core

Finance
Congo conundrum a test for Socrates - EXCLUSIVE -
PAUL GARVEY, RESOURCES
1205 words
13 March 2013
The Australian
AUSTLN
1 - All-round Country
19
English
© 2013 News Limited. All rights reserved.
The challenges are immense but the payoff could be huge

THE near-impenetrable jungle in the far north of the Republic of Congo is home to gorillas, panthers, pythons, and a little-known iron ore project that could make its Australian owner incredibly wealthy.

Socrates Vasiliades, a Melbourne-born former commodities trader now based out of London, is the man behind the enormously challenging, but also incredibly promising, Avima iron ore project in the central African nation of Congo.

Mr Vasiliades' private company, Core Mining, has identified an iron ore resource at Avima big enough to attract the attention of global commodities trading giant Glencore and Russian steelmaker Severstal. Both those groups have executed deals giving them stakes in Core, adding clout to Mr Vasiliades' efforts to get the Avima mine off the ground.

The financial rewards to Mr Vasiliades, given his controlling stake in Core and the Avima project's incredibly low forecast production costs, could be enormous.

Before he can enjoy the spoils, there is a mountain of work ahead of him.

Africa is a famously challenging place to do business, even more so when the immense infrastructure and capital requirements of iron ore projects are taken into account.

As Rio Tinto's turbulent experience with the Simandou iron ore project in Guinea attests, developing a major iron ore project in Africa can be an enormous task even for a company of global scale.

``We're dealing with a mine in one country (Congo) and possibly transporting through another (Cameroon), so there needs to be a fairly focused co-ordination and co-operation,'' Mr Vasiliades tells The Australian over coffee in the foyer of Cape Town's Table Bay Hotel, overlooking the city's iconic Table Mountain.

``It's not easy: each country has its own requirements, and setting up legal frameworks, conventions and structures will involve a lot of work and patience.''

Avima is a massively ambitious project for one man to carry, even before the recent volatility in iron ore prices and the flight away from risk among investors and financiers is taken into account.

The recent wild swings in iron ore market conditions and the increased funding challenges facing the smaller end of the resources sector generally are certainly front of mind for Mr Vasiliades.

It was during September last year, when the iron ore price was in meltdown, that his background in commodities trading and his history of involvement with China was at its most valuable.

A 23-year career trading bulk commodities had attuned him to episodes of dramatic de-stocking by Chinese steel mills, which are

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invariably followed by equally dramatic periods of restocking by those same steel mills.

``I've been doing business in China as a trader for a long time, and I've seen these things happen before,'' he said. ``My view was it was temporary and would bounce back, and that's what's happened.''

The recovery in iron ore prices of recent months has erased that source of angst, but the challenges around financing large-scale mining projects remain.

Securing finance is now a front-and-centre challenge for Mr Vasiliades. While the state of the market has ruled out the prospect of an IPO of Core in the short term, he is convinced that Avima still has the attributes to attract the money that is proving so elusive for so many rival companies.

``The difference we have, and the reason we stand out as a world-class iron ore deposit, is because it's high grade and it's big, it's very large scale,'' he says.

``If you look around the globe at what's available, there's really not much out there which is comparable. There's the Guinea area, which has fantastic geology but lots of political issues. Then you have our area, and that's really it.

``Everything in Australia's gone, everything in Brazil is gone. From an opportunity point of view, this is it.''

Studies have suggested Avima can support production at a cost of about $US23 a tonne, which would make it one of the lowest-cost producers in the world and underwrite fat margins for Core and Mr Vasiliades.

From the outside, it would appear that the key to Avima's success is already sitting on Core's share register. Glencore, now in the final stages of its protracted takeover of mining giant Xstrata, will still have one gaping hole in a portfolio that stretches into nearly every corner of the commodities world: iron ore.

The big three of world mining -- BHP Billiton, Rio and Brazil's Vale -- all have asset bases heavily weighted towards iron ore, and Glencore chief Ivan Glasenberg has made no secret of his desire to see Glencore develop a significant position in the sector.

Avima and its estimated 1 billion tonnes of high-grade iron ore could make an ideal starting point.

``Glencore needs to build an iron ore portfolio, given they'll be one of the top-ranking mining companies in the world. This may be a natural fit,'' Mr Vasiliades said. While investors may be shying away from the resources story, Mr Vasiliades said the big miners remained very focused on the right opportunities.

``(Avima) has got large capex, yes, and the financial markets are risk-averse, that's true. But the industry players are not. The industry players like these sorts of high-grade projects, and their intention is to develop them,'' he said.

Securing funding for the further development of Avima is a key priority for Mr Vasiliades this year, and it sounds as though much of those efforts will be directed towards Beijing.

``Chinese debt and Chinese contractors and Chinese buyers, that's the plan,'' he said.

It sounds simple in theory, but as the experience of Sundance Resources attests to, execution can be another issue all together.

Core has a memorandum of understanding with ASX-listed Sundance to consider developing an infrastructure network that can service their respective African iron ore deposits.

Sundance has been bogged down in a protracted $1.3 billion takeover from China's Hanlong Mining.

Mr Vasiliades said it would be ``nice'' if the Hanlong-Sundance deal could be completed, given the improved economics that would result from having two operations running on one rail network. Shared infrastructure was appealing not just to Core and Sundance, he said, but also the governments of Congo and neighbouring Cameroon, where Sundance's Mbalam iron ore project is.

While the shift in market conditions in the past year has left investors less enthusiastic about early-stage African iron ore stories, Mr Vasiliades believes attitudes will improve swiftly if and when the mining majors get involved.

``What needs to happen, and I believe we will be one of the initiators, is that a major officially enters the region in a proper way. That's going to kickstart everything,'' he said. ``It's going to benefit the smaller guys as investors will have more confidence . . . knowing that if there is a major there too, then it's probably going to work.''

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