-1

2. BACKGROUND – DELTA STEEL 2-1

2.1 Introduction 2-12.2 Location and Infrastructure 2-12.3 Plant Facilities 2-2

3. PROCESS FLOWS AND RECENT OPERATING STATISTICS 3-1

3.1 Introduction 3-13.2 Production and Constraints 3-23.2.1 Recent Production 3-23.2.2 Current Production Constraints 3-4

4. PRODUCTS AND MARKETS 4-1

4.1 Introduction 4-14.2 Domestic Market 4-14.3 West Africa – Wire Rod and Rebar Demand 4-24.4 Steel Production within Nigeria 4-34.5 Sales Strategy 4-34.6 Sales Prices 4-4

5. RAW MATERIALS - HANDLING AND PROCUREMENT 5-1

5.1 Introduction 5-15.2 NIOMCO Iron Ore 5-15.3 NIOMCO Iron Ore Operations 5-25.4 Imported Iron Ore 5-25.5 DSC Iron Ore Reception and Jetty Facilities 5-25.6 Ore Storage and Handling 5-35.7 Limestone 5-35.8 Ferrous Scrap 5-35.9 Other Consumables 5-4

6. UTILITIES AND ENERGY PROCUREMENT 6-1

6.1 Introduction 6-16.2 Electrical Power 6-16.3 Natural Gas 6-2

Rep5097/260090September 2007

i

ii

7. PELLETISING PLANT 7-1

7.1 Process Description 7-17.1.1 Dosing and Mixing 7-27.1.2 Induration 7-27.1.3 Pellet Coating 7-27.2 Site Visit – Initial Assessment 7-3

8. LIME PLANT 8-1

8.1 Introduction 8-1

9. DR PLANT 9-1

9.1 Introduction 9-19.2 Background 9-19.3 DRI Shipments 9.29.4 DRI Operations 9-2

10. STEELMAKING PLANT (SMS) 10-1

10.1 Introduction 10-110.2 Summary of Status and Recent Events 10-210.3 Summary of Original SMS Equipment Design and Production

Capacity 10-310.4 Original Design Production Capacity 10-410.5 Description of Current SMS Operation 10-510.5.1 Supply of Raw Materials 10-510.5.2 Steelmaking Operation 10-610.5.3 Factors Affecting Steelmaking Operations 10-910.5.4 Fume Collection System 10-1110.5.5 Existing Ladle Treatment Facilities 10-1210.5.6 Summary of SMS Operations 10-13

11. ROLLING MILL 11-1

11.1 Introduction 11-111.2 Rolling Mill Design and Technical Data 11-1

12. UTILITIES AND ANCILLARIES 12-1

12.1 Introduction 12-112.2 Electrical Power 12-112.3 Natural Gas 12-212.4 Cryogenic Plant 12-212.5 Water Supply and Water Treatment Plant 12-212.6 Compressed Air 12-312.7 Central Laboratory 12-312.8 Foundry 12-312.9 Workshop 12-312.10 Mobile Plant 12-3


iii

13. ENVIRONMENTAL CONSIDERATIONS 13-1

13.1 Introduction 13-113.2 Environmental Impact Study 13-3

14. PLANT EXPANSION STRATEGY 14-1

14.1 Introduction 14-114.2 Plant Expansions 14-314.2.1 Jetty and Material Handling Facilities 14-314.2.2 Lime-making Facilities 14-314.2.3 Utility and Ancillaries 14-414.2.4 Pellet-making Facilities 14-714.2.5 DRI Production Facilities 14-1314.2.6 Steelmaking Facilities 14-1414.2.7 Rolling Mill Facilities 14-2214.3 Enhancement Schedules 14-2214.4 Capex Budgets 14-2414.5 Expansion Plan Summary 14-27

15. HUMAN RESOURCES AND MANAGEMENT 15-1

15.1 Introduction 15-115.2 Current and Future Manpower Levels 15-115.3 Recruitment and Training 15-215.4 Development of Skills 15-315.5 Security 15-3

16. LOGISTICS - RAW MATERIALS AND FINISHED PRODUCTS 16-1

16.1 Introduction 16-116.2 Post Expansion Logistics 16-116.3 Rail Transportation 16-216.4 River and Sea Transportation 16-3

17. RISK AND SWOT ANALYSIS 17-1

17.1 Introduction 17-117.2 SWOT Analysis 17-117.2.1 Strengths 17-117.2.2 Weaknesses 17-217.2.3 Opportunities 17-317.2.4 Threats 17-4


SECTION 1

INTRODUCTION

1-1

SECTION 1

INTRODUCTION

McLellan and Partners Limited (McLellan) has carried out Phase 1 Due Diligence on Delta

Steel Company PLC (DSC), Nigeria in connection with its planned expansion under the

Contract Agreement between Global Steel Holdings Limited (GSHL) and McLellan, and in

accordance with the Scope of Work provided by Credit Suisse Securities (Europe) Limited

(CS).

The two-stage Due Diligence being conducted by McLellan relates directly to similarly

staged loan facilities. The loans and associated Due Diligence processes are structured

as follow: -

1. An initial Due Diligence survey that is required to satisfy conditions for the

Bridge Loan Facility.

2. Detailed Due Diligence to cover the needs for the Main Term Loan and Working

Capital Loan.

This Due Diligence Visit Report supports the Project Overview and covers the CS Phase 1

Scope of Work, as defined below: -

CS Phase 1 Scope of Work

a) Confirm that the DSC plant is robust, well-managed and capable of producing the

currently stated production levels,

b) Confirm that the DSC plant is capable of being expanded in the manner and timeframe

proposed by GSHL without significant risk of delays and overruns and

c) Identify any key technical risks and challenges that DSC faces in implementing the

plant refurbishment and development programme proposed by GSHL.


1-2

The Phase 1 investigation has allowed McLellan to obtain a good understanding of the

plant and company’s operations. It also provides an excellent platform for the

Phase 2 investigations.

Due Diligence Visit Report and Project Overview

In order to be in a position to answer CS Scope of Work questions McLellan has had to

assess a considerable amount of information. Much of this information is recorded in this

Visit Report. The important information relating to the Scope of Work questions and other

key areas of the project have been recorded in a separate Project Overview.

This Due Diligence Visit Report is an independent study by McLellan, an internationally

acknowledged consultancy specialising in the steel industry and for which such Due

Diligence work is in the normal line of business. McLellan has more than 80 years of

experience in this field of work and has no commercial links or possible conflicts of interest

with operating steel companies or steel equipment manufacturers. This study examines

the project from technical, financial and market perspectives and provides the proper

background for effective Due Diligence and financing decisions to be made.

Two McLellan specialists visited the DSC site during the week commencing 20th August

2007 to appraise of the plant, equipment and operations. During this process of site

inspection, interviews with DSC and GSHL management were conducted.

The information contained within this report was obtained from a range of sources

including documentation from GSHL and DSC relating to operations and equipment. Both

written and verbal information from GSHL and DSC has been taken into account and has

been backed up by McLellan’s own visual inspections, interviews and its in-house data

base of industry data. Other sources of information, such as Metal Bulletin have also

been used.

Current Operating Position

It is noted that all major DSC operating plants have been subject to considerable

maintenance and refurbishment to reinstate their operational status. The plant is currently

operating at a rate of less than 50% of nominal capacity; the main plant bottleneck being

the steel melting shop (SMS). Further details of the SMS operation are given in Section 10

of this Visit Report.


1-3

Future Plant Developments

DSC has prepared a comprehensive expansion plan covering most of the major operating

units. The target expanded capacity is 2.4 Mt/y and a US$283M investment plan has been

defined to be scheduled over the next sixteen months.

Report Format

The Due Diligence spans an overall perspective of steel plant operations, from the supply

chain of raw material inputs, through procurement of utilities (such as power and natural

gas) and the complex logistics associated with this plant, to final product. Conceptual

investigations into future plant developments were also undertaken by McLellan with

particular emphasis on capital development plans and schedules.

DSC operates with two other iron and steel facilities in Nigeria that are also owned and

operated by GSHL. These are NIOMCO, the iron ore mining facility, and ASCL an

integrated steel mill and consumer of billets from DSC. NIOMCO supplies iron ore to DSC.

DSC currently supplies billets to ASCL rolling mills.

McLellan discussed the main principles related to these two other facilities with GSHL

management, however the time allowed for completion of the Phase 1 assignment and its

overall scope of work did not allow McLellan sufficient time to make visits to these plants.

Further Due Diligence of these particular facilities is planned during the Phase 2

investigations.

Section 2 of this Due Diligence Report describes the background to the steelmaking and

rolling operations. Subsequent sections describe the site operation, plant condition and

other important aspects such as product markets, logistics, human resources and financial

parameters relating to DSC.

The format of this Report is as follows:-

Section 1 Introduction

Section 2 Background – Delta Steel

Section 3 Process Flows and Recent Operating Statistics

Section 4 Products and Markets


1-4

Section 5 Raw Materials – Handling and Procurement

Section 6 Utility and Energy Procurement

Section 7 Pelletising

Section 8 Lime Plants

Section 9 DRI Plant

Section 10 Steelmaking Plants

Section 11 Rolling Mill

Section 12 Utilities and Ancillaries

Section 13 Environment

Section 14 Plant Expansion Strategy

Section 15 Human Resources and Management

Section 16 Logistics – Raw Materials and Finished Products

Section 17 Risk and SWOT Analysis.


SECTION 2

BACKGROUND – DELTA STEEL

2-1

SECTION 2

BACKGROUND – DELTA STEEL

2.1 Introduction

Delta Steel is a mini-mill based on electric steelmaking. The Works is ‘integrated’ – it

includes pelletising, Direct Reduced Iron (DRI) production and steelmaking as well as

downstream product rolling. The site in Delta State near to the city of Warri was

established in 1979 and DSC was the first ‘integrated’ steel plant in Nigeria to include

steelmaking as well as rolling. The works was built by an Austro-German consortium at a

cost of US$ 1.2 billion. The plant was commissioned in January 1982 and designed to

produce 1 Mt/y of steel products.

DSC produces steel from DRI and ferrous scrap obtained from the domestic market. DRI

is produced at DSC from iron ore fines supplied by NIOMCO, an iron ore mine that is also

owned and operated by GSHL.

2.2 Location and Infrastructure

DSC is located in Ovwian-Aladija, near Warri in Delta State. The Plant is in close proximity

to natural gas fields and two electrical power stations. Iron ore is currently transferred to

site mainly by rail. The original plant design intended that the plant would be serviced by

imported ore through river shipment. However, the development of the NIOMCO mine,

some 320 km to the north, meant that much of DSC’s iron ore requirement can be supplied

from this domestic source.

A standard gauge rail line connects ASCL (Ajaoukuta) and NIOMCO (Iktape) which are

situated in Kogi State and reaches to within 15 km of Delta Steel. DSC states that the

Nigerian Government (FGN) will complete this rail link over the next 6 months in order that

DSC and these two other facilities can be completely linked.


2-2

The plant has nearby townships, schools and technical college. A 60 bed hospital/ clinic is

sited nearby. Figure 2.1 shows a map of Southern and Central Nigeria. Delta Steel, ASCL

at Ajaoukuta and NIOMCO, to the north of Okene, are shown on the map.

FIGURE 2.1 – MAP OF GSHL SITES

2.3 Plant and Facilities

The DSC works uses the natural gas based iron ore pelletising and direct reduction

ironmaking process. DRI is converted to liquid steel by electric arc furnaces (EAF) and

liquid steel is then cast into billets at the continuous casting plant.

A proportion of the billets produced are rolled into long products in the DSC rolling mill and

the balance is transferred to ASCL some 300 km to the north of Warri.

The DSC plant closed down due to financial difficulties in 1996 and was taken over and

reopened by GSHL in 2005. McLellan understands that before privatisation the Nigerian

government initiated an unsuccessful rehabilitation programme in 2000 with a consortium

comprising Osaka Steel Ltd and Voest Alpine Industrial Services.


Delta Steel

AjaoukutaNIOMCO

2-3

DSC’s iron and steelmaking facilities include: -

Ship Unloading Facility and Stockyard

Quay for 18-20,000 dwt ships

Two single grab ship unloaders

Two cargo handling cranes

Two stacker-reclaimers rated at 2,500 – 2,800 t/h

One pellet stacker rated at 2,500 t/h

Pelletising Plant

Lurgi travelling grate type annual capacity 1.45 Mt/y

Direct Reduction Plant

Two Midrex 600 Series annual capacity 1.02 Mt/y

Lime Plant annual capacity 0.66 Mt/y

Steelmaking Plant

Three 100t, 6.4m (60 MVA) EAFs annual capacity 1.0 Mt/y

One Ladle Furnace converted from an existing EAF

Continuous Casting Plant

Three 6-strand billet casters (120 mm²) annual capacity 0.96 Mt/y

Rolling Mill

Light Section Mill annual capacity 0.30 Mt/y

Foundry

Ancillary Facilities

Air separation plant (Korf-Linde)

Central workshops

Mobile plant workshops

Training centre

Administration building

Section 3 of this Due Diligence study shows the main process flows for the Delta Steel

operation.


SECTION 3

PROCESS FLOWS AND RECENT OPERATING STATISTICS


3-1

SECTION 3

PROCESS FLOWS AND RECENT OPERATING STATISTICS

3.1 Introduction

This Section of the Study shows the plant operation and flows of raw materials and semi-

finished products throughout the Delta Steel operation.

FIGURE 3.1 – DELTA STEEL PROCESS FLOW - 2006

Figure 3.1 shows original design capacity rather than the present actual process flows.

This is because the plant is not currently in steady state operation and is still building up

towards full capacity after the extended plant shutdown.

Process flows of the expanded 2.4 Mt/y facility are shown in a later Section of this Report.


Burnt Lime

LimestoneIron Ore

Pellet Plant

1.45 Mt/yr

Hydrated Lime

DR Plant(2 modules)1.02 Mt/yr

DRI Silos4 x 5000 MT

Lime Plant66000 t/y

Burnt Lime

Briquette Plant

DRI Fines

Hydrated Lime

SMS

(4 EAF)*

1 Mt/Yr

* 1EAF converted to LF

ColdBriquettes

Continuous Casting(3 Casters: 6 strands each)

0.96 MTPA

Liquid Steel

Scrap

Rolling Mill(18 Stands)

0.3 Mt/yr

Foundry

1200 t/yr

Air Separation Plant

2260 NM3 / Hr of Oxygen

Scrap Yard

DRI

Prepared Scrap

Pellets, DRI/ Cold Briquette Iron, Billets andRolled Products

Burnt/ Hydrated LimeCast Products

Liquid O2, N2,Argon

Saleable Products

Liquid Gases

Cast Products Billets

O2

N2

N2

N2

3150 Nm3/Hr

Return S

crap

Billets

Rolled Products

3-2

3.2 Production and Constraints

3.2.1 Recent Production

Since the takeover of DSC by GSHL the production units have been progressively

repaired and brought back into operation. Most of the production units are now running,

however certain individual items of equipment, such as EAF 1, CCM 1 and one of the two

ball mills in the Pellet Plant, remain out of action and this is restricting steel production.

DSC states that these units will be back in operation by October 2007.

Table 3.1 shows production data for the main operating plants for the last full month. This

information was given to McLellan by DSC and is based on its monthly Performance

Report.

