IMIC deal with AIOG could shape West Africa's nascent iron ore...

IMIC deal with AIOG could shape West Africa's nascent iron ore industry, says broker
By Ian Lyall April 26 2013, 11:41am IMIC, meanwhile, is hoping tap the huge potential of Nkout, which is one of the nearest of the Cameroon monster iron ore deposits to the coast
International Mining and Infrastructure Corporation’s (LON:IMIC) alliance with entrepreneur Bert Cooper’s African Iron Ore Group (AOIG) has been two and a half years in the making.
But, according to broker Ocean Equities, it could utterly redefine the nascent West African iron ore industry.
In his note to clients, analyst Adam Lucas assesses the importance of AIOG’s tie-ups with Chinese infrastructure providers and finance and IMIC’s putative US$100mln bid for Afferro (LON:AFF), owner of Cameroon’s 2.5bn tonne Nkout iron ore deposit.
“Each of the strategic Chinese partners that AIOG has developed relationships and agreements with was carefully selected based on the partner’s ability to deliver quality infrastructure on time and also provide appropriate financing support,” Lucas points out.
IMIC, meanwhile, is hoping tap the huge potential of Nkout, which is one of the nearest of the Cameroon monster iron ore deposits to the coast.
The AIM listed group’s plan is to develop the deposit while infrastructure such as rail, road, electricity and port facilities are put in place that will enable exports.
IMIC has made an indicative cash and stock approach that values UK and TSX-quoted Afferro at 100 pence and 140 pence a share.
To borrow the old Ronseal strapline, IMIC does exactly what it says on the tin: it invests in mining and infrastructure projects.
Specifically, its focus is on iron ore in west and central Africa, where development of large-scale mining is hampered by a lack of a developed rail and road network (principally rail), ports, power and processing facilities.
In chairman Haresh Kanabar and chief executive Ousmane Kane, IMIC has two very experienced heads.
Kanabar is a director of Aurum Mining, Gasol, Hermes Pacific Investments, Silentpoint and Venteco.
Kane, meanwhile, as director general of SNIM, Mauritania’s state-owned iron ore company and the largest producer of iron ore in west and central Africa, engineered over $1bn financing for restructuring of rail and port infrastructure in Mauritania.
He also served as minister of finance and as the governor of the Central Bank of Mauritania, and was a senior adviser to Mauritania’s head of state and a vice president of the African Development Bank.
Crucial, also, is IMIC’s tie-up with AIOG, which is headed by resources entrepreneur Bert Cooper.
Followers of the oil sector will know him as the founder and guiding light of Afren, now an established producer and explorer worth £1.6bn.
Cooper also has a network of contacts in the upper echelons of the African political establishment that makes him an instant door opener.
Relationships with the Chinese infrastructure builders and off-take companies together with Chinese funding institutions make this an even more compelling story.
The business geo-politics of west and central African iron ore reveal an interesting land-grab.
The traditional western axis of Rio Tinto and BHP Billiton, with the addition of Brazil’s Vale, are already staking their claim to the next big discoveries. However, they often leave these huge ore deposits fallow.
This allows the trio to mine out existing resources, before then opening up these new mines.
In the meantime, prices remain stubbornly high for huge consumers such as China due to constrained low-cost supply.
Granted, iron ore prices have weakened of late. However, over the longer-term they are expected to gravitate towards the levels seen before this mini-slump, principally because China's depleting domestic iron ore is of low grade and thus requires beneficiation which does increase the domestic cost of production.
Not surprisingly, the People’s Republic has a vested interest in getting the best and cheapest ore out of the ground as quickly as possible, as do the local economies that would undoubtedly be boosted by the emergence of these new mining districts.
They know what the experts have been telling us for some time now: the economic miracle occurring in the Middle Kingdom is not some flash in the pan.
As the tier-one cities such as Beijing, Shanghai and Guangzhou head towards maturity, so the growth baton is being picked up by the second and third-wave conurbations as urbanization shows no signs of easing anytime soon.
Economists are confidently predicting that China’s expansion phase is likely to run for at least three decades.
This is the long-term view being taken by the management of IMIC who have on their advisory board Magnus Ericsson, a founder of Raw Materials Group, the leading resource sector intelligence provider and the mining industry’s preferred sources of data, consulting, analysis and forecast.
Its first project is to help deliver an infrastructure solution that will allow iron ore to be shipped from the 2.4bn-tonne Simandou South mine in Guinea’s interior to the coast.
The project’s owner, Rio Tinto, could no doubt finance the 700 kilometre Transguinéen Railroad to the port of Conakry and associated handling facilities.
However, Guinea wants the multi-billion dollar solution to eventually become the backbone of the country’s transport network and to have a say on its design and management. It then accepted to partner with AIOG/IMIC group to form IMG.
At the end of February AIOG signed a letter of intent with the Liberian government to deliver iron ore infrastructure there too, so the big project portfolio is expanding.
The AIOG name crops up frequently in news flow from IMIC as it weaves together an impressive network of partners, including China Railway Group, China Huaye Group, China Machinery Engineering Corp and China Railways Material Corp.
“AIOG’s strategy and agreements with China SOEs (state-owned enterprises) and infrastructure providers have been two and half years in the making,” said Ocean’s Lucas.
He points out they were crafted long before the area first caught the eye when China’s Hanlong bid US$1.3bn for Sundance Resources, owner of Cameroon’s largest iron ore deposit.
That deal has since collapsed.
However reports in-country suggest renewed interest in Sundance, which has fired up interest in companies operating nearby, such as West African Minerals (LON:WAFM).
Experts believe this iron ore belt along the Cameroon border that hosts Sundance’s Mbalam project could one day be large enough to rival Pilbara in Australia as globally significant area for iron ore.
But being as far as 500 kilometres from the coast means it requires a railroad and significant investment before the area ever becomes accessible let alone economic.
“IMIC and AIOG, with the support of Chinese SOEs and large infrastructure providers and through their relationships throughout West Africa, have the recipe to create another iron ore hub in West Africa and become a successful and new supplier of iron ore to the demanding Chinese market,” concludes Ocean analyst Lucas.