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HomeBreaking NewsChinese steel mill to invest US$1.5bn into Tonkolili project

Chinese steel mill to invest US$1.5bn into Tonkolili project

Chinese steel mill to invest US$1.5bn into Tonkolili project

Shares in African Minerals Ltd were up 20% this morning after the company announced a binding agreement with a state-owned Chinese entity over the Tonkolili iron-ore project in Sierra Leone.

The Memorandum of Understanding (MOU) with Shandong Iron & Steel Group Co Ltd includes a three-stage, US$1.5 billion investment for approximately 25% of the project, valuing Tonkolili at US$6 billion.

The funding will also allow for the shift from haul and rail logistics to an all-rail transport system, as well as a faster ramp up to phase two of the project, now expected by the end of 2012. Phase one production capacity of 10Mt/y will be reached by the end of 2011.

In return, Shandong will receive iron ore at discounted prices, starting at 5.32Mt/y in stage one and increasing to 10Mt/y by stage three, split between magnetite and hematite ore. The discount change will depend upon the prevailing price, ranging from 15% when prices exceed US$120/t to no discount at all when prices are at, or below, US$60/t.

Stage one is expected to close by the end of September and will see Shandong investing US$800 million for a 13.3% stake in each of the subsidiaries involved in the project. The subsequent two stages will see investments of US$500 million and US$200 million.

Shandong can also elect to receive iron-ore production equal to its percentage in the project, as long as it pays all production costs, tax and royalties in respect of production allocated.

In April, African Minerals announced the sale of 12.5% of its shares to China Railway Materials Commercial Corp for £168 million (US$250 million).

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