China's Tewoo bets on African Minerals' Tonkolili mine

Reuters

LONDON (Reuters) - China's largest import and export enterprise has agreed to invest $990 million in iron ore miner African Minerals' Tonkolili mine in Sierra Leone, valuing the project at $6 billion, the group said on Thursday.

African Minerals, one of several developers betting on West Africa's potential to become a major supplier of iron ore, said Tianjin Materials and Equipment Group Corporation (Tewoo) would receive a 16.5 percent economic interest in the Tonkolili project in exchange for its almost $1 billion investment.

The terms of the "strategic, binding" memorandum of understanding also include a 20-year offtake agreement and the creation of a joint venture with the miner to blend and market iron ore through the major Tianjin port facilities.

African Minerals said the investment would be made in two stages: first, Tewoo would buy new shares in African Minerals for $390 million, amounting to a 10 percent stake in the company. African Minerals will then sell Tewoo a 10 percent stake in the project for $600 million.

The 20-year offtake agreement is for a total of 10 million tonnes per year of iron ore, or proportionately less if the capacity of the project's second phase expansion is less than 35 million tonnes per year.

Analysts welcomed the deal, which follows a $1.5 billion investment from Shandong Iron & Steel Group secured in 2011. Earlier this month, African Minerals was forced to pay Shandong compensation for not fulfilling offtake agreements and production targets set for 2012.

"While the outlook for funding new mine developments has become increasingly difficult in recent years, a Tewoo investment should leave African Minerals well placed to pursue a phase two expansion in the coming years," said analyst Seth Rosenfeld at Jefferies said in a note.

"Together with $502 million of cash on hand at the end of the first half... and with strong cash flow generation from current operations, we forecast African Minerals could end 2013 with $1.5 billion."

African Minerals described Tewoo as the largest import and export enterprise in China, responsible for providing iron ore, coal, energy and other materials to Tianjin and Heibei provinces, and also the largest iron ore trader in China.

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