West African iron ore over-hyped? Tuesday, 20 July 2010
BROKEN dreams are inevitable in the fashionable, but over-hyped, west African iron ore belt, says Macquarie Bank. And some prominent Australia-backed ventures don?t even make it to the bank?s A-list. The Metal Detective by Stephen Bell For one reason or another, the budding west African iron ore province ? stretching a couple of thousand kilometres from Mauritania to the Congo ? has been in the spotlight of late.
Recent multibillion-dollar Chinese and Brazilian investments have highlighted the region?s potential to become a Pilbara on the Atlantic.
This is despite shipping distances to China that are three times greater than the Pilbara.
West African enthusiasts say China is determined to put its foot on ore outside the tentacles of the Big Three (Rio Tinto, BHP and Vale), no matter how remote or expensive the deposit.
A Macquarie report, ?West African Iron Ore: Hype or Hope?, was written in response to the move last week by China?s Shandong Iron and Steel Group to pay $US1.5 billion for a minority stake in Tonkolili, the Sierra Leone project owned by Frank Timis?s African Minerals.
West African iron ore is ?suddenly in vogue again?, Macquarie says, adding that it expects certain ?project clusters? to come to market, aided by Chinese infrastructure build-outs.
?However, there is certainly no room for all the projects out there, and overcoming the political risk barrier and being first to market will be critical,? the bank says.
Project ?delays and cancellations are inevitable, and we do not see the African share of the seaborne market exceeding 2.7 per cent by 2015?, it adds.
On paper, west African production could increase from near zero at present to more than 300 million tonnes per annum by 2015, based on optimistic company projections.
Macquarie reckons that roughly 50Mtpa by that date is more realistic. But the bank?s published table of 22 projects ignores several Australia-backed trailblazers, including Sundance Resources? Mbalam in Cameroon and Cape Lambert?s Marampa in Sierra Leone.
It does, however, give a guernsey to Perth-based Sphere Minerals at its Guelb el Aouj project in Mauritania.
Sundance chairman George Jones isn?t fazed by Macquarie?s oversight as he tries to get the company back on track following last month?s tragic plane crash in the Congo, which killed the iron ore hopeful?s entire board.
Though drawing international attention to the iron ore rush in west Africa, the accident was a sobering reminder of the region?s remoteness and primitive infrastructure.
?There are major broker firms in the UK who cover Africa properly, and that includes Cameroon, Gabon and Congo ? Macquarie aren?t everything,? Jones said.
Speaking to the Metal Detective from France, Jones said he and acting chief executive Peter Canterbury will travel to west Africa in the next week to resume talks with Cameroon government officials over a fiscal ?state agreement? for the $US3.4 billion Mbalam project.
?The board had met with them prior to the accident, and all the company information of those meetings is lost,? Jones said.
?I?ll be looking to have those discussions again,? he said, adding that Sundance is sticking to its December 2010 target for completing a definitive feasibility study.
Talks on a potential JV partner at Mbalam, meanwhile, are ?quite advanced?, Jones said, with the company attracting interest from ?a wide range of international participants in the iron ore industry?.
Cape Lambert executive chairman Tony Sage was also miffed at the Macquarie snub, worsened by the bank?s inclusion of a rival project owned by London Mining.
Sage told MD that London Mining has 13 square kilometres of ground in Sierra Leone in the Marampa area, compared with Cape Lambert?s 300sq.km. ?And they?ve got no access to the railway line,? he said, in a reference to Cape Lambert?s deal with African Minerals on Friday to secure rail and port capacity.
As for the overall tenor of Macquarie?s commentary, Sage says it is inevitable that some west African projects will struggle.
?I agree with the Macquarie guys ? some of them will get cancelled and some won?t go ahead,? he said.
?But the ones in Sierra Leone ? with their proximity to the coast and the investment now from the Chinese ? they will definitely proceed.?
Macquarie seems to agree: ?Given the capital investment from Shandong, we are more confident on the Sierra Leone project cluster,? the bank said.
?With this [deal], refurbishment of the current 84-kilometre railway from Pepel port to Marampa, together with a further 120-kilometre extension to Tonkolili will be possible.
?While not the cheapest African project, being first to market will have distinct advantage.?
Having gained port and rail rights, Sage is optimistic about the sale of Marampa, planned for later this year once a scoping study is finished.
?Given all the prices around us and how hot Sierra Leone-Guinea is at the moment for iron ore, our asking price is going to be $US600 million,? he said.
Up to now Cape has referred to a possible value of $US500 million for Marampa.
Sage says three potential buyers have already been onsite, including two Chinese groups and one from Switzerland.
A feature on the west African iron ore rush will appear in the August issue of Australia?s Mining Monthly.
CFE Price at posting:
33.0¢ Sentiment: Buy Disclosure: Held
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