News: Mayoko-Moussondji project update , page-5

The below article is from Business Day Live which is an African Business journal.

Basically it suggests that the African Market is expecting Exxaro to have a crack at EQX and consolidate the area.

This makes total sense to me. The ROC Government has made it clear that EQX and Exxaro must share the rail infrastructure. Based on EQX comments it is fair to say we have at least 2mtpa of production from that rail line as is. Assuming a $50 margin from Ore out of the Mayoko region that extra 2mtpa could bring in excess cashflow for Exxaro of around $100m.

If we were to sell our Mayoko asset for $300m (discount of around 20% to what AKI sold for) the rate of return just from the increased rail usage would be around 33%. Not bad. This does not take into account the significant increase in DSO that EQX holds. A $300m offer is the equivalent to $2.50 a share for EQX. While this may seem far fetched given we are at 50c, I think the share price will be irrelevant. Ultimately EQX given their strong cash position should be able to get this into production without Exxaro. We are not backed into a corner and as such if a deal was to be done it would be based on the economics of the project. I guess the question is do Exxaro have the ambition and bank balance to consolidate the region.

If EQX start talking to potential JV partners post scoping study release you would think that Exxaro would have to make a move in the next few months. I think post scoping study things may start to heat up. There are not to many near term production Iron Assets with access to existing rail and port in the world and as such it wouldn't surprise me if Exxaro are not the only interested party.

Article below:


COMPANY COMMENT: Linking arms is way to do it in tough spot

June 19 2013, 05:55

FOR two companies operating in a difficult place it makes good sense to share as much of the risk as possible, particularly on infrastructure, which is often one of the biggest stumbling blocks for remote projects.

South Africa’s Exxaro Resources is busy with an iron-ore project next door to Australia’s Equatorial Resources venture in the Republic of Congo. While there are tougher places to operate in Africa, Congo is no walk in the park. Equatorial outlined on Friday what form this co-operation would take, and the market expects Exxaro to make a play for the Australian company once it has bedded down its own project.

The companies have agreed to share an airstrip, charter flights, laboratories, medical facilities and to invest jointly in the community. They are considering sharing and upgrading a railway line and port facilities. Exxaro has made much more progress with its project than Equatorial, despite coming to it late. It bought African Iron, an Australian company, last year in its drive to enter the iron-ore space. It has thrown resources at the project and expects to commission the Mayoko-Lekoumou project this year. The mine will deliver 2-million tonnes of lumpy and fire ore a year.

The key to the project is the existing railway line that runs nearby and was built to haul manganese to Pointe Noire. It will take a considerable investment by the miners and the government to equip it to serve both iron-ore projects, but this is the kind of cost containment shareholders are increasingly demanding.