TABLE 3.1 – DELTA STEEL PROCESS FLOW - 2006

Plant Installed Capacity

t/m

Available Capacity

t/m

July 07 Production

t/m

Capacity Utilisation (available capacity)

Capacity Utilisation (installed capacity)

Pellet Plant 120,677 60,333 32,190 53% 27%

DRI (Gross) 80,000 40,000 28,294 71% 35%

Rolling Mill 25,000 36,490 12,562 34% 50%

Liquid Steel 83,333 44,000 16,833 38% 20%

Billets 80,000 43,120 16,464 38% 21%

Calcination 5,500 5,500 2,522 46% 46%

Hydrated Lime 2,750 2,750 1,134 41% 41%

Source: Delta Steel

Installed Capacity v Available Capacity

The available Pellet Plant capacity is lower than the installed capacity because of one of

the two ball crushers is awaiting an imported bearing. DSC stated that the machine

bearing had been previously ordered and is now at Lagos Port. DSC stated that pellet

plant capacity will increase to its installed capacity during September 2007.

The DRI Plant available capacity is lower than the installed capacity because only one of

the DRI modules is currently operating. DSC informed McLellan that the second unit is

stood down until increased pellet supply can be obtained. DSC also stated that both

modules have operated together during GSHL’s tenure at DSC.


3-3

The Rolling Mill available capacity is higher than the installed capacity because of the

product mix being rolled in July 2007. However, the rolling mill was in fact constrained

because of the lack of availability of billets from the melt shop. This is also exacerbated

by the commitment of DSC to supply billets to ASCL.

The Steel Melting Shop available capacity is lower than the installed capacity because of

No 1 EAF being currently recommissioned. DSC states that this furnace will be available

for recommissioning during September 2007.

The Continuous Casting Shop available capacity is lower than the installed capacity

because No 1 CCM is currently being re-furbished. DSC states that this casting machine

will be available for recommissioning at the end of October 2007.

The available capacities of the Calcination and Hydrated Lime Shop are equal to that of

the installed capacity.

In summary, the DRI plant is currently constrained by the pellet plant and the continuous

caster and rolling mill are constrained by the supply of liquid steel from the SMS. DSC

states that it plans to increase the capacities in both the pellet plant and melt shop.

July Production v Available Capacity – Bottleneck Departments

The production of the Pellet Plant was only 53% of the available capacity in July 2007.

The delay statistics show that the main problems were as follows: -

Equipment failure losses 39.57 hours

Shutdown loss 8.92 hours

External loss 275.4 hours

Process and operation losses 17 hours

The pellet plant clearly suffered considerable delays during July 2007. McLellan

understands that most of these delays were enforced delays where the pellet plant was

stood down because of other departments or through other external reasons.

In July 2007 the SMS production was only 38% of available capacity. This is attributable

to extended furnace tap-to-tap times and operational problems, such as excessive

refractory wear and the inability to dynamically charge lime directly into the EAF. These

operational issues are further discussed Section 10 (Steelmaking and Continuous

Casting).


3-4

3.2.2 Current Production Constraints

Integrated steelmaking requires most departments to be functioning at near full capacity in

order that production and sales are not compromised. All integrated production plants

have bottlenecks as this is the nature of all manufacturing processes.

At present, NSC and ASCL are constrained from expanding their sales due to the

shortage of billet production. When DSC produces more billets, the DSC and ASCL

rolling mills will be able to expand sales and displace exports. However, the SMS at DSC

has several current technical problems which are detailed in Section 9 of this Report.

Figure 3.2 shows that billet production increased month on month during the period

January to March 2007 and has since stabilized at a rate of around 16,000 t/month.

FIGURE 3.2 – DELTA STEEL PROCESS – BILLET PRODUCTION 2007

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

January February March April May June July

Bil

let

To

nn

es

PLAN

ACTUAL

Other departments may also have current constraints, but McLellan considers them to be

less significant than those in the SMS operation. It is often the case that when production

of steel is increased in the SMS other departments can usually cope with the additional

throughput. McLellan considers that this would be the case at DSC.


3-5

One of the questions posed by CS in its scope of work was “to confirm that the plant is

robust, well-managed and capable of producing the currently stated production levels“.

Accordingly, McLellan confirms that the plant appears to be well managed. However, “the

stated production levels” are quantitively unknown to McLellan and it appears that the

plant is operating at a rate of around 16,000 t/m of billet. This is equivalent to some

200,000 t/y.

Expansion of steelmaking capacity is expected with the re-commissioning of EAF 1 and

CCM 1 and this is likely to raise current capacity by a further 50%. McLellan considers,

however, that the SMS must overcome its operational and equipment issues in order to be

able to achieve the next production level. Implementing the new capex scheme appears

to be the key to unlocking this potential.


SECTION 4

PRODUCTS AND MARKETS

4-1

SECTION 4

PRODUCTS AND MARKETS

4.1 Introduction

Delta Steel produces both semi-finished (billets) and finished (rod and bar) long products.

Current production is primarily aimed at satisfying the domestic markets. However, future

expansion of the plant is expected to result in increasing amounts of sales to the domestic

market as well as export sales to other African and European markets. The current

product range is shown below: -

Billets

Rebar 12 – 40 mm

Round bars

Light angles

Light tees

Light channels.

Currently DSC mainly rolls rebar sections to satisfy the domestic market, but future target

markets are Nigeria, West Africa, Central Africa and Europe.

McLellan discussed markets with GHSL and much of the data presented in this section of

the Report was obtained from GSHL. McLellan considers that the GHSL information and

rationale presented in this section appears reasonable.

4.2 Domestic Market

DSC has made preliminary market studies into the size and profile of the domestic

market for steel products. Figure 4.1 shows that approximately two thirds of all Nigerian

steel demand is for long products. This is typical of a developing nation where most steel

products are used in construction and fabrication of simple structures. As the economies

of countries develop, the emphasis moves to a ratio of around 50:50 long to flat steel

products due to a gradual increase in manufacturing industries, such as white goods,

which require flat steel.


4-2

FIGURE 4.1 – NIGERIAN STEEL CONSUMPTION – YEAR 2006

`

DSC’s main focus is on the manufacture and supply of rebars. ASCL concentrates on the

production of structural steel sections and wire rods.

4.3 West Africa – Wire Rod and Rebar Demand

Table 4.1 shows other West African nations and their demand for construction rebars and

wire rod. The table also shows rebar and wire rod production in these regions.

TABLE 4.1 – WEST AFRICAN REBAR AND WIRE CONSUMPTION – 2006 TONNES PER MONTH

Country Imports Production ConsumptionBENIN 6,000 6,000TOGO 4,000 2,000 6,000SENEGAL 10,000 10,000MALI 10,000 10,000GHANA 10,000 10,000 20,000BURKINA FASA 4,000 4,000NIGER 3,000 3,000CHAD 3,000 3,000IVORY COAST 3,000 3,000OTHERS 5,000 5,000TOTAL 58,000 12,000 70,000

Source: Delta Steel


Total Steel Consumption1.8 Mt/y

Long Product1.2 M t/y

Flat Product0.6 Mt/y

Rebars0.96 Mt/y

Wire Rods0.1 Mt/y

Structurals0.15 M Mt/y

HR Sheet & Plate0.2 Mt/y

CRCA0.15 Mt/y

GPGC0.25 Mt/y

4-3

4.4 Steel Production within Nigeria

Table 4.2 shows rebar producing companies within Nigeria.

TABLE 4.2 – NIGERIAN LONG PRODUCT PRODUCERS

ManufacturersRated Capacity

(t/y)Capacity (t/month)

Current Production(t/month)

REBARSMayor Group 240,000 20,000 8,000Universal 60,000 5,000 4,000Federated 60,000 5,000 4,000Sunflag 60,000 5,000 3,500Phoenix 24,000 2,000 2,000GSM 36,000 3,000 2,000African Steel 60,000 5,000 3,000GIHL - DSC 320,000 26,667 12,500Others 60,000 5,000 2,000ROD & STRUCTURALSGIHL - ASCL 580,000 48,333 4,500Total Domestic Long Product Availability 1,500,000 127,000 45,500Source: Delta Steel

The remaining demand for rebars of 25,000 to 30,000 t/m is met by imports. The largest

exporter to Nigeria is Ukraine, followed by countries such as Turkey and China.

ASCL is the only Nigerian producer of wire rods and around 4,000 to 5,000 t/m of wire

rods are imported. Currently 100% of structural sections are imported.

DSC is the only integrated steel producer in Nigeria and the only producer of steel billets.

Hence, it is the only company with a supply of billets which is important in terms of billet

quality and cost.

4.5 Sales Strategy

DSC is ISO 9001 compliant and has quality accreditations with the Standards

Organisation of Nigeria and is in the process of achieving wider accreditation in

anticipation of production and sales expansions. Many of the larger Nigerian projects are

being developed by multinational companies and increasingly the demand for quality

assurance is becoming more widespread.

DSC claims it will adopt a strategy of differentiating itself from the other Nigerian suppliers

in terms of product quality and accreditation.

4.6 Sales Prices


4-4

The Federal Government of Nigeria has imposed import tariffs on steel in order to protect

the local rebar producing industries. The import duty for rebar is 50% and for wire rods

and billets 5% duty is applicable. Figure 4.2 shows recent Nigerian rebar and wire rod

prices.

FIGURE 4.2 – NIGERIAN REBAR AND WIRE ROD PRICES

500

550

600

650

700

750

800

850

900

Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07

US

$ p

er T

onn

e

Rebars-tradeRebar-constructionWire rods

Source: Delta Steel

Figure 4.3 shows the prices for Black Sea wire rod exports on an FOB basis. The Figure

shows a similar increasing trend. However, there is a significant difference in prices

because of the 50% import tariff.

Figure 4.4 shows the Black Sea billet prices. Rebar is manufactured from billet and the

relationship and volatility of billet prices in relation to rebar prices is very important to the

many Nigerian companies manufacturing rebar from purchased billet.


4-5

FIGURE 4.3 – BLACK SEA REBAR PRICES

Source: SBB

FIGURE 4.4 – BLACK SEA BILLET PRICES

Source: SBB


4-6

Future price forecasts for rebar and other products will be further examined during the

Phase 2 Due Diligence process.


SECTION 5

RAW MATERIALS – HANDLING AND PROCUREMENT

5-1

SECTION 5

RAW MATERIALS - HANDLING AND PROCUREMENT

5.1 Introduction

The major raw material inputs to DSC are iron ore, steel scrap and limestone. However,

other consumable materials such as carbon and refractories etc are also required but in

much smaller amounts. Most of these important consumables will have to be imported

into Nigeria.

5.2 NIOMCO Iron Ore

Iron ore is supplied from NIOMCO in the form of ‘super concentrate’. The Itakpe iron ore

deposit has a reserve of around 200 Mt with an average iron content of 36% Fe. This has

to beneficiated to produce 64% Fe concentrate, to be used as sinter feed for the ASCL

blast furnaces and 68% Fe for the DSC pelletising/ DRI processes. At such rates of

beneficiation large quantities of tailings will be produced.

The Itakpe iron ore contains mainly haematite, magnetite and quartz and is mined at a site

to the north of Okene in Kogi State, which is located in the Middle Belt Region of Nigeria.

Its typical chemical composition as determined by X-ray fluorescence is shown in

Table 5.1.

TABLE 5.1 – CHEMICAL COMPOSITION OF NIOMCO IRON ORE

Mineral Fe2O3 Fe3O4 SiO2 CaO Al2O3 MgO TiO2

Composition 30.88 19.05 42.05 1.25 3.2 0.37 0.20

McLellan has not yet had the opportunity to visit the NIOMCO facilities and further details

of the iron ore mining operation will be given in Phase 2 of the Due Diligence Work.


5-2

5.3 NIOMCO Iron Ore Operations

The Fe content of the NIOMCO super-concentrate is extremely important in relation to the

DRI and EAF processes. High silica content of the iron ore pellets leads to the possibility

of increased clustering in the DRI process and significantly increases in the use of lime

and power consumption in the EAF. It also leads to increased liquid steel yield loss in the

EAF process. These are important factors in relation to the overall manufacturing cost.

The current levels of silica in the iron ore dispatched to DSC are too high to efficiently

operate the electric steelmaking process. Therefore, extra beneficiation is required.

GSHL stated that it has a plan to reduce the silica content significantly. However, review

of the detail as to how this will be done will be subject to further investigations during the

Phase 2 Due Diligence stage. At present, reduction of the silica load to the SMS is being

undertaken by blending with Brazilian ores together with increasing the proportion of

ferrous scrap charged to the EAF.

GHSL reported that a super-beneficiation plant is very near completion and a dispute

between the supplier (Koch) and the FNG had so far prevented completion. It is reported

that the plant will have a capacity of 540 kt/y and will produce low silica fines of 67% Fe.

The progress of this plant also will feature as one of the Phase 2 Due Diligence

investigations.

5.4 Imported Iron Ore

Currently DSC has been consuming a proportion of CVRD ore in its DRI process. This is

because the silica content in the NIOMCO fines is too high and the Brazilian CVRD pellets

and lump ore contain have considerably lower levels of silica.

McLellan understands that small shipments - that are capable of being landed at the jetty -

are also being transhipped from other Global Steel operations.

5.5 DSC Iron Ore Reception and Jetty Facilities

The logistics of handling the necessary wide range of raw materials is a complex subject

and is examined in a later section of the Due Diligence Visit Report. However, the port

infrastructure is described below.

DSC has a riverside jetty situated on the edge of the Works site, which is some 75 km

upstream from the coastal entrance to the Warri River and Escravos Bar. Draft limitations

at the DSC 30,000 dwt (dead weight tonnage) are claimed to be such that the largest


5-3

vessels that can be berthed irrespective of any technically and commercially feasible

dredging operations. Draught alongside the jetty is claimed to be some 6.5 - 7m without

tide and around 9m with tide.

The jetty is 800m long and is equipped with two bulk material unloaders, each using 25t

grabs feeding an associated conveyor system. It is reported that a single grab unloader

has the capacity to discharge one 15,000t vessel in a single day. The jetty is also

equipped with two travelling gantry cranes, each of 25t capacity for handling billets and

bundles of finished products. Two 24t slewing cranes are also available for general

duties. The facilities appear adequate to service the plant for the needs of current and

original design capacity, however the plant may need further enhancement to meet the

needs of the expanded plant capacity. Further detail is given later in the logistics section

of the Report.

5.6 Ore Storage and Handling

The ore stockyard has a storage capacity of approximately 900,000t and is divided into

sections for the storage of discrete materials. The yard is equipped with two MAN

stacker-reclaimers, each of 2,500 t/h capacity (stacking) and 700 t/h (reclaiming).

5.7 Limestone

Lime is required for the steelmaking process to flux the siliceous DRI pellets and to create

the requisite metallurgical conditions. Limestone and dolomitic limestone are the feed

materials to produce burnt and hydrated lime and burnt dolomite.

Limestone is procured locally from a number of domestic sources, currently from a quarry

near the NIOMCO site. However, GHSL states that it is interested in developing a

limestone site at Calabar in the southeast of the country.

Limestone quality appears adequate for present lime making operations but contains

moderate amounts of silica. Improved sources of supply, such as the limestone from

Calabar, would be required for the expanded lime making capacity. This requires further

investigation during the Phase 2 Due Diligence Process.

5.8 Ferrous Scrap

DSC has been operating its electric arc furnaces with a feed of around 40% purchased

ferrous scrap and 46% DRI. The balance of the required feed has been internally arising

scrap in the form of arc furnace ‘skulls’ and rolling mill returns.


5-4

Nigeria has an export ban on scrap, which means that the cost of domestically arising

scrap is considerably cheaper than world benchmark prices. The average cost of

externally procured scrap in July 2007 was US$/200.4/t and the average July 2007 scrap

price FOB Black Sea (Metal Bulletin) by comparison was some US$ 280/t.

