A long-awaited US$1.5bn deal has been agreed between London’s African Minerals and China’s state-owned Shandong Iron and Steel Group (SISG).

SISG will loan the money to the mining firm when the deal is closed on December 31, 2011, subject to Chinese regulatory approval.

The transaction follows a memorandum of understanding reported by GTR in July 2010 and sees SISG acquiring 25% of African Mineral’s Tonkolili iron ore project in Sierra Leone.

African Minerals will use the funds to repay US$417mn in existing debt and develop Tonkolili, which is due to begin phase one production in Q4, 2011.

As part of the deal, SISG will buy iron ore under an off-take agreement.

Specifically, the Chinese firm will buy 2 million tonnes a year (mtpa) of phase one production, an incremental 8mtpa after phase two begins 30 months after funding and 10mtpa when the final phase starts in 2017.

SISG is buying the iron ore with discounts reaching up to 15%.

“SISG’s investment validates the scale and scope of the project and secures the funding which will enable us to accelerate the development of phase two of our growth plans,” says Frank Timis, executive chairman of African Minerals.

“This partnership confirms the potential for Sierra Leone to become one of the world’s major iron ore producing nations.”

This is the second deal in two years for African Minerals and a state-run Chinese entity; in April 2010 the firm closed a US$167.9mn transaction with China Railways Materials Commercial Corporation.