London listed African Minerals (AM) has attracted interest in its flagship iron ore project from Chinas prominent state-owned Shandong Iron and Steel Group (SISG).
The two groups entered into a binding memorandum of understanding over the Tonkolili project in Sierra Leone, West Africa, which is expected to be finalised by September 30, this year.
The memorandum pledges a three-stage investment from SISG of US$1.5bn, split into stage one at US$800mn, stage two at US$500mn and the final stage set for the remaining US$200mn.
In total, this equals around a quarter of the project value which is expected to reach US$6bn.
AM, which has entrepreneur Frank Timis as its executive chairman, will use the funds to build a railway, due for completion in Q3 2011, which will negate the detrimental effects of the countrys wet season on transport and logistics.
Funds will also be used to improve operating efficiency and reducing operating costs, as well speeding up the second phase of the projects development, which aims to increase iron ore production from current levels of 8 million tonnes per year (mtpa) to 25 mtpa by Q4 2012.
In return for offering financing, SISG will receive up to 10 mtpa of iron ore at discounted prices, as well as the option at the closing of each stage of funding to choose to receive either iron ore production or a dividend directly corresponding to SISGs 25% ownership of the project.
Even though the deal will be one of the larger projects to come to the market in H2 2010, a spokesperson for AM tells GTR: We will not be using an export credit agency.
However, SIGS have not revealed if they will be calling upon export credit agencies such as Chinas Sinosure, to back the deal.
Furthermore, the spokesperson explains to GTR that gaining financing for the deal from a state-run Chinese source was made easier by the existing relationship forged through previous schemes that AM has worked on alongside Chinese counterparts, such as the April 2010 US$167.9mn deal with China Railway Materials Commercial Corporation: The previous successful deal between AM and China basically set in place the motions for continued investment. Once you have one deal approval it opens the gateway for new opportunities.
Timis says: African Minerals welcomes the investment of SISG
in what we believe is a world-class project that has many opportunities for future expansions. The new partnership will also bring great benefits to our hosts, the people of Sierra Leone.
Timis is no stranger to the media spotlight, having headed the AIM-listed Regal Petroleum, which was fined £600,000, the most ever for a company on the alternative London exchange, after an investigation by the FSA and London Stock Exchange in November 2009 for presenting misleading reports to investors.
Timis no longer heads Regal, though he does still hold a stake in the company.
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