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Tewoo invests US$990m in mine
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One of China’s largest import and export enterprises has agreed to invest US$990 million in iron ore miner African Minerals’ Tonkolili mine in Sierra Leone, valuing the project at US$6 billion.
African Minerals, one of several developers betting on West Africa’s potential to become a major supplier of iron ore, said yesterday that Tianjin Materials and Equipment Group Corp (Tewoo) would receive a 16.5 percent economic interest in the Tonkolili project in exchange for its almost US$1 billion investment.
The terms of the “strategic, binding” memorandum of understanding also include a 20-year offtake agreement and the creation of a joint venture with the miner to blend and market iron ore through the major Tianjin port facilities.
African Minerals said the investment would be made in two stages: first, Tewoo would buy new shares in African Minerals for US$390 million, amounting to a 10 percent stake in the company. African Minerals will then sell Tewoo a 10 percent stake in the project for US$600 million.
The 20-year offtake deal for 10 million tons per year of iron ore, or proportionately less if the capacity of the project’s second-phase expansion is less than 35 million tons per year.
Analysts welcomed the deal, which follows a US$1.5 billion investment from Shandong Iron and Steel Group secured in 2011. Earlier this month, African Minerals was forced to pay Shandong Iron compensation for not fulfilling offtake pacts and output targets set for 2012.
“While the outlook for funding new mine developments has become increasingly difficult in recent years, a Tewoo investment should leave African Minerals well placed to pursue a phase two expansion in the coming years,” said analyst Seth Rosenfeld at Jefferies.
“Together with US$502 million of cash on hand at the end of the first half ... and with strong cash flow generation from current operations, we forecast African Minerals could end 2013 with US$1.5 billion.”
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