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Shares of African Minerals (LSE:AMI) skyrocketed upwards by 81.25p to 591.25p this morning on the company’s announcement of a $1.5 billion investment by Shandong Iron & Steel Group in the company and its Tokilili project in Sierra Leone. The price has leveled off at 551.00p, still an 8% increase, by early afternoon.
Transaction Summary
The simple overview of the investment is that Shandong Iron & Steel is acquiring a 25% equity interest in the Tonkolili project. African Minerals will use the $1.5 billion to fund the next phase of the project and to repay an existing $417.7 million secured loan facility to Standard Bank.
Transaction Highlights
The agreement also offers a variety of participatory options for Shandong, such as:-
- An off-take arrangement whereby they may purchase certain guaranteed amounts of ore at pre-determined discounts. The reciprocity of this arrangement is that African Minerals is assured that a significant amount of production will be sold during the life of the project.
- Shandong may exercise an annual option to purchase 25% of “standard production” at the project at benchmark prices.
- Shandong may elect to received iron ore in lieu of declared dividends. The pricing arrangement for this option was not disclosed.
- Shandong gains the right to appoint 2 directors to the boards of each project company, and 1 director to the board of African Minerals itself. The company has named Cui Jurong, Vice President of Shandong, as its nominee to the board of African Minerals.
- Frank Timis must remain a director of African Minerals until all 3 phases of the Tonkolili project are complete.
- African Minerals guarantees that the project will produce at a rate of 12 million tonnes (annualized) and sell at least 10 million tonnes during 2012.
- Shandong is restricted from purchasing any more than 12.49% of African Mining shares in the public market, except in the event of a third-party takeover bid. However, Shandong has right of first offer for up to 25% equity participation in an new African Minerals venture or development in Sierra Leone.
Corporate Comments
Zou Zhongchen, Chairman of Shandong Iron & Steel, commented that “SISG is delighted to have completed this long term partnership with AML which provides our steel mills with a sustainable long term supply of iron ore for generations to come.”
Frank Timis, Executive Chairman of African Minerals said, “We are pleased to welcome SISG, one of the world’s largest steel producers, as a strategic investor in the Tonkolili project. The completion of their detailed due diligence, prior to successful closing of this transaction, validates the scale and scope of the project and secures the funding which will enable us to accelerate the development of Phase II of our growth plans. This partnership confirms the potential for Sierra Leone to become one of the world’s major iron ore producing nations thereby creating lasting benefits for its people.”
Company Spotlight
African Minerals Ltd’s iron ore production is centered in Sierra Leone. Its approach is vertically-integrated in that it is invested not only in iron ore mining, but also in the transportation and power infrastructure, including subsidiaries African Railway and Port Services ltd and African Power Ltd , required to move the ore from the mine to the ocean-going vessels that will carry it to the steel mills. The company’s efforts are focused on the Tonkolili project. The project contains 12.8 billion tonnes of ore, projected to a mining life of over 60 years. The Company currently has about 9,700 employees of which over 80% are Sierra Leone nationals. As the mining and infrastructure work progresses, the project will become the largest employer in Sierra Leone and the largest contributor to the country’s GDP.
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