It is unlikely that much scrap is smuggled illicitly out of Nigerian, as most of its neighbours

do not have steelmaking industries.

It is reported that there will be a good supply of local steel scrap until the increased

capacity of the DSC plant expansions come into effect. At that stage DSC plans to import

a proportion of its ferrous scrap requirements.

5.9 Other Consumables

Other spare parts and consumables, such as heavy equipment items, electrodes and

refractories, are imported. In the short term these items are discharged at Lagos Port and

transferred to Warri by road. In the future DSC is considering shipment to its own pier

facility or to some other nearby port.


SECTION 6

UTILITIES AND ENERGY PROCUREMENT

6-1

SECTION 6

UTILITIES AND ENERGY PROCUREMENT

6.1 Introduction

DSC purchases power and natural gas from external suppliers, but is self sufficient with

regard to water, compressed air, oxygen and other inert gases. This section of the Due

Diligence Report examines only the supply and contractual arrangements. Section 12 of

the Report comments on the physical aspects of the utility and ancillary systems.

6.2 Electrical Power

Currently electrical power is supplied by PHCN (Power Holding Company of Nigeria) -

formerly known as NEPA (National Electric Power Authority) - by two high voltage

overhead transmission lines. The 330 kV lines feed into the DSC main +20A electrical

station. There are two power stations in close proximity to Delta Steel, namely Sapele and

Ughelli, located 30 km and 20 km away respectively.

GSHL states that it is in the final stages of acquiring Sapele Power Station. This power

station has 6 steam turbines (each 720 MW) and 4 gas turbines (300 MW). Further

analysis of the detail of the acquisition or potential contracts has not yet been made by

McLellan at this early stage of Due Diligence. Should GSHL acquire this power plant, it

would supply power to DSC and also feed directly into the regional electricity grid.

If this acquisition proceeds power to the works would be supplied mainly by Sapele and

Ughelli Power Station would become a standby supply.

According to DSC’s monthly accounts the cost of electricity is around US Cents 7.3 per

kWh. McLellan considers this to be around world average for such a steelmaking facility.

There are shortages of electrical power in Nigeria. However, DSC claims that the Delta

Region does have sufficient power and, as yet, there have been no restrictions or major

interruptions to the power supply.


6-2

6.3 Natural Gas

DSC receives natural gas from NGC (Nigerian Gas Company Limited). NGC currently

operates eight supply systems including the Sapele and Aladia system which feeds DSC.

DSC states that NGC treats large consumers of natural gas, such as the steel industry, as

preferential consumers.

GSHL states that it has agreed in principle a 20 year supply contract for natural gas and

the only remaining outstanding open point is agreement over the cost of the gas.

The current cost of natural gas according to July’s financial accounts is US$ 0.0081/Nm³.

For comparison the 2006 prices for natural gas in Ukraine and Germany (at the border)

were US$ 0.095 /Nm³ and US$ 0.28 /Nm³ respectively. Therefore the current price can be

classed as extremely low cost.

GSHL states that in future the cost of natural gas may rise to US$ 0.04/Nm³ - a fivefold

increase, but still considerably cheaper than most other natural gas consuming steel

industries.

Report5097/260090September 2007

SECTION 7

PELLETISING PLANT

7-1

SECTION 7

PELLETISING PLANT

7.1 Process Description

The Pellet Plants consists of two main parts: the material preparation area where the raw

material (iron ore fines) enter the plant and are processed to produce wet, so called “green

pellets” and the induration section where the green pellets are hardened to impart the

physical and metallurgical properties required by the end user of the pellets (the DR Plant).

Figure 7.1 is an overview of the basic pellet making process at DSC.

FIGURE 7.1 – OUTLINE OF PELLET MAKING PROCESS


7-2

7.1.1 Dosing and Mixing

Carefully proportioned additives and binders are required to be combined with the iron ore

to form good quality pellets. The preferred binder is high grade bentonite and, typically,

some 7 kg/t pellets will be added to the mix.

7.1.2 Induration The green pellets are hardened on a straight grate indurating machine, as shown below in

Figure 7.2.

FIGURE 7.2 – PELLET MAKING – INDURATION ZONE

7.1.3 Pellet Coating

The Pellet Plant designed to produce Direct Reduction grade pellets. A system to apply a

coating of refractory material to a proportion of the pellets at the pellet plant is normally

part of the plant design. This increases the resistance of the pellets to clustering in the DR

shaft and allows the DR Plant to maximise output. As the NOMCO pellets are extremely

siliceous, the pellets at DSC require coating with (basic) hydrated lime/dolomite slurry.

Spraying the warm pellets with this slurry improves the adhesion of the coating, as well as

providing a form of dust control.


7-3

7.2 Site Visit – Initial Assessment

The DSC Pellet Plant, which was supplied by Lurgi, has a design capacity of around

1.5 Mt/y of oxide pellets. The plant has two ball mills feeding a single indurator and is

reported to be currently producing 32.5 kt/month per balling line.

At the time of the visit one of the two ball mills was found to be shutdown for an extended

period due to a main bearing failure. DSC stated that it had taken some time to procure a

large bearing and this replacement was now at Lagos port. However, at the time of the

McLellan inspection, the pellet plant was not in operation due to interruption in the supply

of hydrated lime.

In July 2007, pellet production was 32.5 kt (around 51 t/hr) and the delay statistics show

that the main problems were as follows: -

Equipment failure losses 39.57 hours

Shutdown loss 8.92 hours

External loss 275.4 hours

Process and operation losses 17 hours

It is assumed that the ‘External Loss’ of production time relates to problems beyond the

control of the Pellet Plant, such as lack of raw materials or awaiting delivery of essential

spare parts, such as the ball mill main bearing, and also for plant stoppages, such as the

industrial dispute over pensions which is further commented upon later in the report.

In general, the plant appeared to be in good working order and for the nature of the

process the housekeeping standard was high. McLellan has requested operating statistics

for the actual year to date and also the annual business plan for the plant. At the time of

writing this information has not been forthcoming.

The current operation of the Pellet Plant is well below design capacity. This shortfall in

production utilisation is due to a number of reasons, as described below.

First, as stated above the Pellet Plant has only one operational ball mill. The replacement

bearing that has now arrived in Nigeria will soon remove this constraint. Other reasons for

production shortage include production planning reasons. The meltshop is currently a

bottleneck for the plant and the DRI plant situated between the Pellet Plant and the SMS in


7-4

the production flow, is only working on one module. This single module operation is

enough to supply the SMS with DRI and also produce DRI for external sales.

In the near future DSC plans to raise the capacity of the Pellet and DRI plants and this

should produce an improvement in Pellet Plant throughput and utilisation. The high silica

content of the NIOMCO ore is another factor in current pellet plant production. As the local

ore content is too siliceous for efficient SMS operation, the DRI plant is also fed with

imported pellets and lump iron ore in order to improve the overall DRI blend for the SMS.

DSC plans to upgrade the pellet making facility to increase the overall capacity to 2.2 Mt/y.

Further details of this expansion are given in Section 14 of the Report.


SECTION 8

LIME PLANT

8-1

SECTION 8

LIME PLANT

8.1 Introduction

The Lime Plant, originally built by Lurgi, consists of a 70m long natural gas fired rotary kiln.

The capacity of the plant is rated at 66,000 t/y of burnt lime for use in the steelmaking

operation. The plant has the facility to convert a proportion of this output to hydrated lime,

which is required in the coating of pellets for DRI operations and also for water treatment

purposes. Table 8.1 shows the lime plant design basis.

TABLE 8.1 – LIME PLANT BASIS OF DESIGN

Parameter Design

Rated Capacity 66,000 t/y

Availability 90.4%

Working Days/y 330 days

Working Schedule 24 Hours

Input Limestone 0 - 60 mm

Limestone is fed into the process by wheeled loader. The 600 mm product passes through

screening and crushing sections and limestone is charged into the rotary kiln via a weigh

belt system. The kiln is fired by natural gas using a central burner. The kiln operates at an

angle of 25° and calcined lime is removed from the other end of the kiln.

Burnt lime leaves the kiln, is cooled to about 80 °C and ground to less than 1 mm. The

ground lime is then transported through a bucket elevator into the storage bins. Some of

the burnt lime is ground further and fed to the hydrating machine to produce hydrated lime.

McLellan did not have the opportunity or time to visit the lime plant during its visit and

intends to observe plant operations more closely during the Phase 2 Due Diligence work.


SECTION 9

DRI PLANT

9-1

SECTION 9

DRI PLANT

9.1 Introduction

The DRI plant has two similar Midrex modules of the 600 Series. Currently, one module is

working and the second remains on standby due currently to there being insufficient raw

materials (pellet plant reduced capacity because of the ball mill bearing problem) and also

the present SMS demand is relatively low.

The one module has been producing DRI for two markets. The first market is the internal

demand for the DSC steel melt shop (SMS), for which DRI is produced from a blend of

NIOMCO and imported ores (CVRD, Brazil). This 70:30 NIOMCO: CVRD blend allows a

DRI product with lower silica to be produced. The DSC DRI Plant also produces blast

furnace grade DRI for export markets.

9.2 Background

Module No 4 was commissioned in 1982 and Module No 5 was brought on stream one

year later. The design of each plant is for 320 days operation at 60 – 65 t/h and DSC

states that the plants have achieved this rate of production in the past. However, resulting

from chronic lack of funding, Module 5 was stopped in 1992 and Module 4 terminated

production in 1996. Module 4 was then rehabilitated after the take-over by GIHL and was

re-commissioned in May 2006. Module 5 was brought on stream later and Module 4 is

now stood by and is awaiting re-commencement of operation when pellet supply and DRI

consumption allows.

The current rate of operation is below the original design status because of leakage

problems that had previously occurred in the feed gas preheater system. There are two

units per module and around 40% of these tubes are blocked off. Consequently, lower

feed gas temperatures lead to lower production rates and the current estimated rate of

production is 55 – 60 t/h.


9-2

DSC states that an order for replacement tubes was made around 2 – 3 months ago and

when fitted the modules will be able to attain design capacity.

9.3 DRI Shipments

DSC has made around 10 shipments of DRI for blast furnace export markets. DRI is

pyrophoric in its nature and can self combust. The surface of the pellet is extremely

porous and easily oxidises giving rise to exothermic reaction. To prevent this potentially

hazardous situation, the DRI pellets are passivated (coated). Nevertheless, careful

procedures are necessary during the stocking and loading of ships. After loading, ship

hatches are sealed and purged with nitrogen.

9.4 DRI Operations

In July 2007 the plant produced 12,083t of blended DRI for consumption at DSC and a

further 16,211t of DRI produced from NIOCO ore for export. The cost of production was

US$126.73/t for NIOMOC based ore and US$160.81/t for the blended DRI for internal

consumption.


SECTION 10

STEELMAKING PLANT (SMS)

10-1

SECTION 10

STEELMAKING PLANT (SMS)

10.1 Introduction

The Steel Melt Shop (SMS), which includes the steelmaking and continuous casting

operations, is regarded as the most critical part of an integrated steelworks such as DSC.

The SMS at Delta Steel was commissioned in 1982. The plant was designed and supplied

by a reputable manufacturer and has an annual nameplate capacity of 1 Mt/y.

The steelmaking and casting units supplied were based on the latest technology available

at the time of installation and consisted of four 100t electric arc furnaces (EAFs) and three

six strand billet Continuous Casting Machines (CCMs).

Unfortunately, the ramp up in production under previous management did not progress

well and by 1985 the SMS had only attained 25% of installed production capacity.

Thereafter, despite efforts to improve operations, production at the Works was finally

suspended in1997.

The SMS remained out of operation until it was taken over by GSHL in February 2005.

During the shutdown period, whilst significant developments in steelmaking and

continuous casting technology were emerging elsewhere in the world, the plant was

cannibalised.

The condition of the plant at the time at the time of the takeover was as follows:-

EAF 1 - Totally cannibalised

EAF 2 - Significantly cannibalised

EAF 3 - Dismantled (partly converted to Ladle Furnace)

EAF 4 - Furnace dismantled, in preparation for new water cooled shell

and roof installation

CCM 1 - Totally cannibalised


10-2

CCM 2 - Significant refurbishment required

CCM 3 - Significant refurbishment required

10.2 Summary of Status and Recent Events

A summary of developments and status of SMS production units following GSHL takeover

in February 2005 is shown below: -

EAF 1 Remains out of action, pending the completion of an initial

refurbishment programme (75% complete). Further

modernisation is also required.

EAF 2 Extensive refurbishment complete by May 2005.

Commercial production resumed in December 2005.

Furnace remains essentially of 1980’s design and requires

further extensive modernisation.

EAF 3 Converted to a Ladle Furnace, which was commissioned in

June 2006.

Ladle Furnaces Provides a link between the EAF and CCM to increase EAF

production and optimise and homogenise steel temperature

and chemistry prior to casting. This technology was not

readily available in 1980’s.

EAF 4 New water cooled shell and roof installed July 2006. Water

cooled shell and roof technology reduces refractory

consumption and increases EAF productivity. This

technology requires to be introduced on all the EAFs at DSC.

This technology was only starting to emerge in the 1980’s).

CCM I This unit remains out of action, pending the completion of an

initial refurbishment programme (75% complete). Further

modernisation is also required.

CCM 2 Successful hot trials were carried out three months after extensive

refurbishment in May 2005. Commencement of commercial

production started in December 2005.


10-3

CCM 3 Refurbished and commissioned in July 2006

Support Systems Power supply systems, raw materials charging, oxygen

lancing, cooling towers, scrap yard have all been revamped

and made functional.

10.3 Summary of Original SMS Equipment Design and Production Capacity

The original Equipment Design Data is shown below:

Electric Arc Furnaces (EAF)

Number of AC furnaces 4

Nominal capacity of each furnace 110t

Furnace diameter (shell) 6,400 mm

Shell / Roof Lining Fully refractory lined

Furnace Design Launder Spout (i.e. not EBT)

Oxygen Lancing Hand lance

Oxy-fuel burners None

Mast Regulation Control Winch drives (i.e. not hydraulic)

Transformer capacity 60 MVA

HV System 33 kV

Charge composition (DRI / Scrap) 80% / 20% by weight

Melt down time 100 min

Electrical Consumption (melt down 15500C) 530 kWh/t

Quality of steel DIN 17 100 and DIN 17 140

Carbon content between 0.2 – 0.5%

Capacity of ladle (nominal) 110t

Capacity of ladle (maximum) 120t

Continuous Casting Machines (CCMs)

Machine type S 13–5

Number of machines 3

Number of strands/machine 6

Number of tundish cars/machine 2

Cast Billet range 100 – 130 mm square

Machines equipped to cast 120 mm square

Casting radius 5m

Machine centre line distance 36/ 36/m


10-4

Strand centre line distance 900/900/1100/900/900 mm

Capacity of ladle (nominal) 110t

Capacity of ladle (maximum) 120t

Cut off lengths 12m

Strand cutting mechanical shears

Billets discharge motorized roller tables, cross

transfer mechanism and turn

over cooling bed.

The SMS building is of steel lattice design and comprises:

Scrap Bin bay (10 x 144m) 1,440 m2

Electric furnace bay (26.5 x 240m) 6,360 m2

Casting (Teeming) bay: (22.5 x 222m) 4,995 m2

Continuous Casting bay (31.75 x 222m) 6,993 m2

Storage bay 1: (33.0 x 222m) 7,326 m2

Storage bay 2 :(33.0 x 222m) 7,326 m2

Repair workshop: (18 x 36m) 648 m2

With approx. 35,000 m2 covered area

The bays are covered and faced with trapezoidal sheet metal, and are open up to +5.5m

for natural ventilation. Ventilating structures can be provided on the roof and spaced

depending on the generation of heat.

