African Minerals

The following refers to problems African Minerals are having with their Tonkolili Project. As CFE are so involved with this Company it does not bode well for Marampa. Just a thought; if African Minerals has to have a fire sale, then Marampa may be thrown in!
Summary

• African Minerals has announced an update on how it plans to make its Tonkolili project profitable.
• I’m positively surprised that the new CEO thinks he can make the project cash flow positive at the current iron ore price by the end of this year.
• The investment thesis is obviously impacted by the current iron ore price which has eroded African Minerals’ entire operating margin.

African Minerals (OTCPK:AMLZF) has just released an update to keep the market informed on its efforts to turn the Tonkolili iron ore project in Sierra Leona into a cash cow. The company's new CEO has outlined a plan to increase the profitability of the project through increasing the export volumes and lowering the costs. He thinks the project could be cash flow positive by the end of this year, even at the current iron ore price. That's a bold statement, and I doubt the project will be free cash flow negative, despite the low cost of $34-36/t for an expected production rate of 16-18 million tonnes.
Additionally, the new CEO is planning to strengthen the balance sheet and it will be very interesting to see how he will realize that, as I'm afraid there will be a substantial equity component part of every re-financing effort. Meanwhile, the company keeps transferring funds from the HongKong JV account to the African Minerals treasury to support the company's working capital position. $82M has already been wired in the past month, with an additional $161 being wired over the next few weeks and months. As expected, the company is under severe pressure during this downturn in the iron ore price.
African Minerals has a good project, but unfortunately the declining iron ore price isn't really cooperating with the company's ramp up of the production. This has led to drastic measures such as withdrawing almost a quarter of a billion dollars from the HongKong JV account to its own account.