During the course of the year the diamond assets were disposed of in return for an equity stake in Obtala Resources. The Canadian exploration under White River Resources has been written off and the Baobab Resources portfolio stake has been sold in the market. The Marampa project has now also been completely acquired by Cape Lambert Resources Limited. As a part of the original agreement with Marampa to Cape Lambert Resources Limited, African Minerals had agreed to provide access to Pepel Port for their product shipment in return for an element of funding and ownership. In February 2011, AML and Cape Lambert agreed to vary that arrangement by granting Cape Lambert access to 2Mtpa at Pepel and an additional 3Mtpa at Tagrin Point, once operational, on an arms-length commercial basis, the detailed terms of which are currently being negotiated. As such, AML has been able to retain its ownership of this important transportation infrastructure.
Phase II
We now look towards the next stage in the Company's development, being the establishment of the major Phase II production facility at Tonkolili and new deep water port at Tagrin Point. The completion of this project will add 23Mtpa of hematite production and take our designed production capacity to 35Mtpa. The 1.1Bnt saprolite resource of Phase II will support the production of a 64% FeO hematite concentrate for approximately 20 years, at an estimated cost per tonne of circa $21/t for this phase. The original capital estimate for this expansion was around $2Bn. We would expect to be in production 30 months after funding the expansion project.
Phase III
The approximately $6bn Phase III magnetite project, with the potential to produce 45Mtpa of high quality 70%+ magnetite concentrate, will also require the construction of a high speed standard gauge rail line and expansion of the Tagrin Point port facilities. Phase III is the multi-generational premium resource at the Tonkolili Project, requiring the construction of a major magnetite processing facility. The current resource implies a mine life in excess of 60 years with attractive cash costs by current industry standards, estimated at circa $23/t.
Infrastructure
Rail
Our Phase I all-rail programme commenced in May 2010, with the rehabilitation of the existing 74 km of railway from Pepel Port to Lunsar, and the construction of a new 126 km narrow gauge railway line from Lunsar to Tonkolili, with 3 bridges on each section. Our first construction locomotive was delivered to Sierra Leone on 2 September 2010, being greeted by the President of Sierra Leone in a welcoming ceremony at the main port in Freetown, and is now being used to transport ballast and materials along the refurbished part of the railway. The refurbished rail section was re-opened in February 2011, and is now being ballasted and tamped ready for full scale operations. The new rail section requires the completion of clearing, excavation, cut and fill, bridging, and construction of the engineered rail formation, all ahead of track laying. The first sections of prepared formation have been handed over to the track laying crews, and work continues on schedule with the expectation that the track will be open for transportation from port to mine in late Q3 2011.
Port
Pepel Port's rehabilitation is designed to support a capacity of at least 14Mtpa, being 12Mtpa of DSO hematite iron ore from Phase I plus additional capacity for third party usage. Civil concrete contractors were mobilized in September 2010 in preparation for the structural work and mechanical contractors mobilized in November to construct the first stockyard, conveyor gantries and transition towers. The stacker for the first 400,000t stockyard has been fabricated and is en route to the port, and is expected to arrive in May 2011. Development has begun on the automation of the port operating plant. Marine civils contracts have been awarded and dredging of the Pepel Channel commenced in February 2011. Two transshipment vessels, to transport our product from the 12m draught Pepel Port to the 20m+ deepwater channel 32 nautical miles away, have been contracted to be delivered once all marine works have been completed, which is expected to be towards the end of Q3 2011. In addition to this work at Pepel for Phase I, we have also commenced preparation work for the design and development of Phase II's new Tagrin Point port. Tagrin Point will be a deep water 20m+ draught port capable of supporting Phases 2 and 3 of the Tonkolili project. (continued)
CFE Price at posting:
50.5¢ Sentiment: LT Buy Disclosure: Held