10.4 Original Design Production Capacity

The original design statistics are shown below: -

Electric Arc Furnaces (EAFs)

Total time available (365 days) 8,760 hours

Time for EAF vessel change 400 hours

Time for EAF roof change 164 hours

Hot repairs / cleaning (8 hours/week) 416 hours

Waiting times approximately 4% 336 hours

Holidays approximately 6 days 144 hours

Production time or 304 days/year 7,300 hours

Tap to tap time per furnace 3 hours (180 min)

Number of heats per day/furnace 8 heats

Average heat weight – 250,000/8x304 103t


10-5

Continuous Casting Machines – CCM

Total time available (365 days) 8,760 hours

Stoppage times – change of tundish, etc 264 hours

1 repair shift per week 384 hours

Average down time – 10% 812 hours

Production time 304 days/year

Total number of cast per annum:

8 heats/furnace/day x 4 furnaces x 304 days 9,728 heats

Number of casts per annum / CCM 3,243 heats

Annual production of liquid steel 1,000,000t

10.5 Description of Current SMS Operation

The following paragraphs describe DSC’s steelmaking and casting operations.

10.5.1 Supply of Raw Materials

Steelmaking requires a number of raw materials and process consumables. The main

items are described below:-.

Direct Reduced Iron (DRI)

DRI produced by the two Direct Reduction Modules is transported by means of belt

conveyor system to four storage bins outside the SMS. The control of the DRI charging

equipment for the EAFs is located in furnace control rooms 1 and 2. The control of the

dedusting plant is carried out locally and is monitored from the control rooms.

Scrap Supply

Ferrous scrap required for the steelmaking operation is mainly purchased. It is sourced

from the domestic market and delivered by road. Scrap feed also includes internally re-

cycled scrap from the SMS and rolling mill operations.

A hydraulic shear and compactor is available to process light and oversize scrap. The

external scrap operation is controlled from a control room situated above the shear

hydraulic station. Two special overhead cranes have been provided for sorting, transport

and loading. The loaded scrap buckets are transported to the EAF charging bay by

special purpose road vehicles via a weighbridge.


10-6

In order to control steel temperature, selected scrap (especially return scrap from rolling

mill) is cut into small pieces, up to approx. 200 x 200 mm size, by a shear and then used

as coolant scrap.

During the site visit large quantities of steel skulls were awaiting processing and recycling

and were observed in various locations around the Works. This is indicative of the

operational problems currently being experienced.

Lime Supply A lime calcination plant is available to prepare the lime required for slag formation during

the steelmaking process. However, the lack of lime is currently having both a direct and

indirect adverse effect on SMS operations. Comments on the lime making operation are

presented in Section 7 of this Report.

10.5.2 Steelmaking Operation

The original steelmaking and casting design concept of the 1 Mt/y steelmaking shop

consisted of four EAFs and three 6 strand billet casting machines. This is no longer

applicable at DSC.

The current SMS operation is based on two EAFs, one ladle furnace and two CCMs. EAF

3 has been converted to a ladle furnace and EAF 1 together with CCM 1 have been out

operation since the Plant was shutdown, albeit DSC plans to bring both of these units back

into service within then next 4 months.

Table 10.1 provides a summary of the actual performance of the SMS compared to budget

for the period January to July 2007. The current actual performance is also compared with

the original design ‘nameplate’ specification.


10-7

TABLE 10.1 – SUMMARY OF LIQUID STEEL AND BILLET PRODUCTION – 2007

No HEATS LIQUID STEEL BILLETS

PLAN ACTUAL % PLAN ACTUAL % PLAN ACTUAL % YIELD

January 247 172 70% 26,445 16,658 63% 25,916 14,534 56% 87%

February 242 173 71% 25,927 16,934 65% 25,408 15,933 63% 94%

March 312 236 76% 33,378 22,161 66% 32,711 20,359 62% 92%

April 256 193 75% 27,397 17,793 65% 26,849 16,002 60% 90%

May 312 226 72% 33,378 21,913 66% 32,710 16,381 50% 75%

June 230 147 64% 24,605 16,343 66% 24,112 14,768 61% 90%

July 359 183 51% 28,488 18,358 64% 27,918 16,464 59% 90%

TOTAL 1,958 1,330 68% 199,618 30,160 65% 195,624 114,441 59%

Monthly Average

280 190 68% 28,517 18,594 65% 27,946 16,349 59% 88%

Daily Average

11 190 68% 1,126 734 65% 1,103 645 59%

Heat Size

102 98

The Table shows that the average liquid steel and billet production is less than

20,000 t/month, which equates to around 24% of design capacity. Figure 10.1 also

illustrates that the month to month development of the shop shows little improvement.

From these statistics and general observations on site, McLellan considers that stepwise

improvements in performance will probably not occur until EAF 1 and CCM 1 are

reinstated or when major equipment developments are achieved.


10-8

FIGURE 10.1 – SUMMARY OF LIQUID STEEL AND BILLET PRODUCTION – 2007

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

January February March April May June July

Bil

let

To

nn

es

70%

75%

80%

85%

90%

95%

100%

Bil

let

Yie

ld

PLAN

ACTUAL

YIELD

Although McLellan considers that DSC has done well to restore operations, Figure 10.1

indicates a significant shortfall in actual production compared to plan. Figure 10.1 also

shows an increasing trend in billet production in the first quarter of the year, but this has

not been sustained for the period from April to July 2007.

The SMS has a number of problems such as with charging lime and excessive refractory

wear. These are problems that can be solved only with the planned design changes.

However, unless the plant increases additional capacity (EAF 1 and CCM 1) or solves

these problems with the capital developments planned, it is likely that production will

continue at current levels.

The low CCM yield, of around 90%, is significantly lower than expectations. McLellan

would expect a billet yield to be in the order of 98% in a modern operation. The low yield

is also indicative of the operational problems currently being experienced at both steel

plant and continuous caster.

Although the current deficit is more pronounced when compared to the original design

specification of 1 Mt/y, this is partly attributable to the reduction in the number of

steelmaking and casting units now in operation.


10-9

10.5.3 Factors Affecting Steelmaking Operations

McLellan considers that an Integrated Steelworks such as at DSC could be adapted to

produce in excess of 2 Mt/y. However, DSC’s imminent challenge is to bring the plant

back up to near design capacity. Adaptations to equipment and process will help DSC to

overcome some of the current barriers. This is further explained below.

The significant shortfall in billet production relative to the current design capacity is

considered to be mainly due to:-

Raw materials – Availability and quality

Excessive unplanned delays

The main areas are attributable to the following:-

a. Raw Materials

Lime Production – McLellan observed that the SMS and other DSC plants on

site have experienced stoppages due to shortage of lime supply. Shortage of

lime is an operational problem that is relatively easily avoided and has been

brought to the attention of DSC management team

Pellet Production – Pellet production has been limited because of the

availability of ball mills. The NIOMCO ore also contains too much silica which

is detrimental to the steelmaking process

DRI Production – DRI is produced from DSC pellets and silica levels are

extremely high even when taken account that the NIOMCO ore is blended with

Brazilian ore.

Steelmaking performance in terms of productivity and yield is much a function of the

quality of the process inputs. For example high silica in the pellets finishes up as high

silica in the DRI and excessive silica has to be fluxed by adding additional lime. The ratio

of lime to silica is important in two main regards.

First, silica and lime are the main components of the slag and the CaO/SiO2 ratio is

important from a metallurgical perspective and also in relation to slag viscosity. Slag that

is either too acidic (CaO/SiO2 low) or too basic (CaO/SiO2 high) are very aggressive on the

EAF refractory. DSC is now experiencing high refractory wear in the EAF.


10-10

In order to maintain the correct basicity, lime must be added to the EAF. This is usually

undertaken dynamically without the need to stop the furnace. However, the system at the

DSC SMS is not working and this necessitates periodic stops in EAF operation in order to

add lime. It also leads to compromises with the SiO2/CaO ratio which in turn leads to

excessive refractory wear.

Finally, raised lime and silica increases the EAF slag volume; increased slag volume leads

to reduced yield and high electricity consumption. In July 2007, for example, the target

EAF yield was 85% but the actual yield was only 79%. Electricity consumption was

903 kWh/t against a standard of 700 kWh/t.

Hence, DSC has challenges to improve the availability of raw materials such as lime but

also to reduce the silica levels in the NIOCO ore. DSC also needs to establish a method

of dynamically feeding lime into the EAF.

b. Excessive SMS Unplanned delays:

Quality of raw materials – as defined above

Poor equipment design – as defined above with respect to lime feeding but also in many other respects.

Poor equipment availability / preventative maintenance

Need to improve SMS Process Route

Need to introduce new technology

Need to improve employee skill levels and overall shop momentum

Examples of the major delays currently being experienced are as follows:-

Operational

Furnace shell refractory repairs

Waiting for casting machines

Low sequence rates

Slag bay cleaning

Decarburisation (refining)

Electrode change

Pourbacks


10-11

Mechanical

Roof problems

Electrode Problems

Electrical

Electrode arms not coming down

Electrode arms winch drive motors

All of the above delays are typical of a SMS that requires modernisation.

10.5.4 Fume Collection System

The SMS is equipped with two baghouse fume collection plants, one plant covers

EAFs Nos 1 & 2 and the second caters for EAF 4 and the ladle furnace (formerly EAF 3).

Fumes are directly extracted from a fourth hole in the roof of each furnace. However, no

secondary (canopy hood) facilities have been provided. Secondary fume extraction is

common practice throughout modern EAF steelmaking operations.

Each baghouse fume collection plant consists of:

Water-cooled roof elbow

Non-water cooled gas ducts

Heat exchanger

Baghouse

Fan station

Gas discharge chimney

Dust collection and discharge facilities

Baghouse dust is recycled to the Pellet Plant.

During the visit the following areas of concern became apparent:-

Heavy discharges of dirty fume from the chimney were observed, indicating that

the baghouse was not working properly.

In order to collect the large volumes of dirty fume created during furnace

charging and tapping and avoid fugitive emissions escaping from the shop, it is

recommended that secondary extraction facilities should be retro-fitted.


10-12

In order to facilitate fume plant maintenance during EAF planned down periods,

dedicated furnace baghouse facilities are preferred

McLellan considers that the capacity of the existing fume collection systems is

unlikely to be sufficient to handle the proposed expansion scheme and

additional provision will require to be made in the Cap-Ex Budget. This has

been pointed out to DSC and discussed during the site visit.

10.5.5 Existing Ladle Treatment Facilities

In the absence of sufficient ladle furnace capacity, DSC utilises two less effective movable

nitrogen stirring station plants and a temperature measuring stand to homogenise ladle

steel chemistry and temperature. Unfortunately this technique invariably results in

stratification within the ladle which results in casting machine problems and aborted heats.

10.5.5 Continuous Casting Machines (CCM)

The installation comprises three identical machines. Each machine is a six-strand billet

caster, each strand being similar in construction and operation.

The main structure of each machine provides support for the casting platform, tundish

preheating stations, tundish cars and moulds. The foundation of each machine provides

support for the ladle turret, emergency ladle, straighteners, roller tables, shears and

discharge equipment as well as flumes for strand cooling water. Two tundish cars are

provided for each machine, a pre-heat station provided for each car. Slag boxes are

positioned at the casting station to receive hot metal or slag as required during the casting

operation. The mould is mounted on a pivoted support arm that is attached to the

oscillating mechanism mounted on cross beams below casting floor. A main control panel

giving control of the casting operations together with alarm and failure indication is

positioned in the control room at the casting floor. Local control of the cast at each mould

is provided by a control box located on an arm positioned at each strand. Access to the

main and intermediate levels is by stairways having suitable handrails. An integrated steel

walled enclosure forms the cooling chamber which houses the arc shaped six strand

guides of one machine.

A straightener assembly, mounted at ground level, provides the drive and straightening

function for each strand. It also provides the drive for the dummy-bar when re-stranding


10-13

the machine. A non-driven intermediate roller table supports strand and dummy bar

respectively.

In front of the shear a pinch roll unit with a driven top roll is provided to drive the end of the

strand or dummy bar. A shear is used to cut the strand into billets of a pre-determined

length. A discharge roller table with disappearing stops is positioned in between the shear

and cooling bed. A receiver houses the dummy bar alongside the roller table. A transfer

assembly to collect billets is used for cross travel, to the turnover bed. This mechanical

transport provides a turning action to obtain the even cooling on the entire length of the

billets. A roller table drives the billets into the dispatch bay and a pusher assists for

storage onto the cooling bank.

10.5.6 Summary of SMS Operations

The steelmaking shop is clearly the heart of the entire DSC operations. In many ways it is

the central and most important department of the entire Nigerian operation, as it also

supplies billets to ASCL. Nigeria has to import significant quantities of bars and billets,

and there is clearly a market for long products.

McLellan accepts that good progress has been made but recommends that the SMS

should be treated as priority area for reinitiating the drive towards design capacity.

First, there are problems with availability and quality of raw materials that need resolution.

Secondly, there are operational and maintenance items that can be resolved with the

requisite attention and effort. Finally, there are equipment issues and design problems

that need resolution. McLellan considers that if these challenges can be overcome the

extra production pushed through the shop will also drive other downstream and upstream

departments.

DSCA has plans to develop the plant to produce 2.4 Mt/y and these are outlined in

Section 14 of this study.


SECTION 11

ROLLING MILL

11-1

SECTION 11

ROLLING MILL

11.1 Introduction

The rolling mill is a conventional light sections and bar mill. Although the mill has the

capability to roll sections, for market reasons it mainly produces bar.

11.2 Rolling Mill Design and Technical Data

The design basis for the rolling mill is shown below in Table 11.1.

TABLE 11.1 – ROLLING MILL DESIGN PARAMETERS

Parameter Design basis

Rated Capacity 0.3 Mt/y

Maximum Design Capacity 0.32 Mt/y

Working Days 278 days

Availability 76.11%

The reheat furnace is a pusher type furnace and is fired by natural gas. Its throughput

capacity is 85 t/h and discharge temperature is 1,200 °C.

The mill rolling speed range is between 3 and 15 m/sec. However, the mill cannot always

run reliably at high speed because of problems with its analogue drive units.

The rolling mill is fed with billets of dimension 120 x 120 mm and the product range is

shown in Table 11.2.


11-2

TABLE 11.2 – ROLLING MILL PRODUCTS

Product Range Tolerance

Rounds 12 – 50 mm DIN 1013

Squares 12 – 50 mm DIN 1014

Flats 5 x 20 – 12 x 25 mm DIN 1017

Tees 20 – 60 mm DIN 1024

Equal angles 20 x 3 to 65 x 11 mm DIN 1028

Unequal angles 40 x 30 x 3 mm65x 50 x 9 mm

DIN 1029

Channels 40 x 20 – 100 x 50 mm DIN 1026

I – Beam 80 and 100 mm

Finished Lengths 6 – 12 m

The mill consists of 14 horizontal stands and 4 vertical stands. Flying crop shears and

cobble shears are sited in front of the horizontal stands H6 and H12. Snap shears are also

sited in front of the horizontal stands H6, HH 16 and H18 in case of cobbles or other

malfunctions. The finishing process begins at a 75m rake type cooling bed. The mill has

straighteners for use during rolling structural sections and a cold shear and cold saws.

The mill has operated at well below capacity in recent months because of a shortage of

billets emanating from low billet supply from the SMS and also billet transfers to ASCL.

