cape lambert eyes 800m asset floats, page-10

West Africa is iron ore's new frontier.

Channel Africa - 21 July 2010

Restive West Africa will attract even more investment in its iron ore deposits than the billions of dollars already committed this year, as resources firms race to dig mines to meet demand from steel mills.

A handful of countries on the West African coast sit on vast unexploited resources of iron ore. Globally, more than a billion tonnes of iron ore was used worldwide last year.

"Guinea, Sierra Leone, Liberia, Cameroon, Gabon, Ivory Coast, they all have potential," said John Jorgenson, iron ore specialist at the United States Geological Survey (USGS).

Only Mauritania exports iron ore so far, but if major projects elsewhere in the region are realised, countries on Africa's western coast could produce just under 10 percent of the world's supply, up from less than 1 percent last year, he said.

"The reserves are a pretty good size, a quarter of a billion to half a billion tonnes, and some of the grade is 65 percent iron, which fits in the range of Australian and Brazilian deposits," Jorgenson said, referring to the high quality grade found in two of the world's biggest producing nations.

RISK TOLERANCE

If the investments announced this year alone come to full fruition, then companies including BHP Billiton Rio Tinto Vale and Chinalco will spend around $10 billion on projects in West Africa.

ArcelorMittal also restarted work in Liberia and Senegal in 2010 -- projects which will cost almost $4 billion to complete. Competition for the Belinga deposit in Gabon, a 2006 deal being reviewed by the government, will be fierce.

While West Africa is not the only place being eyed by miners, they are finding a warm reception by governments in a region with some of the world's poorest countries.

For a country such as Liberia, which hopes to raise gross domestic product (GDP) to $1 billion this year, a world-class iron ore mine, which costs at least that much to build has the potential to transform the economy.

In neighbouring Sierra Leone, Shandong Iron & Steel's $1.5 billion investment in African Minerals' Tonkolili deposit, agreed this month, will create thousands of jobs, plus bring in taxes and export revenues, the country's mines minister said

"Several projects are almost simultaneously reaching the stage where preliminary exploration is complete and significant investment is now required to progress further evaluation and development," said Rob Tyler, head of mining for West Africa at Coffey International, an Australian engineering and infrastructure consultancy, which works with mining firms.

"Tonkolili (is) a good example where an exploration project by a smaller company required a major investor to fund final feasibility studies and make a commitment to infrastructure such as rail," he said.

Mining companies are well aware of the risks common to West Africa, contract insecurity being one of the chief concerns, but these are not deterring investment.

"We are seeing a combination of logistical and political difficulties actually reducing and at the same time a slightly higher tolerance for these risks," Coffey's Tyler said of a region now gradually recovering from years of civil wars.

GIMLET EYE

Iron-rich Guinea holds unique risks in that it, alone in the region, is in an election year -- which if successful will take it from military to civilian rule. Observers have said the vote, the decisive second round of which is due within weeks, will be a green light for investors to re-engage with the country.

Months before the election was held, Rio Tinto and Vale surprised many by saying they would spend billions on iron ore projects there, moves widely interpreted as expressions of confidence in Guinea's ability to complete the transition.

Still, when a new government is in place, it is likely to cast a gimlet eye over the mining deals it inherits.

"Presidential candidates' promise to review deals concluded under previous administrations is a strong signal that several contracts -- particularly for bauxite and iron ore -- will be renegotiated in the coming months," said Rolake Akinola, Africa analyst at Eurasia Group.

Mining firms were perceived to be willing to sign deals with an outgoing government in order to secure involvement when the new government, whoever heads it, begins examining agreements signed by former administrations.

"Most mining deals are likely to be reviewed by a new government, but those involving larger projects could be particularly vulnerable," Akinola said.

http://www.channelafrica.org/