CHINA?S appetite for magnetite ore is placing even more importance on Africa, with $US50 billion ($A49.8 billion) in capital developments planned over the next eight years and 11 Chinese companies already having a presence in the continent.
Drilling at Mayoko
In a research report titled African Iron Ore Projects: Potential for New Supply, RBC Capital Markets said, by its calculations, planned African projects totalled 500 million tonnes per annum of supply at an all-in capital cost of $US50 billion.
Of the 40 projects assessed by RBC in its report, those companies which it believed offered the greatest potential included African Iron, African Minerals, Bellzone Mining, Cape Lambert Resources, Core Mining, Equatorial Resources, London Mining, Sundance Resources and Zanaga Iron Ore.
In assessing each project the bank looked at infrastructure plans, direct shipping ore potential, an infrastructure solution, political risk and financing, and partner or offtake deals.
By its calculations at least 11 major Chinese companies had taken a presence in Africa either by partnering on the mine development, or taking over the infrastructure, or locking in future offtake.
These were CAD Fund, China Harbour Engineering Company, China International Fund, Chinalco, China National Machinery and Equipment Import, China Railway Materials Corporation, China Union Holdings, CRCC China-Africa Construction, Shandong Iron & Steel Company, Sinosteel and Wuhan Iron & Steel Company.
?Clearly, Chinese interest in African iron ore projects is high,? the RBC report said.
During the five-year period to 2009, global demand for iron ore surged to record levels, peaking at more than 2 billion tonnes in 2008 before the GFC caused a slight dip.
However, during that period Chinese consumption increased to 1.3Btpa from 688Mtpa, accounting for 66% of global demand, more than 10 times the demand in western Europe and 25 times the demand in North America.
The RBC report, citing statistics from CRU Strategies, estimates that over the next five years, global demand may level off at the 2.2-2.3Btpa range, with China essentially remaining flat on 2010 levels.
But as a result of declining grades within China?s own fragmented domestic iron ore industry, it is widely thought that Chinese imports of the metal will continue to surge ahead, despite the plateau predicted.
In addition, with a build-out in pelletising capacity in China due to the ongoing decline in domestic grades, it is expected that pellet feed will increase significantly in the seaborne iron ore trade to nearly 10% in 2019 from 5% in 2009.
CRU estimates that of the total forecast blast furnace pellet demand globally of 136.8Mt between 2009 and 2013, China will account for 51.7Mt.
Of China?s 628Mt of imported iron ore in 2009, only 42Mt was in the form of pellet feed and 29Mt in pellets.
However, CRU forecasts blast furnace pellet feed demand on the seaborne market to grow to more than 90Mt in 2019 from less than 40Mt in 2009.
In terms of African iron ore transactions over the past five years, CRU estimates that on average, companies paid about $2.05 per tonne of contained iron and about $45/t of annual targeted production. Including the expected capital required to develop these projects, the averages increase to $7.66/t of contained iron and $111/t of annual targeted production.
Looking at each company tipped by CRU as worthy of investment in more detail, London AIM-listed African Minerals is developing the Tonkolili iron ore project in Sierra Leone which hosts the world?s largest JORC-compliant magnetite and hematite resource of 12.8Bt.
The company is targeting initial DSO hematite production of 12Mtpa starting later this year, growing up to 35Mtpa, along with an additional 45Mtpa of magnetite concentrate production in a three-phase build-out for total peak production of 55Mtpa.
In September last year a revised $1.5 billion memorandum of understanding was agreed with Shandong Iron & Steel Group, and in June, China Railway Materials invested @?152.6 million in exchange for a 12.5% stake in the company and rights to offtake from the project for 20 years.
AIM-listed Bellzone is developing the Kalia iron ore project in Guinea which is targeting production of 20Mtpa DSO and 10Mtpa pellet feed concentrate as part of phase 1 operations, starting in 2014 and 2015 respectively, with a planned expansion to 50Mtpa by 2018.
The project has a JORC-compliant resource of 3.74Bt of magnetite but the company believes it has potential for more than 10Bt of magnetite.
Bellzone has a definitive agreement with China International Fund whereby CIF will fund and develop the entire rail and port infrastructure and an equal joint venture will be created to develop other projects in the country.
Australia-based and Tony Sage-led Cape Lambert Resources? African iron ore assets comprise the Marampa and Pinnacle Group projects in Sierra Leone and Guinea respectively, and it also retains a 25% stake in African Iron following the sale of its DMC Mining subsidiary, which held an 80% interest in the Mayoko project in the Republic of Congo.
The company recently amended an agreement with African Minerals in respect to the rail and port access for Marampa whereby Cape Lambert will retain access rights on commercial terms for an initial 2Mtpa, but now with an option to grow to 5Mtpa, and will forgo its previous right to buy in to a 33% stake in the infrastructure project.
Privately owned Core Mining is developing the potentially large-scale, high-grade hematite Avima iron ore project in the Republic of Congo, and the Kango property in western Gabon.
It is currently drilling and expects to release an initial JORC-compliant resource shortly, but believes it has potential for more than 3Bt of hematite itabirite material, including a high-grade DSO portion of 500Mt over Avima Center.
Its target is initial production of more than 20Mtpa by mid-2015, while Kango would be a small-scale, 3-5Mtpa operation.
Australia-listed Equatorial Resources has the wholly owned Mayoko-Moussondji project in southwestern Congo and is targeting a potential resource of 2.3-3.9Bt grading 30-65% iron.
AIM and Oslo-listed London Mining has its 100%-owned Marampa iron ore project in Sierra Leone, which is expected to come online this year at the rate of 3.6Mtpa for sinter fines, potentially growing to 16Mtpa by 2018.
Another Aussie group, Sundance Resources is developing the Mbalam project in Cameroon which comprises a 2.7Bt resource, of which 415Mt is high-grade carrying an average hematite grade of 62%, with a further 2.3Bt of 38% iron itabirite hematite ore.
A feasibility study evaluating potential production of up to 35Mtpa is expected shortly, but the company has signed MoUs with Chinese infrastructure builders to study a planned railway and port facility, and is planning to engage a strategic partner to assist with financing and product offtake.
Finally, AIM-listed Zanaga Iron Ore Company is developing its namesake project in the Congo which is expected to produce 45Mtpa of pellet feed concentrate.
The property contains a total JORC resource of 3.3Bt grading 32.8% iron, of which 834Mt is hematite itabirite with an average grade of 38.5% iron.
A prefeasibility study is expected to be delivered shortly and will investigate the potential to produce about 15Mtpa of 65% iron sinter product in addition to 30Mtpa of a 67% sinter blend concentrate or pellet feed product.
The PFS is to be funded by a $106 million option premium received from Xstrata which will give the Swiss mining giant the right to purchase a 50% plus one share interest in the Zanaga project by funding a bankable feasibility study costing no less than $100 million.
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