There is a problem with one of the mill drive spline shafts of which a replacement is on

order and the mill has been stabilise at operating at 70% of normal speed. The mill team

appear proactive and have identified a number of enhancements and upgrades to bring

the mill back to design capacity. The mill team state that many of these improvement

items have already been ordered.

A thermal treatment line designed to enhance the product mechanical properties is in the

final stages of commissioning. The system is awaiting low temperature hot metal

detectors. This system will allow DSC to further differentiate itself from other domestic

competitors in terms of production of quality products.

The mill has rolled 1,500t in a single day in recent months and McLellan considers that

with the planned enhancements the rolling mill should be capable of meeting original

design capacity.


11-3

Rolling mill yield is currently 96.5% and the target is 97 – 98%. This should improve as the

rolling mill picks up momentum from an improved billet supply.

The main enhancements to the rolling mill are in terms of final stages of rehabilitation and

major improvements to the drive automation and automation systems. These post

expansion enhancements are further described in Section 14 of this report.


SECTION 12

UTILITIES AND ANCILLARIES

12-1

SECTION 12

UTILITIES AND ANCILLARIES

12.1 Introduction

This section of the Due Diligence Study considers the utility and ancillary aspects of the

DSC plant.

12.2 Electrical Power

Currently electrical power is supplied by PHCN (Power Holding Company of Nigeria) by

two high voltage overhead transmission lines. The 330 kV lines feed into the DSC main

+20A electrical station. Two power stations in close proximity to Delta Steel feed the main

DSC electrical station.

Electrical station +20A is a modern installation and has SF6 gas insulated switchgear with

full metal cladding. The high voltage switchgear distributes energy to four 140 MVA

transformers. These transformers transform the voltage from 330 kV to 33 kV.

The 33 kV switchgear distributes power to the EAF transformers. Power is further

distributed to other plants via 13 15 MVA, 33/6.6 kV transformers. From these units

energy will be further distributed by 6.6 kV switchgear and transformed to 380V where

necessary.

Compensation equipment is connected directly to the 33 kV switchgear and reduces

voltage variation caused by the fluctuating current drawn by the arc in the EAF.

McLellan considers the existing system is robust enough to allow the DSC Works to

achieve design capacity. However, further capacity enhancement of the electrical supply

system will be required to allow DSC expansion plan to 2.4 Mt/y to be achieved. This is

further explained in Section 14 of this Report.


12-2

12.3 Natural Gas

Natural gas is supplied by the Nigerian Gas Company at a rate of 150,000 Nm³/h at a

pressure of 11 to 15 bar. Natural gas is piped directly to the Works and pressure is

reduced at site via a reducing station. The distribution of natural gas to the various

plants at the Works is shown below in Table 12.1.

TABLE 12.1 – DSC NATURAL GAS SUPPLY

Plant Supply Nm³/h

Pellet Plant 25,000

DRI Plant 105,000

SMS 5,000

Foundry 1,500

Lime Plant 5,000

Central Lab 500

TOTAL 142,000

12.4 Cryogenic Plant

The single stream plant, originally supplied by Linde-Korf, has a rated capacity of

2,260 Nm³/h of gaseous oxygen, 2,500 of gaseous nitrogen and 45 Nm³/h of argon. This

80 t/d plant produces both oxygen (99.5%) and nitrogen (99.9%) at high levels of purity.

The plant is considered adequate to supply oxygen and nitrogen mainly to the SMS under

current operating conditions. However, extra capacity will be needed fro the DSC

expansion plan for SMS to be achieved. Further details of this expansion are given in

Section 14 of the Report.

12.5 Water Supply and Water Treatment Plant

The water table in the Warri region is high and water is extracted through five boreholes.

Each well has a capacity of 250 m³/h. It is explained in Section 14 that three further

boreholes are required to support the expansion plan.

McLellan did not have time to inspect the water treatment facilities because of the short

duration of the visit. However, McLellan understands that the discharges of suspended

solids from the plant into the river and creek are often above the local consent limits.


12-3

Therefore, McLellan recommends further investigation into this area are undertaken as

part of Phase 2 Due Diligence work.

12.6 Compressed Air

DSC has a compressor station comprising 4 working sets and one standby. Compressed

air at a pressure of 6 – 7 bar is fed into the plant network. McLellan considers that this

system is adequate to support steelmaking at the design capacity. However, additional

compressed air capacity will be required to support the expansion of steelmaking.

12.7 Central Laboratory

The Central Laboratory is adequate for today’s operations. However, some upgrading is

required in order to speed up the sampling process to support the planned consistently

reduced tap to tap times in the SMS and also because of DSC’s targets of improving

product quality and further accreditation. Descriptions of such enhancements are given in

Section 14 of this Report.

12.8 Foundry

The short duration of Phase 1 visit did not allow sufficient time for McLellan to visit the

foundry. The foundry is understood to contain equipment to produce castings such as

grinding balls for the pellet plant. It is also understood that the foundry, commissioned in

1982, was expected to have a capacity of 1,200 t/y. However, McLellan considers that

the capacity is now somewhat less and certain equipment is likely to require upgrading

and refurbishment. DSC has formulated a plan for the enhancement of these facilities

and this is further explained in Section 14 of this Report.

12.9 Workshops

The DSC Works has a number of large workshops. However, due to time constraints

McLellan was not able to visit these facilities.

12.10 Mobile Plant

Inspection of the Works provided visual evidence of a mobile fleet consisting of many

vehicles. The condition of the vehicles and small plant is variable. For example, wheeled

loaders and shovels appeared in reasonable condition, whilst the slag pot carriers

appeared unserviceable.


SECTION 13

ENVIRONMENTAL CONSIDERATIONS

13 -1

SECTION 13

ENVIRONMENTAL CONSIDERATIONS

13.1 Introduction

EAFs produce metal dusts, slag and gaseous emissions. The primary hazardous

components of dust arising from the EAF during the production of carbon steels are zinc,

lead and cadmium. However, the composition of the dust can vary considerably

depending on the furnace charge mix, the scrap composition and the additives used. For

example, the zinc content can vary from 5 to 35%. Therefore almost without exception

every SMS installation includes an acceptable fume control system.

Air emission control technologies for the collection and removal of particulate matter

include scrubbers, baghouses and electrostatic precipitators. The latter two technologies

can normally be expected to achieve 99% removal efficiency, provided they are

adequately designed and maintained.

The standard for permitted emissions from chimney stacks which applies in many other

countries is as follows:-

Suspended particles 30 mg/Nm3 standard and dry

Carbon monoxide 500 mg/Nm3 standard and dry

Sulphur dioxide 0.2% vol

Hydrogen sulphide 10 mg/Nm3 standard and dry

Turbidity (opacity) 20%

The height of installed chimney stacks is such as to enable compliance with ground level

air quality standards. The dust collected from the EAF baghouses is re-cycled via the

Pellet Plant.


13 -2

The SMS also generates up to 80 m3/t of waste water per tonne of steel produced and this

untreated waste waters contains high levels of suspended solids. Wastewater treatment

systems typically include sedimentation to remove suspended solids, physical or chemical

treatment, such as pH adjustment to precipitate any heavy metals, and filtration. Each of

the plant areas, DRI Plant, SMS, Continuous Casting Plant and the Rolling Mill are

expected to be equipped with a water treatment centre. Each utilising equipment best

suited to meet the operational requirements and demands of the process. Where possible

all solid waste will be recycled but certain materials will need to be stockpiled.

High levels of noise are also generated during EAF operations with the highest intensity

being during the early stages of the melting operation (>85 dBA). Typically, noise at the

DRI plant area boundary is in the range of 65 to 80 dBA. The higher noise levels occur

adjacent to large fans, compressors and pumps. The process control room and

appropriately sited operator refuge rooms will be sound proofed and air conditioned.

Operators and maintenance personnel working in high noise areas will be required to wear

acoustic ear protectors.

Similar environmental problems also arise in the other main production units, but with the

possible exception of the pellet plant, the potential problems are less severe and easier to

handle.

Table 13.1 provides a summary of some of the waste materials arising and the potential

means of disposal.


13 -3

TABLE 13.1 – SUMMARY OF WASTES AND SOURCES AND DISPOSALS

Plant Material DisposalLime Kiln Particulates in flue gas Recycle to pelletisingPellet Plant Low Grade material Recycle to pelletisingDirect Reduction Iron Plant Particulates ex-gas

scrubbingProduct screening particulatesBlowdown*

CatalystRefractories

Stockpile – investigation recycleStockpile – evaluate injection to EAFOff-site via monitoring treatmentSale/returnStockpile – some uses

Electric Arc Furnace SlagScrap steelRefractoriesFume Dust

Stockpile – AggregatesRecycle to EAFStockpile – some usesBaghouse - Pellet Plant or Landfill

Ladle Furnaces ParticulatesSlagRefractoriesFume Dust

Stockpile with EAF arisingsStockpile – potential salesStockpile – some usesBaghouse

Billet Casting Machines ScaleOil and greaseBlowdown*

Scrap steelRefractories

Stockpile – evaluate recycleIncinerate after treatmentOff-site via monitoring/treatmentRecycle to EAFStockpile – some uses

Rolling Mill ScaleOil and greaseBlowdown*

Scrap steelRefractories

Stockpile – evaluate recycleIncinerate after treatmentOff-site via monitoring/treatmentRecycle to EAFStockpile – some uses

*Some blowdown streams can be used for fugitive dust suppression at material stockpile

areas etc.

13.2 Environmental Impact Study

The 2.4 Mt/y Development Project will have an impact on the environment in four areas:

Atmospheric emissions

Solid waste

Noise

Effluent discharge


13 -4

In December 2006, DSC commissioned Kenfrank (NIG) Limited to undertake a study and

submit a report entitled “Gas Emissions and Air Quality Monitoring”.

At the time the report concluded the following:

Non-compliance with total suspended solid particulate standards

Air quality parameters were low and below the regulatory limits

Noise levels complied with the FMENV limit

Concentrations of volatile organic compounds were low compared to

FMENV limits

Smoke density and ambient temperatures presented no risk

The following recommendations were made:

Monitoring should be carried out on a more regular basis

Any deviations should be recorded

Ear protection must be worm in designated areas

Nose / mouth filter pads should be worn in the SMS and Lime Plant

Exhaust systems in the SMS and Lime Plant should be made functional

McLellan considers that due to the nature of the process, Environmental Impact

Assessments will need to be ongoing and, therefore, final development plans must also

provide environmental controls which meet regulatory requirements in all areas. The

design and specifications of the expansion project must ensure that emissions and

discharges from the finished installation are eliminated where possible. Otherwise, where

this is unavoidable, procedures must be in place to ensure compliance with local

environmental requirements.

McLellan is aware the GSHL has considerable experience in dealing with environmental

issues and providing acceptable solutions. However, during the course of the discussions

and the site visit it was apparent that significant improvements to the existing SMS fume

collection system will need to be scheduled.


SECTION 14

PLANT EXPANSION STRATEGY

14 -1

SECTION 14

PLANT EXPANSION STRATEGY

14.1 Introduction

DSC and GSHL have devised an expansion programme. This programme spans a

timeframe of approximately two years and is targeted to increase the plant capacity to

around

2.4 Mt/y.

Figures 14.1 and 14.2 show the process flows for the existing and expanded capacity.

FIGURE 14.1- MATERIAL FLOWS FOR THE EXISTING CAPACITY

Figure 14.1 shows the existing design capacity feeding the onsite rolling mill and also

supplying billets to ASCL and for external sale. Figure 14.2 shows expanded primary and

steelmaking facilities and a single onsite rolling mill remaining. The Phase 2 development


All values in Million MT/Year (MTPA)except Oxygen Plant - tonnes/day

Iron ore 1.47 Lime Stone/Dolomite 0.10

Pellet Plant 1.46 Burnt Lime/Dolime 0.05 Oxygen Plant- TPD* 8099% 49%

Mod-IV Mod-V TotalGrossDRI (2 Modules) 0.51 0.51 1.02

70%

ScrapDomestic 0.15

Total 0.174 EAF II EAF IV EAF I Total CCM II CCM III CCM I TotalImported 0.00 0.25 0.25 0.25 0.75 0.32 0.32 0.32 0.96

Int. Return 0.0221.91% Rolled Products Billets for DSC Rolling Mill

0.30 0.312.5% 96.59%

Billets for Sale/ASCL Conversion/Export0.65

* Existing oxygen plant capacity is 80 TPDNote : All Percentage values are yield w.r.t. raw material for that process/plant

Material Flow for Existing Capacity

DRI

SMS ( With 1 LF) Casters

1.00





70%

ScrapDomestic 0.15



0.30 0.312.5% 96.59%




DRI






70%

ScrapDomestic 0.15



0.30 0.312.5% 96.59%




DRI


1.00

14 -2

of DSC is for around 2 Mt/y of long semis (blooms and billets will be transferred to ASCL or

sold to other customers.

FIGURE 14.2 - MATERIAL FLOWS FOR THE EXPANDED CAPACITY

The following Sections of the Report describe the various plant expansions, DSC’s plans

for capital investment and also the time scheduling of the development plan.

A summary of the plant expansions is shown below in Table 14.1.



Iron ore (Itakpe) 1.66 Lime Stone/Dolomite 0.36

Iron Ore( Imported) 0.57

Imported Pellets 1.43

Pellet Plant- DSC Pellets 2.22 Burnt Lime/Dolime 0.18 Oxygen Plant- TPD 50099% 49%

Mod-IV Mod-V TotalPrime DRI (2 Modules) 1.09 1.09 2.17

59.5%

ScrapDomestic 0.24

Total 0.66 EAF II EAF IV EAF I Total CCM II CCM III CCM III Bloom TotalImported 0.25 0.80 0.80 0.80 2.40 0.56 0.56 0.56 0.70 2.39

85% 100%


0.38 0.392.50% 96.6%


Note : All Percentage values are yield w.r.t. raw material for that process/plant

Material Flow for 2.4 million MT Liquid Steel

DRI

SMS (with 3 LF) Casters

14 -3

TABLE 14.1 – DSC EXPANSION PLAN

14.2 Plant Expansions

Most areas and departments of the DSC Works will be affected by the DSC expansion

plan which is further described below. The various expansion plans are shown only in

principle due to the constraints of time and work in Due Diligence Phase 1 and the brief

duration of McLellan’s visit to the Works.

14.2.1 Jetty and Material Handling Facilities

The material handling facilities require upgrading to handle considerably higher volumes of

both incoming and outgoing raw materials. Section 16 of this Report describes the

expected quantities of incoming materials required by both DSC and ASCL and which will

have to be handled through the port facility.

Although many of the port and handling facility arrangements are not yet determined and

depend on the logistics study outlined in Section 16, DSC has made a commitment to

upgrade the electronic control of the unloaders and certain other items of material handling

equipment.

14.2.2 Lime-making Facilities

DSC plans to operate its existing rotary kiln that has a capacity of 66,000 t/y. The balance

of the requirements, namely 72,856 t/y of burnt lime and 79,200 t/y of dolomite will be

produced from a second kiln (rotary/shaft). This second kiln will be built by DSC. The

design basis for lime and dolomite supply is shown in Table 14.2.


