african iron ore

Hi All.
Some bits from RBC Capital Markets Report I picked up at the Africa Down Under Conference.

Quality: Much of the African resource base is relatively low-grade,but several deposits include higher grade zones which could result in direct shipping ore (DSO) products,improving project economics through faster lead times,and lower capital and operating costs. Companies with higher grade deposits include ArcelorMittal,Rio Tinto,Sundance,Core Mining and Vale.

West Africa's current lack of infrastructure is a major challenge to unlocking the region's iron ore projects. In terms of rail,seven of the ten largest projects by resource require ore to be hauled in excess of 300km;six of these projects require a greenfield rail development while three of the remainder will need upgrades to existing rail. The situation is similar with regards to port infrastructure.
There are nine greenfield port facilities proposed across West Africa; we believe the large multi-user ports with projects backed by major operators as most likely to advance.

Questions over port access in the Republic of Congo have (ROC) also stalled the Southern RoC projects.

ArcellorMittal's Falame project in Senegal has a resource of 750mt and is targeting 25mtpa concentrate production; the project has been on hold since the global financial crisis in 2008. The Mt Nimba project in Guinea,owned by a JV between BHP,Newmont and Areva,has a resource of 600mt and targets a 20mtpa DSO production; progress to date has been minimal.
Out of 15 iron ore companies,6 are to be producing in 2012,no more are expected to be producing until 2015.Sundance,Core in 2016.Severstal's Putu,Badondo and Sphere/Xtrata project not until 2017.

Those with true DSO are limited;in the Northern region there are Simandou,Mt Nimba and Western Range.African Minerals is direct shipping its 55% material.
Further South in the Cameroon/Congo region,the projects typically have DSO caps over large scale Itabirite/Magnetite orebodies. Sundance and Core have proven DSO resources.

Out of 16 Itabirite/Magnetite projects,Sundance Resources has the highest grade at 36.9%Fe,the next highest is Xtrata's Guelb El Rhein project at 36.2%Fe.

Resource potential for Sundance is second after African Minerals - Tonkolili project. Sundance down as close to 7 Billion tonnes.

Rail line distances are SDL at 510km,CMEC - Belinga 560km, Xstrata - Askaf 600km, Rio Tinto Simandou Blocks 3 & 4 650km and ArcelorMittal's Faleme at 741km.
The rail investment is substantial,however,the use of a multi-user development corridor approach could potentially improve project economics and result in efficient allocation across the region. This approach would particularly benefit smaller developments where there is insufficient scale to justify an independent infrastructure solution. To this end,Sundance has signed LOIs and MoUs with a number of other developments in the region (Core's Avima,Equatorial's Badondo,Legend's Ngovayang; projects.

Sundance expects to build a new port at Lolabe for US$537m or ~US415/t,while Xstrata has proposed a new port north of the existing Pointe-Noire port for US413/t.

On a capital intensity basis (capital cost per unit of annual production),the median cost of African iron ore developments is US$108/t,well below the comparable median cost of selected global major iron ore developments at US$132/t

Most disclosed estimates of free-on-board (FOB), meaning the operating cost to mine,transport and load the product from the mine to the port) operating costs for African iron ore projects tend to be relatively low. Estimates range from as low as ~US$21/t for Sundance's DSO production from the Mbalam/Nabeba project,to as high as US$52/t from Cape Lambert's beneficiated fines product at Marampa.

Based on transations from 2006,the average African iron ore transaction multiple is US$1.91/t of contained Fe resource,with a range of US$0.14/t to US$5.70,or US$61/t of annual targeted production. This is well below the global average of US$4.58/t on a contained Fe resource basis but broadly in line with the global average of US$65/t on an annual targeted production basis.

Chinese interests in Africa list.
China-Africa Development Fund Dec-09 Project at Bong 34% holding. China Union Holding Jan-2009 6% holding in Bong,Wuhan Iron & Steel Mar-2010 Bong 60% holding (Little progress to date).

China National Machinery and Equipment Jun-2006 Belinga 85% holding (No progress to date).

Country Risk. Gabon 26 out of 45 is the lowest risk,Senegal with 27,second lowest risk and Cameroon at 29 is third lowest risk of 8,Republic of Congo 31 followed by Sierra Leone,Mauritania,Liberia and the worst being Guinea with 41.

On Sundance Resources.
Local investors in each country hold the minority positions,these will fall to 5% if they do not contribute to the capital costs of development. The Governments of each country also has the right to a 10% free carried interest in the projects.

Operating costs,including cash costs,royalty and contingencies were estimated at US$19.65/t.The Stage 1 DFS was completed in April 2011,this saw capital costs lift materially to US$4.7b and operating costs up slightly to US$21.20.Relative to the PFS the scope had expanded to include the Nabeba mine,the DFS also included owners costs.
Strip ratios are favourably low at around 0.9:1 on the DSO (with a conservative 18 degree pit wall slope). The ore is relatively friable,only limited blasting is required.Ore from the separate sites will be blended at port.

The strip ratio on stage 2 is estimated at 0.4:1,again helping keep costs low.A 350MW Hydro power station is assumed to be constructed by a third party.It will also include a 4Mtpa pellet plant to be able to produce a 68%Fe Itabirite Concentrate,Sundance also expects to be able to produce a 68%Fe DR grade Concentrate at a slightly lower weight recovery of 45%. The strip ratios on the Itabirite are estimated at 0.3:1.Stage 2 is expected to be funded out of Stage 1 cash flow.

Sundance has already signed MOU's with Equatorial Resources and Core Mining,and an LOI with Legend Mining. The MoUs contemplate an interest in the infrastructure through either direct investment-sharing development and contributing to its capital cost; or haulage arrangements. The LOI with Legend Mining refers to haulage only. The company is also in discussions with Afferro.

That will do for now I will finish off to-morrow.

Regards
Westcott.