China's Tewoo to invest $990 mn in African Minerals iron ore mine in Sierra Leone

26 Sep 2013

China's Tianjin Materials and Equipment Group Corp (Tewoo), a Fortune 500 company, today agreed to invest $990 million for a 16.5 per cent economic interest in African Minerals (AML) Tonkolili iron ore project in Sierra Leone.

AML's stock price jumped by 50 per cent to 242.72 pence today on the London Stock Exchange after the deal was announced.

The deal for AML comes a year after Shandong Iron & Steel Group invested $1.5 billion in the company for expanding the mine, port and rail facilities at its other Sierra Leone's Pepel project.

Under the terms of the deal, which is subject to due diligence and regulatory approvals, Tewoo,  the largest import and export enterprise in China, will invest in two stages. First, it will take a 10-per cent stake in London-based AML for $390 million and later buy 10 per cent of the project from AML for $600 million.

The transaction, which values the Tonkolili iron ore project at $6 billion, will be accompanied by a 20-year offtake agreement, at a price to be agreed by both companies, for a total of 10 million tons per annum (mtpa) of iron ore, or proportionately less if the capacity of the Phase 2 expansion is below 35 mtpa.

The Tonkolili iron-ore deposits, hold an estimated 10.5 billion tonnes of high grade iron ore and will require an investment of nearly $1 billion in the second phase to raise the annual iron ore production to 35 mpta and an additional $4 billion to raise it to 75 mpta eventually.

Tonkolili iron ore is of high grade and is upgradeable to a high of 70.3-per cent concentrate at a mass recovery of 26.5 per cent.

AML had earlier said that it is willing to ship the entire 10.5 billion tones of iron ore from the project to China at rates much lower than what was set by the big three miners - Vale, Rio Tinto and BHP Billiton - in the quarterly benchmark contract price, if Chinese companies are willing to fund the exploration and development.

In January 2010, AML had entered into a deal to divest a 12.5-per cent stake in itself to China Railway Materials Commercial Corporation for about £152.6 million to funds the first phase of production at Tonkolili.

Tewoo  and AML will also form a JV to develop, construct and operate a blending facility at Tianjin port, with a view to sourcing, blending, marketing and selling blended products to China, significantly enhancing the Chinese company's iron ore trading business.

Tewoo is the largest state-owned material circulation enterprise in Tianjin. The company has registered capital of 2.46 billion yuan, assets of 98 billion yuan, 266 owned enterprises and more than 6,000 employees.

It business operation encompasses commodity trade, modern logistics, real estate development, financial services and secondary vocational education, trade of bulk commodity, including  metals, energy, minerals, chemical, automotive and electromechanical.

It is also one of the 20 largest enterprise groups in the circulation field which were cultivated by the ministry of commerce.

In 2012, Tewoo posted sales of CNY 207.3 billion and exported worth $7.76 billion.