NosCapacity (MTPA) Nos

Capacity (MTPA) Nos

Capacity (MTPA)

Pellet Plant 1 1.46 1 0.76 2 2.22DRI Modules 2 1.02 1.20 2 2.22EAFs 3 0.75 0 1.65 3 2.40Ladle Furnace 1 2 3 0Billet Casters 3 0.96 0 0.73 3 1.69Bloom Caster* 0 1 0.70 1 0.70Rolling Mill 1 0.30 0 0.00 1 0.11Oxygen Plant (TPD)** 1 80 1 500 2 580Lime Plant 1 0.05 1 0.11 2 0.16

*One Bloom Caster to be added.** Two Additional Plants of 50 TPD and 100 TPD will be installed during first and second quarter of 2008, in addition to new 500 TPD O2 Plant

Existing Addition for 2.4 MTPA TOTAL

Major Plants/Units

14 -4

TABLE 14.2 – LIME PLANT BASIS OF DESIGN

Present Kiln Additional Kiln TotalParameter Design Design Design

Rated Capacity 66,000 t/y 66,000 t/y 198,000 t/yAvailability 90.4% 90.4% 90.4%Working Days 330 days 330 days 330 daysWorking Schedule 24 Hours 24 Hours 24 HoursInput 0 – 60 mm

Limestone30 – 80 mm Limestone, Dolomite

DSC has already received three technical and commercial quotations to supply the

additional lime plant.

The strategy for sourcing limestone has not yet been firmly established and will be

supplied by one or all of the following quarries.

Jakirra

Ukpilla

Auchi

Calabar

Most of the dolomite shall be supplied from Ikpeshi and its surrounds.

14.2.3 Utility and Ancillaries

The utility/ancillary plants that require further development in order to achieve the

expanded capacity are shown below: -

Oxygen plant

Power and distribution system

Compressed air

Water supply equipment

Laboratory facilities

Heavy duty machinery

Foundry

Oxygen Plant

Increased oxygen supply is required to support the increasing amount of liquid steel to be

produced and also because of the increased amount of oxygen consumed per tonne of

steel required to provide chemical energy and reduce tap to tap time.


14 -5

DSC has calculated that the current 80 t/day oxygen plant will supply 17.9 MNm³ and the

new capacity will require 176.14 MNm³. Initially DSC plans to add additional 50 t/day and

100 t/day plants followed by a 500 t/day oxygen plant. The two smaller plants will be

relocated and shipped from GSHL’s plant in Dolvi, India.

McLellan considers that this capacity should provide sufficient capability for the plant’s

oxygen and other inert gas requirements. As part of the expansion scheme a number of

other equipment units will be constructed and commissioned including: -

Argon unit

Oxygen compressor

Power and Distribution System

The power profile according to the expansion plan is shown in Table 14.2. The increase in

demand is considerable because of the increased steel production but also because of the

commissioning of new ladle furnaces.

TABLE 14.2 – DSC EXPANSION PLAN – POWER CONSUMPTION FORECAST (MWh)

Power Consumption MWhPlant 2007 2008 2009 2010 2011SMS 319,881 689,648 1,238,31

71,371,52

01,427,96

5Pellet Plant 69,078 68,006 99,278 111,688 124,098DR Plant 67,061 154,218 215,452 242,383 269,315Rolling Mill 17,340 24,000 32,000 36,000 38,280Lime Plant 3,975 5,564 13,265 14,923 16,582Oxygen Plant 20,790 90,956 90,956 90,956 90,956Others 21,600 23,760 43,200 43,200 43,200Total 519,725 1,056,15

21,732,46

81,910,67

02,010,39

6Ave Power Demand - MVA 147 243 374 413 425

A number of enhancements to the plant and equipment are required to support the

expanded power load and are shown below: -

Reparation and maintenance of 140 MVA transformers No 4

Upgrading of 33 kV Bus Bar, isolator and circuit breaker for the furnace feeders

Repair and upgrading the thyristor controllers for SVC 2 and 3

Retro fitting 6.6 KV circuit breakers

Upgrading the metering and monitoring system from analogue to digital control.


14 -6

McLellan has been assured by DSC that these upgrades are sufficient to meet the

enhanced plant power requirements, however further examination of the technical aspects

is required during the Phase 2 investigations. Table 14.5 shows the capex plan for the

enhancement of the power system.

TABLE 14.5 – DSC EXPANSION PLAN – POWER DEPARTMENT ENHANCEMENTS

Equipment Enhancement US$/M

Rehabilitation of 140 MVA Transformers 2.5

Upgrade 33 KV Bus Bar, isolators, circuit breakers and feeders

4.5

Rehabilitation of SVC thyristor controls 3.5

Retrofitting of 6.6 KV circuit breakers 1.0

Upgrading of metering and monitoring system to digital control

0.5

TOTAL 12.0

Compressed Air System

The compressed air system comprises 4 existing compressor sets (with one spare set)

and has a capability of supplying around 8,800 Nm³/h. The expanded plant will require five

extra compressors in order that the enhanced demand of 13,200 Nm³/h can be met.

Water Supply

Water is supplied to the site by five existing boreholes each with the capability to draw

around 250 m³ of water per hour. Three additional boreholes will be drilled in the same

area to meet the expanded plant requirements.

Laboratory Facilities

A number of enhancements are required in relation to testing equipment. The need to

modernise and meet the expanded production targets means that the plant requires the

following equipment: -

Automatic spectrolux analyser

Nitrogen/ oxygen determinator package

XRF spectrometer

Thermo-elemental atomic absorption spectrophotometer


14 -7

Gas chromatograph for use in DRI process control

Pyrometric cone equivalent tester

High temp DSC apparatus

Metallurgical microscope with image analyser

Rapid analyser

Heavy Duty Machinery (Mobile Plant)

A number of items of DSC’s heavy machinery require replacement and/or refurbishment.

The additional operational activity in raw material and slag removal will be significant and

additional mobile plant will be required. The provisional list of additional equipment

includes the following:-

Additional elevating truck with dumper pallet

Kamag and ITS slag carriers

Front loaders

Track loaders

Charging machines

Fork lifts

Mobile cranes dump truck and container

Foundry

DSC has identified a list of requirements to upgrade its foundry to produce 2,400 t/y of

castings.

14.2.4 Pellet-making Facilities

The major existing and proposed design parameters are shown below.

Rates Capacity Existing Proposed

1.5 Mt/y 2.2 Mt/y

Productivity 125 kt/month 183 kt/month

Productivity 4 637 t/d 6 864 t/d

Annual Working Days 312.5 320

Plant Utilisation 85.6 % 87.67 %

The expansion of the pellet plant is part of the overall scheme to enhance the SMS

production to 2.4 Mt/y. In order to achieve this level of production DSC plans to carry out


14 -8

an enhancement programme as shown in Table 14.6. The basis of the pellet plant

expansion is upgrading certain plant items and also changing the plant operating strategy.

The upgraded pellet plant will continue to operate as a single strand unit with the second

drying and ball line held in reserve to maintain continuity of operations in the event of any

unplanned delays occurring on the duty line. This approach is also expected to facilitate

preventative maintenance and plant availability by allowing the standby units to be

maintained offline. The developed operating plan is shown below.

Operating Plan

Production 6,864 t/d

Total Annual Hours Available 8,736

Annual Planned Shutdown 504 hrs (21 days)

Planned Maintenance 144 hrs (every 2nd month for 24 hrs)

Unplanned delay provision 432 hrs/y

Net Annual Operating Hours 7,680

Productivity 286 t/h


14 -9

TABLE 14.6 – PELLET PLANT ENHANCEMENT


Enhancement of Pellet Plant Capacity from 1.44 to 2.2 Mt/y

TPH Mt/y TPH Mt/y TPH Mt/y

Dryer 2 X 110.7 1.66 2 X 122.9 1.84 2 X 150 2.4Hot gas generator & Belt conveyors upgradation. 0.40

Ball Mill 2 X 107.7 1.61 2 X 118.9 1.78 2 X 137 2.2Ball mill shell liners to be redesigned, Air lift blower to be replaced with higher capacity. 1.00GOB Dedusting fan capacity to be enhanced 0.02Mixed material online moisture analyser & moisture control system. 0.05

5 nos.Mixed material conveyor capacity to be upgraded. 0.02Frequency controller for disc drives. 0.06Double deck roller screen system. 6.50Redesigning of disc bed scrappers. 0.02

DCS for Pelletising. 2.00windbox recup. & windbox exhaust fan H T motors capacities enhancement. 0.90

Addition of coke in green pellet. 0.50

20 MVA transformer. 1.001500 KVA Generator set. 1.00Indurating M/C cooling system upgradation. 1.50Installation of ESP dedusting system. 5.00

Miscellaneous 0.50

Fired pellet production 193 1.45 215 1.6 274 2.2

TOTAL 20.47

3 X 110

Equipment Name

2.65Balling Disc

1.53

3 X 80.4 1.81 2

Ground ore storage & Mixing 1 X 245.2 1.84 300

Designed capacity Planned Capacity

2.4

Equipment upgradationRated Capacity Capital Cost

(USD Mn)

Indurating Machine 1.83 298 2.4223 1.67 245.2

3 X 88.9

204

14 -10

McLellan considers that the operating plan is ambitious but is achievable if a strict

operational and maintenance regime is adhered to. The DSC working hour and capacity

utilisation calculation is based on the following information presented in Table 14.7.

TABLE 14.7 – CAPACITY UTILISATION

Section

For 1.6 Mt/y For 2.2 Mt/y

Utilisation

hrs

Downtime hours

Utilisation

hrs

Downtime hours

Annual

Shutdown

Planned

Shutdown Others

Annual

Shutdown

Planned

Shutdown Others

Drying & Grinding

7,500 504 144 602 8,040 480 144 96

Pre-Wetting& Mixing

7,500 504 144 602 7,680 504 144 432

Balling 7,500 504 144 602 7,680 504 144 432

Induration & Screening

7,500 504 144 602 7,680 504 144 432

McLellan considers that further discussions are required on the proposed plant working

hours and utilisation for the expansion to 2.2. Mt/y are required during Phase 2 due

diligence.

The proposed consumption of energy and raw materials are shown in Table 14.8.

TABLE 14.8 – ENHANCED PELLET PLANT CONSUMPTIONS

Type Description Specific

Consumption

Unit

Annual Consumption

UnitCapacity

1.5 Mt/y

Capacity

2.2 Mt/y

Raw Materials Ground Ore 1.0058 t/t 1,456.400 2,1212,760 t/y

Slaked Lime 0.0251 t/t 36,555 55,540 t/y

Services Compressed air 5.17 Nm3/t 7.5 x 106 11.37 x 106 Nm3/y

Natural Gas 43 Nm3/t /t 62,000,000 94,600,000 Nm3/ty

Service water 0.3 m3/t 434,400 660,000 m3/y

Instrument Air 1.24 Nm3/t 1.8 x 106 2.72 x 106 Nm3/y

Energy Electrical Energy 56-62 kWh/t 81 – 88.9 123 - 136 MW/y

Consumables Refractories 0.3 Kg/t 434.4 660 t/y

Lubricants 0.02 Kg/t 29 44 t/y

Maintenance & Spare Parts

0.1 Kg/t 145 220 t/y

Grate Bars 0.02 Kg/t 29 44 t/y

Grinding Media 0.5 Kg/t 724 1100 t/y

DSC plans to modify and upgrade the following equipment.


14 -11

Drying Drum

Ball Mill

Re-Wetting and Mixing

Balling Discs

Indurating Machine

Electrical and Engineering Provisions

A summary of the proposed modifications is given below.

Drying Drum

TABLE 14.9 – DRYING DRUM SPECIFICATION

Rated Capacity Design Capacity Planned Capacity

2 x 111 t/h 1.66 Mt/y 2 x 123 t/h 1.84 Mt/y 2 x 250 t/h 2.4 Mt/y

Operating hours – 7,500 Operating hours – 7,500 Operating hours – 8,040

Table 14.10 provides a summary of the current and planned capacity for the drying drum.

In order to enhance the capacity on the units upgrades are required in the following areas:-

Hot gas generator

Belt Conveyors

Burner Automation

Drying Drum Shell Lifters

Ball Mills

TABLE 14.10 – BALL MILL SPECIFICATION


2 x 108 t/h 1.61 Mt/y 2 x 120 t/h 1.78 Mt/y 2 x 137 t/h 2.2 Mt/y


Table 14.10 provides a summary of the current and planned capacity for the Ball Mills In

order to enhance the capacity on the units upgrades are required in the following areas:-

New Shell Liner Design

Increased Capacity Air Lift Blowers

Facility to be provided for coke storage and dosing


14 -12

Re-Wetting and Mixing

TABLE 14.11 – RE-WETTING AND MIXING SPECIFICATION


204 t/h 1.53 Mt/y 245 t/h 1.84 Mt/y 309 t/h 2.37 Mt/y


Table 14.11 provides a summary of the current and planned capacity for the re-wetting and

mixing. In order to enhance the capacity on the units upgrades are required in the

following areas:-

Increased capacity ore bin

New material moisture analyzer and moisture control system

Conveyor upgrades

Balling Discs

TABLE 14.12 – BALLING DISC SPECIFICATION


3 x 80.4 t/h 1.81 Mt/y 3 x 89 t/h 2.0 Mt/y 3 x 113.3 t/h 2.61 Mt/y


Table 14.12 provides a summary of the current and planned capacity for the Balling Discs.

In order to enhance the capacity on the units upgrades are required in the following areas:-

Frequency controllers

Double deck roller screen

Improved design disc bed scrapers


14 -13

Indurating Machine

TABLE 14.13 – BALLING DISC SPECIFICATION


223 t/h 1.67 Mt/y 245 t/h 1.83 Mt/y 286 t/h 2.2 Mt/y


Table 14.13 provides a summary of the current and planned capacity for the indurating

machine. In order to enhance the capacity on the units upgrades are required in the

following areas:-

Burner units

Burner unit port refractory

Furnace hood refractory

Windbox recuperator and exhaust fan capacities (larger fans and motors)

Cooling water system

Emergency Product Conveyor

New dedusting system at the down draught and preheating zones

Electrical & Engineering Provisions

According to DSC a capex provision is also required for the following:-

DCS for Pellet Plant (dust collection system)

20 MVA transformer

1500 KVA Emergency Power Generator

Pellet Plant Capital Expenditure Plan

The proposed capital expenditure plan for the pellet plant is summarised in Table 14.14

and is estimated to be US$ 20.5 M.

14.2.5 DRI Production Facilities

DSC intends to enhance its existing DRI facilities to increase each module capacity from

0.51 Mt/y to 1.085 Mt/y. This is a significant increase in production rate. However, other

similar modules are operating at such a rate of production around the world. The DSC

plan includes the following actions.

Increase the reactor internal volume by reducing the refractory wall thickness by


14 -14

75 mm and increasing the height by 500 mm. This will give an approximate increase in

working volume of around 23%.

Increase the number of bustle ports in association with the increased diameter will allow

better and more efficient gas distribution.

Raise the bustle gas temperature, this will result from the above enhancements and will

allow DSC to raise the temperature from 760°C to around 1,000°C.

Natural gas injection will be made into both the bustle main and transition zone to allow

increased amount of self reforming.

Oxygen injection into the reformed gas will allow higher operating temperatures and

increased productivity.

In association with these capital developments several other existing plant items require

considerable maintenance including repairs to both feed gas heaters. The plant also

requires several equipment items to support the automation which is required to enable

these enhancements to be efficiently operated.

14.2.6 Steelmaking Facilities

GSHL and DSC Senior Management have presented a 2.4 Mt/y Development Plan, which

is considered by both parties to be the most appropriate way forward.

Immediate Programme

In the short term, major efforts to improve SMS production are directed towards the

refurbishment of EAF1 and CCM1, which at present are approximately 75% complete.

The software for the EAF1 electrode regulation system is expected to be complete by third

week of August 2007 and the commissioning of individual equipment on both units is

scheduled to start during October 2007.

