African Minerals to ship iron ore from end-October

LONDON, Oct 19 (Reuters) – African Minerals Ltd (AMIq.L: Quote) will start exporting iron ore cargoes to China and Europe from its Tonkolili mine in Sierra Leone at the end of this month, the London-listed metals explorer and developer said on Wednesday.

The company commenced mining iron ore inSierra Leonein December 2010 and has since stockpiled material. Iron ore exports will start this month, and African Minerals expects to export about 1.2 million tonnes of iron ore during the current fourth quarter. 

• African Minerals will export about 1.2 million tonnes in Q4
• Iron ore will be sold based on a CFR China price index
• Company, steelmakers talking on potential off-take agreements (Adds background, comments)

 “We have three cargoes programmed forChinaand one cargo programmed forEurope,” its head of sales and marketing, David Tucker, told Reuters in an interview.

“We are selling some trial cargoes, but really the intention is from those trial cargoes to cement long-term off-take agreements with partners.”

Shandong Iron & Steel, the world’s ninth-largest steel group, has already agreed to pay $1.5 billion for a 25 percent stake in African Minerals’ flagship iron ore project and will take 25 percent of its production.

To go ahead, the deal still requires Chinese government approval, which is expected by Dec. 31, said Mike Jones, head of corporate development and investor relations.

TALKS ON MORE OFF-TAKE

African Minerals is currently in talks with European, Chinese and Asian steelmakers to sign more off-take agreements, Tucker said.

Off-take deals, generally negotiated before or during the construction of a mine, allow the buyer to lock in the purchase of part of the producer’s future production in exchange for providing finance for the project.

China Railway Material, a company involved in steel trading and the railway products business, has 12.3 percent in African Minerals and an agency agreement to sell part of its production to the Chinese market.

The rest of the iron ore available is being marketed directly by African Minerals, based on a cost-and-freight (CFR)Chinaprice index.

“We are not tied to a specific index, but our initial contracts reference the Platts index,” Tucker said.

“We are talking about something which is linked to the China CFR price, but the actual pricing mechanism is a bit of secondary importance to us.”

Europewill be a prime target of African Minerals’ sales efforts given its proximity, but the company is looking at other Asian steel producers as well.

Its current mobile plant capacity amounts to 2.5-3.0 million tonnes per year, but this is supplemented by product stockpiles accumulated at the mine this year. They will be drawn down until a 15 million tonne per year plant is commissioned towards the end of the first quarter of 2012.

Once the first phase of production is completed, probably in the second quarter of 2012, production costs on a FOB basis will be about $27.50 per tonne of iron ore free-on-board, the company said.

“Phase two of the project, which will boost iron ore mining capacity to about 45 million tonnes of iron ore per year, will start in the second half of next year, subject to completion of engineering studies and subject to funding,” Jones said.

It will take about 30 months for completion of this phase.

After completion of the first two phases of the project, African Minerals is set to become the sixth-largest iron ore supplier, Tucker said.

Phase three is expected to start in 2019-2020 depending of funding and availability of hydroelectric power supply.

Should natural gas become available inSierra Leone, African Minerals will consider adding more value to its ore within the country by building DRI (director reduction iron) processing facilities or even producing construction steel, given the growing domestic demand for the alloy, Jones said. (editing by Jane Baird)

By Silvia Antonioli

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