The world's biggest mine rush

Billions in iron ore mining investments continue to pour into West Africa, but logistics and capital costs slow actual development.

JOHANNESBURG - 

London-listed African Minerals has announced further significant Chinese investment in its Tonkolili, Sierra Leone, iron ore project, now by Shandong Iron & Steel, which plans to put USD 1.5bn into mine and infrastructure development. This will gain the State-owned Chinese steelmaker a 25% equity stake in Tonkolili, and an offtake of 10m tons a year of seaborne iron ore, at discounted rates.

The latest deal in West African iron ore, which has captured billions of dollars of mining investment in the past few months, once again illustrates China's long term commitment to financing resources in specified minerals and commodities. At the same time, the deals show that not even the world's biggest mining companies have sufficient individual resources to cover all the risks in these investments. Even the capital required for a new world class iron ore mine seems to be beyond the biggest individual miners.

By iron ore standards, African Minerals is a minnow, and needed partners from day one. On 6 January African Minerals announced a deal with China Railway Materials Commercial Corporation (CRM); overall, African Minerals/Tonkolili have now agreed to sell up to 35m tonnes of iron ore a year, to CRM and Shandong Iron and Steel.

But it will take years before this level of output is possible, and many more billions of dollars worth of investment. Tonkolili may have dreams of one day producing 70m tonnes a year of iron ore, but by that stage, capital investment would likely be approaching the USD 10bn mark. African Minerals currently holds a market value of USD 1.8bn.

A handy benchmark in iron ore investment comes from Brazilian supergroup Vale, the world's No 2 miner by value, and the global leader in seaborne iron ore. Barriers of entry into mining, and logistics, of seaborne iron ore are gigantic. In 2007, Vale flagged Serra Sul, a new mine, within its Carajás system in Brazil, as "the largest greenfield site in our history and the largest iron ore project in the world".

Project completion was initially slated for the first half of 2012; this has now been pushed forward to the second half of 2013. At least part of the reason is the massive budget required to build Serra Sul: USD 11.3bn (revised up from the original USD 10.1bn).

Production at Serra Sul is targeted at 90m tonnes a year, implying more than USD 1bn of investment for each 10m tonnes of output. Even this cost is discounted, given that Serra Sul has relatively near-access to Vale's existing infrastructure in its Northern System, including loading, rail, and port facilities, and even ships. Serra Sul is yet to be approved by the Vale board, which has, however, been attracted, or perhaps distracted, by West Africa's riches.

On 30 April Vale agreed to pay USD 2.5bn for a 51% stake in BSG Resources Guinea, which apparently holds rights to blocks 1 and 2 in the Simandou iron ore system, Guinea. This meant that the three names dominating about 75% of global seaborne iron ore, Vale, Rio Tinto, and BHP Billiton, are full force involved in West African iron ore.

Rio Tinto, which discovered Simandou in 2004, had claimed a 95% stake in all four Simandou blocks, seemingly until December 2008, when soldiers took Guinea over. A general election in the country has recently been completed, with presidential elections yet to be finalised.

On 19 March 2010 Rio Tinto announced a non-binding MOU with China's Chinalco, Rio Tinto's largest shareholder, to establish a Simandou joint venture, where the new partner would acquire a 47% interest by providing a USD 1.35bn earn-in over the next two to three years. Rio Tinto has already spent USD 600m in developing Simandou.

Rio Tinto Alcan has long been holder of 45% of Halco Mining, a partnership which owns 51% of Compagnie des Bauxites de Guinee (CBG), one of Guinea's biggest miners, in operation since 1973, and today the single biggest supplier of bauxite to the Western world.

US aluminium giant Alcoa also holds 45% of Halco Mining; the Guinea government holds 49% of the parent company, CBG, which, overall, has annual capacity of 13m tonnes of bauxite, the raw material for aluminum. Guinea, which may hold close to half the world's reserves of bauxite, hosts other bauxite mines and developments.

On 19 January ArcelorMittal, an integrated global steelmaker, announced it had entered into initial discussions with BHP Billiton to potentially combine its respective iron ore mining and infrastructure interests in Liberia and Guinea within a joint venture.

On 24 May London-listed junior Bellzone Mining announced that Hong Kong-based China International Fund (CIF), noted for its (mainly infrastructure) investment to date in Angola, is to invest USD 2.7bn in 286km rail and port facilities for Bellzone's Kalia iron ore project.

Bellzone would eventually hold 10% of the infrastructure company. CIF has the right to purchase 100% of the off‐take from Kalia, where Bellzone previously said it "is committed to the development of a USD 4.45bn, 50m tonnes a year iron ore facility with supporting rail and port infrastructure for the export of iron ore in the Republic of Guinea, West Africa, by 2014".

Further to the south, Australia-listed Sundance Resources is developing the Mbalam Project in Cameroon, aiming for 35m tonnes a year of hematite. Sundance wants to commence operations in 2012. Core Mining, a private Isle of Man company, which appears to be based in Australia, recently announced a deal with integrated Russian steelmaker Severstal, which in return for 16.5% of Core can invest up to USD 55m into Core Mining up to the end of 2012. Core claims exploration licences for the Avima iron ore deposit in Congo-Brazzaville, and the Kango iron ore deposit in Gabon.

To the north, Société Nationale Industrielle et Miniere (SNIM), 78% held by the Mauritania government, first shipped iron ore in 1963, and continues to run very big and long trains along a 704 kilometer route, ranking as the No 7 supplier to the global iron ore trade. Australia-listed Sphere Investments is busy developing potential iron ore deposits in the country.

Anglo American, which holds a controlling stake in South Africa's Kumba Iron Ore, seems to have its hands full with Minas Rio in Brazil. During cyclical highs in the iron ore market, during 2007 and 2008, Anglo American spent USD 6.7bn on iron ore assets in Brazil, including 100% of Minas Rio, and 49% of LLX Minas Rio (port of Açu).

The build at Minas Rio is set to absorb around USD 4bn for phase I, which proposes first production in 2012, with full ramp-up to 26.5m tonnes a year of iron ore in 2013. Even in Brazil, the leading miner of seaborne iron ore, Anglo American is taking longer than it hoped to develop its new mine. That suggests that the new wave of giant iron ore investments in West Africa are in for an interesting time.

SUBSCRIBE to Mineweb.com's free daily newsletter now.

SHARE THIS ARTICLE

Disclaimer

MINEWEB is an interactive publication, with rolling deadlines through each day, commencing in the Sydney morning,  and concluding, 24 hours later,  in the Vancouver evening.  If you believe your side of an issue deserves inclusion, but has failed to meet one of our deadlines, you are invited to notify the Editor in Chief in Johannesburg, and we will include you in our editing and expanding on our stories. Email him at alechogg@gmail.com

Print story      Email story      Subscribe to free newsletter

Back

 

responses to this article

Name
Subject
Comment