EAF Improvements

According to DSC, the following enhancements are to be introduced on all three EAFs in

order to achieve a 65 minute furnace tap-to-tap time: -

Furnace Transformer Size to be increased from 60 MVA to 100 MVA

Co-Jet Supersonic Side Lances to increase chemical energy input

15t Hot Heel Practice


14 -15

Eccentric Bottom Tapping Furnace Shells

New Hydraulic electrode mast and regulation control systems

S-7PLC Control and Level 2 Automation

Each EAF is expected to produce an average of 22 heats per day, giving a minimum total

of 800,000t of liquid steel per furnace per year and 2.4 Mt/y of liquid steel from the

combined SMS.

Although McLellan has no concerns about the need to carry out the above enhancements,

certain items appear to have been overlooked. Clarification is therefore required on the full

scope of work and the corresponding funding requirements. For example, in addition to

the above items the position or the following requirements need clarification:-

Raw material supply logistics for increased level of production

All furnace shells and roofs will need to be water cooled

Adequate water systems for increased production levels

Automated slag door lance manipulators

Adequate oxygen, nitrogen and possibly argon levels

Secondary fume extraction will be required

Confirmation that the existing fume cleaning facilities can cope with the

increased burden

Fume offtake drop out boxes will be required

Consideration of dedicated baghouses, to support a ‘one-on-one’ (EAF to Ladle

Furnace to CCM) concept

Casting bay logistics required for increased level of production

Ladle Furnaces

In order to improve EAF productivity and handle the increased liquid steel production two

additional ladle furnaces (Secondary Steelmaking Facilities) are to be installed. The SMS

is then expected to operate on a ‘one-on-one’ basis whereby during normal operations

each EAF will have a dedicated ladle furnace and casting machine.

According to DSC, the new ladle furnaces will each be powered by 30 MVA transformer

with a heating rate of 5oC per min. The expected duration at the ladle furnace treatment

time is 20 min and transfer time of 10min giving a total of 30 mins, which is considered

sufficient to meet the EAF tap-to-tap-time.


14 -16

The introduction of ladle secondary steelmaking is also expected to significantly improve

casting machine performance and promote sequence casting, which in turn will also

improve plant yield and reduced conversion costs.

Summary of DSC’s Production Calculation Criteria for 2.4 Mt/y

EAF capacity 110t

Hot heal 15t

Number of EAF 3

Transformer capacity 100 MVA

Number of heats/EAF/day 24

Working days 304

Annual Maintenance 8 days

Maintenance days 48 days (96 h/month)

TPM Activities 5 days (20 min/day)

Production/furnace/day 2632t

Tap-to-tap time 55 min

Power on-to-tap time 41 min

Oxygen consumption 45 Nm3/t

Natural gas consumption 5.6 Nm3/t

Nitrogen consumption 1.5 Nm3/t

Compressed air consumption 1.5 Nm3/t

Coke consumption 25 kg/t

Power consumption 500 kWh/t

Lime consumption – EAF 40 kg/t

Lime consumption – LF 15 kg/t

Dolomite consumption 30 kg/t

Annual liquid steel production/EAF 800,128t

Annual liquid steel production 2,400,384t

Continuous Casting Facilities – 2.4 Mt/y

Bloom Casting Machine

In order to handle increased liquid steel production and satisfy the requirements of ASCL

together with additional markets, a new additional six-strand bloom caster with a range of

130 mm x 130 mm to 250 mm x 250 mm sections is proposed.


14 -17

CCM 1

CCM 1 is to be fully refurbished and modernised and be capable of casting at 3.7 – 4.5

m/min.

The modernisation is expected to involve the following:-

Secondary water cooling shall be reinforced with online booster pumps

Upgraded Withdrawal and Straightening Units

New AC Drives, with S-7 PLC Control Systems

Automatic mould level control

Hydraulic Mould Oscillation

Turret lifting arms and load cells

Giga Billet Cutting Torches.

Revised CCM Specification – 2.4 Mt/y

Caster capacity 615,384.8 t/y

No of casters 3 + 1

No of strands 6 per caster

Size (Billets) 100 x100, 120 x 120,

Size (Blooms) 130 x 130, 250 x 250

Heat size 110t

Heat sequence 10

Turn around time 120 min

Casting speed 3.7 – 4.5 m/min

Average casting speed 4 m/min

Secondary cooling Intensified with online booster

Mould oscillator Hydraulic

Automation Level – 2

Mould level control AMLC

Re-strand facility Yes

Billet cutting Shear/Giga

Annual production 2,340,374t

Slag Management

Slag generation from the EAF’s is expected at the rate of 140 kg/t, which results in a daily

slag generation of 1,023t from the three furnaces, amounting to 336,677 t/y. In order to


14 -18

handle the EAF slag, two slag pot carriers, twenty slag pots and four Cat 973 excavators

are envisaged.

According to DSC, EAF 1 and 2 will use slag pots at their respective slag bays, whilst EAF

4 will slag directly to the floor for removal by Cat 973 excavator. Fourteen slag pots are

planned for EAF 1 and 2 and a further six slag pots are to be provided for ladle slag.

McLellan considers that further discussion is required to clarify the different methods to be

applied at the EAF’s and the impact of slag free tapping (via EBT Furnace) on casting bay

operations.

Summary of Auxiliary Support Services – 2.4 Mt/y

Scrap Basket Carriers 4 (in addition, total 8)

Slag pot carrier 2

Slag pots 20 No. of 16 m3 volume

GHH dumper 2

Additional scrap yard 1

Weighbridge facility 1

Magnet/grab crane capacity 3 x 15t

Cat 973 tapping pit cleaner 4

230 tons Charging Crane 1

Vertical Ladle Preheater / Drier 3

Horizontal Ladle Preheater 3

18 ladles in circulation 6 (additional ladles required)

Scrap Management

According to DSC, the existing scrap yard is not of sufficient size to handle 413 790t of

purchased scrap and 137 934t internal scrap arisings. In order to satisfy the SMS

increased scrap handling and charging requirements an additional scrap yard with 3 × 15t

capacity grab/magnet Crane is proposed together with four additional 130t Scrap basket

transfer vehicles.

At present two scrap basket transfer vehicles are in operation and two are being

refurbished.


14 -19

DSC considers that eight scrap basket transfer cars will be sufficient to cater for the needs

of the SMS. Due to internal space restrictions the new scrap yard will be located outside

the SMS.

McLellan considers that a more detailed study of the scrap receiving, inspection,

processing, storage, and handling proposals may be advisable.

Lime Supply

In conjunction with the installation of water cooled shells on the EAF’s, the lime feeding will

also be modified from existing pneumatic lime supply to new belt conveyor lime feeding

system with weighing facility. A dual system is proposed whereby a reversible belt at upper

storage bin will allow the system to feed the two furnaces as required.

Ferro Alloy Supply

The existing ferro alloy feeding system is insufficient to meet up the expansion plan of

2.4 Mt/y and is to be upgraded with modern more effective weighing system.

Additional Electric Overhead Travel (EOT) Cranes

EAF Charging Bay

Existing shell and scrap basket handling logistics in the EAF charging bay will

be improved by the installation of an additional new 230 t crane.

Trimming Bay

The trimming bay will also be strengthened with one more new crane of the

same capacity.

Casting Bay

DSC considers that the existing caster bay cranes are sufficient to handle the

logistics of 2.4 Mt/y and that the billet yard cranes will also be sufficient after

incorporating the S-7 automation in billet discharge area.

Figure 14.3 shows the expansion plan material flow for the steelmaking and continuous

casting departments.


Sub Process 2: Detailed Procedures

DRI-2,206,897TSCRAP-551,724T

CHARGE MIX-2,758,621T

DOLOLIME-75,740T

FURNACE4-800,000T

FURNACE2-800,000T

FURNACE1-800,000T

LADLE FURNACE3-

800,000T

LADLE FURNACE1-

800,000T

BLOOM CASTER-720,000T

CASTER3-560,000T

CASTER2-560,000T

CASTER1-560,000T

ASCL-RM-700,000T

OPEN MRKT-240,000T

ASCL-RM-1,000,000T

DSC-RM-400,000T

LIME-138856T

NATURAL-GAS 13,784,618Nm3

OXYGEN-2,461,584Nm3

NITROGEN-

11,187Nm3

COMPRESSED AIR-11,187Nm3

LADLE FURNACE2-

800,000T

DSCDRI-1,000,000 T

IMPORTED DRI-1,206,896T

PURCHASE SCRAP-413,790T

8038

INTERNAL SCRAP-137,934 T

YIELD-87%

Billet yield-97.5%

SCRAP/CROP END-1.5%

TO SCRAP YARD

Billet546,000T

Billet546,000T

Billet546,000T

YIELD-97%

2.4 mt of Liquid Steel & 336,675.6t of slag

2.34 m t of Billet & Bloom

14 -20

FIGURE 14.3 - 2.4 MT/Y DEVELOPMENT PLAN – FLOW DIAGRAM


14-21

14.2.7 Rolling Mill Facilities

The current rolling mill capacity is about 0.32 Mt/y, depending on product mix and the

enhanced rolling mill capacity will be some 0.38 Mt/y which is an increase of just under

20%.

Most of the rolling mill enhancements are aimed at improving automation and increasing

the rolling speed capability. Many of the mill equipment items will be automated including

the reheat furnace, mill (e.g. scheduling, mill drives, looper control, mill master system,

cooling bed shear and cooling bed) and finishing equipment. The automation should allow

the mill to roll at the design speed of 15 m/s, whereas in the past the analogue system did

not allow the mill to roll at such speeds.

14.3 Enhancement Schedules

DSC has scheduled the expansion plan to be completed over a period of some sixteen

months. At the time of investigating project schedules, little constructive debate could take

place during the visit because the expansion plan time schedule was not presented in

sufficient detail. Hence, DSC e-mailed its latest schedule to McLellan on 4th September.

Figure 14.4 shows the DSC production plan over the next few years and Tables 14.14 and

14.15 present the overall expansion time schedules.

FIGURE 14.4 – DSC PRODUCTION SCHEDULE

0.0

0.5

1.0

1.5

2.0

2.5

2007 2008 2009 2010 2011

Mt/

y


14-22

Figure 14.4 shows the production plans for the current and next four years. The majority

of the expansion work will occur from late 2007 to early 2009 and 2010 is shown as a ramp

up year. Table 14.14 shows the expansion plan for the main operating departments.

TABLE 14.14 – DSC EXPANSION PLAN SCHEDULE – MAIN OPERATING DEPARTMENTS

Table 14.15 shows the expansion plan for the support, utility and ancillary departments.


14-23

TABLE 14.15 – DSC EXPANSION PLAN SCHEDULE – UTILITY AND ANCILLARY DEPARTMENTS

McLellan has not yet had the opportunity to discuss the detail of the expansion plan

schedule with DSC and can only make observations and comments based on its industry

experience. McLellan considers that the schedule of only sixteen months appears

extremely challenging especially when taking into consideration the volume of activity that

must take place in the SMS, whilst maintaining some level of production.

Therefore, McLellan could not authoritatively state that overruns would not occur until

further discussions regarding the time schedule could take place.

14.4 Capex Budgets

The procedure for McLellan’s Due Diligence investigations were undertaken at a late stage

of the Due Diligence visit after each of the individual expansion plans were recognised and

understood.


14-24

During the two and a half day Phase 1 Due Diligence visit McLellan had learned that the

capex budget was originally US$ 250M and that it had been amended to US$ 280M in

recent weeks and in the final stages of the Phase 1 Due Diligence McLellan began

discussions with DSC central planning department relating to the overall expansion budget

and time schedule.

The time schedule shown to McLellan during this meeting was not in sufficient detail to

present a meaningful explanation of the expansion plan in terms of timing. Consequently,

this prompted the capex schedule meeting to be suspended until DSC developed a more

meaningful schedule. This in turn affected the time available to discuss the capex budget.

However, some limited discussions were made in relation to the capex budget and the

revised budget was sent to McLellan by e-mail on 4th September.

The latest capex budget was supplied to McLellan by DSC central planning staff after

interchange of emails and is shown in Table 14.16. The total capex budget is some

$282M. A proportion of the budget is made up from firm quotations for the supply of

equipment and others are estimates based on GSHL experience. Some items such as the

logistics sections are subject to separates studies and have not yet been completed.

Therefore any such capex estimates must be classed as preliminary.

TABLE 14.16 - DSC CAPEX BUDGET

DescriptionCapex (US$ M) Description

Capex (US$ M)

ASite Development – additional storage 12.00 D Rolling Mill 2.00

Modernisation 3.00 B Iron Making - Automation Pellet Plant 20.00 Sub Total Rolling Mill 5.00 Automation-Pellet Plant 3.50 - Sub Total Pellet Plant 23.50 E NIOMCO Revamping 21.00 DR Plant (Mod-IV) 13.24 - DR Plant (Mod-V) 13.00 F Auxiliary Facilities - Automation-DRI Plant 4.00 Oxygen Plant ( 500 TPD) 18.60 Sub Total DRI Plant 30.24 Lime Plant ( 120,000 TPA ) 7.80 Iron Making Total 53.74 Lime Plant Automation 3.00

Heavy Duty Equipment (Kamag, ITS, Bulldozer, etc.) 15.00

C Steel Making - Cranes 4.00 EAF II - Auxiliary Facilities Total 48.40 CO-JET Lances 3.00

Modification ( EBT + HYD Regulation) 1.60 G Logistics

Ultra High Power (UHP) Transformer 3.00 Revamping of Jetty 5.00


14-25

DescriptionCapex (US$ M) Description

Capex (US$ M)

Fume Extraction System 2.00 Automation 2.00

Automation-EAF-II 0.10 Other Material handling Expansion Projects 10.00

Sub Total EAF-II 9.70 Floating Dock 25.00 Caster II - Logistics Total 42.00 -

Modification 1.00 HPower Distribution and Electrics 12.50

Automation 0.13 Automation 3.00

Sub Total Caster-II 1.13 Power Distribution and Electrics Total 15.50

Ladle Furnace - I Water Supply Facility 3.50 -

Modification incl. Automation 0.13 J Lab equipment 2.50

EAF IV - CO-JET Lances 3.00 K Foundry-Modernisation 1.00 Modification 0.50 Automation 1.00

Ultra High Power (UHP) Transformer 3.00 Foundry-Total 2.00

Fume Extraction System 2.00

Automation 0.13 LEngineering and Project Management 7.00

Sub Total EAF-IV 8.63

Caster III - MOther Misc. incl. Townships, Maintenance , etc. 5.00

Modification 1.00 Automation 0.10 N Information Technology 3.00 Sub Total Caster-III 1.10 EAF I - Rehabilitation 1.32 CO-JET Lances 3.00

Ultra High Power (UHP) Transformer 3.00

Fume Extraction System 2.00 Automation 0.13 Sub Total EAF-I 9.45 Caster I - Rehabilitation 1.07 Modification 1.00 Automation 0.13 Sub Total Caster-I 2.20 Bloom Caster 15.00 New Ladle Furnace (2) 14.00 Steel Making Total 61.34 Total Capital Expenditure 281.98

Subsequent discussions on capex between McLellan and GSHL/ DSC took place during

the visit regarding specific main plant areas. These discussions mainly centred on the

development of the SMS because of its importance in the overall current rehabilitation and

expansion schemes. One such technical debate, for example, covered the future

capability of the existing dust and fume extraction system to keep pace with the enhanced


14-26

rate of steelmaking operations. This omission from the plan raised some concerns within

the McLellan team that some other important items necessary for the success of the

expansion might also not be included in the current capex budget.

Since this discussion, a budget of US$2M has been allocated to the dust extraction

system. This small example illustrates why technical scrutiny of the plan is important and

raises some concern regarding complete inclusion of all required items.

