African Minerals (AML), with significant iron ore and base metal interests in Sierra Leone, has reached an agreement with its Chinese partner Shandong Iron & Steel Group (SISG) Co Limited to hit a strategic investment of $1.5 billion.
The business is in respect of AML’s flagship iron ore project at Tonkolili and related infrastructure projects which valued at approximately US$6 billion.
According to a July 13, Regulatory News Service announcement, the company’s official news channel, the investment is accompanied by an off-take agreement for a total of up to 10 metric tonnes per annum of iron ore at discounted prices.
"Funding enables AML to improve its strategic implementation of Phase I and II of the Project, allowing introduction of an all-rail transport and logistics solution instead of theÂ originally intended combined haul road and rail system and allowing uninterrupted year-round shipment, unaffected by the wet season," the announcement stated.
In return for providing funding, SISG may elect, at the closing of each stage of the funding, to receive either iron ore production - paying all allocated production costs, royalties and taxes - or a dividend (if paid), in each case corresponding to SISG’s percentage ownership of the project.
Meanwhile, extension of the rail system is expected to be complete by the third quater of 2011, enabling delivery of first ore to Pepel Port in the forth quater of 2011.
The investment will enable an overall increase in Phase I hematite production from 8 to 10 metric tonnes per annum about the same period. It will also speed up delivery of Phase II implementation of 25 metric tonnes per annum of hematite production capacity now expected by end of 2012.
Executive Chairman of African Minerals, Frank Timis, welcomed the investment.
"African Minerals welcomes the investment of SISG, one of the world’s largest steel mills. When completed, this strategic investment will enable us to accelerate the development of Tonkolili. Our partnership provides AML’s shareholders with significant funding for the project, accelerating its delivery, and it provides SISG with a long term supply of iron ore and a 25% interest in what we believe is a world class project that has many opportunities for future expansion. The new partnership will also bring great benefits to our hosts, the people of Sierra Leone."