Another area of concern is the changing nature of the capex budget. For example,

categories such as “DSC automation” budget of US$35M has disappeared from an earlier

plan and “NIOMCO Revamping” has appeared in the most recent budget. However, the

total capex remains at around US$280M.

This changing nature of the capex budget causes doubts about its robustness and

McLellan recommends as a priority that further investigation and discussion should be

undertaken during Phase 2 Due Diligence investigations.

Similarly, no budget item for contingency is included at present. Therefore, although this is

a relatively early stage of the project, McLellan cannot confirm with confidence that the

present budget is final. If so it is feared that it will be susceptible to overspend

14.5 Expansion Plan Summary

In most areas McLellan considers that the rehabilitation and expansion plans are well

conceived. The site is large enough to accommodate the expansions without real

compromise of space. The plant infrastructures, such as workshops, are large enough to

support expansion. Many of the utilities, such as water, compressed air, natural gas and

power, appear on first inspection to be capable of supporting expansion without major

capital investment.

The port facility, albeit large enough to support 1 Mt/y or more, requires careful

consideration because GSHL intends to use DSC as a material handling hub for ASCL.

GSHL informed McLellan that a logistics study is now ongoing to measure the physical

needs of the expansion project. McLellan recommends that the findings of this study are

closely scrutinised.


14-27

The expansion appears technically feasible and uses modern technology which is

established and proven. However, McLellan considers that many of the production targets

are near to world best levels and, therefore, considers that this may be ambitious in

Nigeria because of country risks and the relatively inexperienced nature of the workforce.

The time schedule still requires further analysis and scrutiny, as explained above in

Section 14.3 of this Report. McLellan still awaits an updated schedule.

The budget capex comprises quotations and estimates. In many areas there is

concurrence between McLellan and DSC and in other areas more discussion is required.

McLellan considers that DSC requires revaluating certain aspects of the expansion capex

budget including project management, contingencies and certain technical items such as

the SMS dust extraction system.


SECTION 15

HUMAN RESOURCES AND MANAGEMENT

15-1

SECTION 15

HUMAN RESOURCES AND MANAGEMENT

5.1 Introduction

DSC is located in the Aladja-Owvian villages, near Warri in the Delta State in the oil

producing Niger Delta region of Nigeria. The Company’s location falls under the Udu

Kingdom. The Company is a major employer in the area, along with Chevron-Shell which

is located at Port Harcourt some 200km from Warri. Local, English speaking, educated

labour appears to be readily available.

The Company is unionised and has two separate trade unions, one for the Staff and one

for the Workers. The two unions involved are affiliated to the National Labour Congress.

DSC has good industrial relations within the plant and is working closely with the labour

unions to promote plant productivity. Since the takeover, the company has experienced

only relatively minor disruptions, mainly due to disputes of a national nature. Even so, as

an indication of the good working atmosphere within the plant, during a recent national

strike related to petrol prices DSC continued to operate normally.

However, whist the Plant was under the ownership of the Federal Government, 3000

employees were laid off and a dispute arose relating to their pension rights, which led to a

two day strike. DSC has indicated that following an interim payment and the promise of a

final compensation payment next year and state that the problem has been resolved.

The company also has it own township in close proximity to the Works.

15.2 Current and Future Manpower Levels

McLellan considers that the existing and proposed manpower levels are relatively high by

European and World standards. However, the cost of local labour is relatively low and the

priority is to increase production by introducing new technology and more reliable

equipment. The corresponding increase in plant throughput is expected to lead to more

competitive productivity (ie an increase in the tonnes produced per man ratio).


15-2

Table 15.1 is a summary of the current workforce at DSC.

TABLE 15.1 – SUMMARY OF NUMBER OF EMPLOYEES AT DSC

Category No. of EmployeesAverage Salary

(Naira)

Nigerian

Higher Management 5 216,300

Senior Management 22 152,000

Middle Management 188 100,100

Supervisors Staff (Tech/Non Tech) 1098 52,000 Workers (Operatives) 588 26,000

Sub total 1901

India expat - Specialists

Sub total 227

Trainees

GETs 105

Diploma 22

Trade (Craft) 49

GETs (from India) 15

Sub total 191

Contractors

Sub total 671

TOTAL 2990

According to DSC, following the expansion to 2.4 Mt/y the number of employees is

expected to increase from 2,990 to 3,800.

A more detailed assessment of the contracted workforce needs to undertaken during the

next stage of the Due Diligence work.

15.3 Recruitment and Training

The planning of recruitment and training of manpower is designed to consider:-

the available skills

local shortages of the required skills and experience

correct timing such that new personnel are allowed adequate training time

matching qualifications and experience to specific requirements

a workforce balanced in age, specialist disciplines and experience.

Table 15.2 shows DSC recruitment plan to cover forthcoming retirements.


15-3

TABLE 15.2 – DSC RECRUITMENT PLAN AGAINST RETIREMENT

Retirements Nos.

2007 12

2008 24

2009 25

2010 54

2011 35

150

2012 - 2016 325

15.4 Development of Skills

The Company has its own Training Centre consisting of a workshop and classrooms. A

recent assessment of the skill levels of the existing workforce indicates a level of 4.5 on a

scale of 1 to 10. In conjunction with the planned capital expenditure programme, DSC

therefore recognises the need to improve the skills of its workforce on an ongoing basis.

15.5 Security

DSC states that it has not experienced any problems with local community. However, as a

precautionary measure the Company has its own civilian security force, an assigned

platoon of soldiers and a police station on the premises. In addition, the local area is

protected by a unit of the Nigerian army.


SECTION 16

LOGISTICS – RAW MATERIALS AND FINISHED PRODUCTS

16-1

SECTION 16

LOGISTICS – RAW MATERIALS AND FINISHED PRODUCTS

16.1 Introduction

Movement in and out of the plant is a key challenge for DSC and GSHL. This is for two

main reasons. First, the jetty only allows vessels of relatively small deadweight to berth

and, secondly, DSC is required to act as a hub for the handling of ASCL raw materials.

The original design concept was to import iron ore directly into DSC from countries such as

Brazil. However, development of the Itakpe mine has allowed some pressure to be taken

off the jetty because deliveries of NIOMCO ore can be made to DSC by rail.

This Section of the Report considers movements of raw materials by road, rail and river.

16.2 Post Expansion Logistics

The river borne movements will have to support the incoming imported iron ore and

possibly the limestone requirements of DSC. In addition, DSC will need to import a

proportion of its scrap feedstock, which will also be handled by river vessels.

ASCL also plans to import its coking coal requirements through the DSC facility and then

rail the coal from DSC to ASCL.

A proportion of finished goods from both DSC and ASCL will also be transported through

the DSC jetty facility.

Therefore, the overall logistical movements will comprise raw materials for DSC and ASCL

into the jetty facility and finished goods out of the jetty. Rail movements will comprise iron

ore transportation travelling south from NIOMCO to DSC and coal moving northwards from

DSC to ASCL. The logistic requirements for the year 2001 are in Table 16.1.


16-2

TABLE 16.1 – LOGISTIC MOVEMENTS – YEAR 2011

LOGISTICS MOVEMENTS Mt/y

Goods into the DSC Jetty by Ship

Imported scrap 0.11

Imported lump/pellets 1.32

Imported iron ore fines 0.6

Limestone from Calabar 0.18

Coal (ASCL) 1.18

BF pellets (ASCL) 0.6

Goods out of the DSC Jetty by Ship

Rebar 0.15

Billets/ Blooms 0.39

ASCL Sections 0.194

Iron Ore from NIOCO to DSC by Rail

Iron Ore 1.63

Coal from DSC to ASCL by Rail

Iron Ore 1.18

Semis from DSC to ASCL

Blooms 0.7

Billets 0.9 est’

The Table shows that there is considerable movement of raw materials and finished

goods. GSHL stated that a team is currently conducting a study into the inter-site logistics

and conclusions and recommendations will be made in the coming weeks.

McLellan considers that this a very important part of the expansion plan and the issue of

logistics for materials in and out of ASCL and DSC requires detailed and careful

consideration.

16.3 Rail Transportation

Iron ore is transported to DSC by a combination of rail and road. Currently a rail link

transports iron ore from NIOMCO to a site that is located approximately 20 km from DSC.

From this point iron ore is transferred to the DSC site by road.


16-3

Clearly, this system is inefficient but DSC states that there are plans to complete the rail

track in the near term to link it directly into DSC’s site where wagons will then be

discharged. DSC added that the financial responsibility for the completion of this track

rests with FGN (Federal Government of Nigeria) and the line will be completed by the end

of 2007.

McLellan considers this rail link to be crucial to the expansion plan because of the need to

handle the considerably higher tonnages of raw materials.

Discussions between McLellan and DSC brought to light the following factors: -

Wagons will be of a side opening type and the filling and discharging of wagons will be

optimised in order that the transportation of empty wagon sets is minimised

NIOMCO owns and operates the two locos and a further three locos will be required to

support the expansion phase

DSC state that NIOMC owns the wagons and is responsible for the supply of new

wagons

The rail line is only single track with a number of passing points

The train sets include 32 wagons and can carry 2,000t per train.

McLellan understands that the subject of rail transportation comes under the planned

logistics study, as described in the previous section.

Currently, ore is being transported by road from NIOMCO to DSC. This is because of

severe rains washing away part of the rail track. McLellan understands that this situation

has been ongoing for around two weeks and repairs are approaching completion. This

type of situation highlights problems that could severely affect logistics and production

operations at a much higher rate of productivity, and the consequent need for minimum

stocks at each location to be monitored carefully.

16.4 River and Sea Transportation

Table 16.1 shows extent of the considerable volumes to be moved by both river and sea.

Small vessels will be suitable to bring in limestone from Calabar and scrap from other

close by African regions. However, the shipment of iron ore and coal will require careful

consideration.


16-4

One of the options open to DSC is a lightering operation where larger ships are anchored

in deeper waters and discharged into smaller vessels. DSC claims that a team is to look at

this option during the last week in September. GSHL , of course, has considerable

experience of lightering and barge transport at its Indian works.

In summary, the plant logistics for both DSC and ASCL are complex and require

considerable scrutiny. A logistics and lightering study is apparently underway and should

be complete in the coming weeks. McLellan recommends that Credit Suisse reviews

these studies and examines the potential logistics problems very carefully.


SECTION 17

RISK AND SWOT ANALYSIS

17-1

SECTION 17

RISK AND SWOT ANALYSIS

17.1 Introduction

This Section of the Report presents a review of the strengths and weaknesses of the project

and examines aspects of project risk. Only the main issues identified by McLellan

associated with the project and its expansion are included. Others may come to light during

the Phase 2 Due Diligence work.

17.2 SWOT Analysis

The SWOT Analysis identifies the main strengths, weaknesses, opportunities and threats

associated with the project.

17.2.1 Strengths

The main strengths identified by McLellan are presented as follows:-

DSC is the dominant producer in the local market from technical and commercial

perspective

Excellent long product prices exist in the present domestic market – protected by tariffs

GSHL’s international network – people, iron and steel technologies and raw material

resources

Low cost natural gas

Low cost labour

Low cost iron ore

Dominant Market Position

GSHL already has a dominant position in the local long product market. It is the only

integrated steel producer in Nigeria, has the largest market share and is the renowned

quality supplier. The company can build from this already strong platform.


17-2

Strong Domestic Prices

Rebar prices are protected by a 50% import tariff, giving all domestic producers a strong

advantage over importers. This is particularly advantageous to DSC because it produces its

own billets. Therefore DSC’s cost base is comparatively robust to change as opposed to

importers of billets that having to cater with the volatility of the international billet market.

Global Steel’s Global Network

GSHL has already shown this strength in several ways. Vessel loads of Brazilian ore have

been diverted to Nigeria from other GSHL’s global operations. Such small quantities of

Brazilian iron ore, as consumed by DSC so far, would have been difficult or impossible to

procure by smaller companies. GSHL has already supplied skilled expatriates to make

DSC’s turnaround possible and its global presence has helped with negotiations and wider

acquisitions such as NIOMCO, ASCL and power plants.

Low Cost Natural Gas

The cost of natural gas is extremely low and on a par with Middle East and Russian prices.

Low Cost Labour

The cost of labour in Nigeria is extremely low.

Low Cost Iron Ore

The cost of iron ore delivered from NIOMCO to DSC is around US$38 per tonne. This is

around one third of international prices. However, the quality is poor and this is covered in

the Weaknesses Section below.

17.2.2 Weaknesses

The main project weaknesses as identified by McLellan are as follows:-

Silica content in the NIOMCO iron ore is unacceptably high for DRI production

Lack of inertia following the long plant shutdown – Manpower and plant and equipment

Shallow water restricts capacities of incoming vessels at the jetty.

High Silica Local Ore


17-3

The high silica content of the iron ore is a serious problem to DSC. Although the cost of ore

is low by international standards, its value in use is questionable.

For example, DSC currently imports pellets and lump ore from Brazil to dilute the affect of

the high silica ore in the SMS. Even with this dilution the affect of high silica loading in the

electric steelmaking process causes excessive tap to tap times and power consumptions

and also loss of liquid steel yield.

The July financial reports state that the cost of billet production was some US$ 418/t, which

was US$134/t above target. In terms of the cost of billet production, this is relatively high but

is still considerably cheaper than imported billet. However, it shows the potential that could

be gained with greater manufacturing efficiency.

Inertia

McLellan noticed a lack of inertia of plant and equipment and also of manpower. This is not

a phenomenon applicable to DSC or Nigeria; McLellan has witnessed it in many plants that

have been stopped over a long period and then restarted. Bringing plants back from

extended delays often results in breakdowns of components that may have seized or broken

down prematurely from the years of inactivity. Similarly, bringing the operations and

maintenance teams back up to full speed takes time. Some employees may have left the

company and others may have lost skills. Management needs to remain focussed.

Breakdown of equipment items is disruptive to steady state operation and skills are lost by

people who have left the region.

17.2.3 Opportunities

The main opportunities as identified by McLellan are as follows:-

Opportunity for continued market growth and expansion

First phase of plant reparation is complete but there is a need to quickly move forward

Future Growth and Market Opportunity

GSHL is the dominant and reputedly highest quality producer in the local long products

market and is in a good position to drive further market and product growth. GSHL has

based its projections on 6% GDP growth. However, the growth of construction and

construction products in Nigeria could be somewhat higher.


17-4

Need to Realise Future Plant Potential

The first phases of plant reparation are now coming to completion and GHSL has to be

applauded for the work so far. However, the sales and steelmaking statistics have shown

recent stagnation and DSC needs to continue its progress back towards design capacity and

its planned targets.

17.2.4 Threats

The main threats identified by McLellan are as follows:-

Country risk – e.g. political instability, security threats

Potential infrastructure/ logistic issues

Potential future removal of import tariffs

Country Risk

Nigeria carries a significant country risk. Corruption and security are two significant

concerns. DSC has already lost several days operations over industrial disputes over

pensions and also through elections. Escalations of such types of problems would be

extremely disadvantageous to DSC and GSHL.

Potential Infrastructure/ Logistic Issues

The expansion plan involves the movement of significant quantities of raw materials,

blooms, billets and finished products. DSC and GSHL are presently conducting studies in

these areas and the feasibility of moving such high quantities of goods is not yet established.

McLellan recommends that these logistics and infrastructural issue should be confirmed

before the rest of the project can be considered feasible.

Tariff Removal

The removal of import tariffs in the future will adversely affect rebar prices. This will

consequentially reduce DSC’s margins. However, this should not happen for several years

and by that time DSC’s cost base should have further improved. Any reduction in tariffs is

also likely to be phased over a number of years.


mclellans phase i report

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