African iron ore proves a powerful lure

WESTERN Africa is fast becoming known as the world’s third major iron ore province, as miners explore and develop high-grade, low-cost prospects in the region.

Equatorial Resources and Sundance Resources are two Western Australian companies established in the region, joining Cape Lambert Resources and African Iron, and majors Rio Tinto and Vale, as well as a range of London-listed companies. 

Despite not yet identifying a resource from its two projects in the Republic of Congo – technically in Central West Africa – Equatorial has emerged as one of the province’s most promising companies following a series of encouraging drill results. 

Equatorial managing director John Welborn is confident that, during the next decade, mining companies developing in western Africa will begin to extract the potential from the massive iron ore deposits that have been identified.

He believes the pace at which this takes place will be determined by how soon infrastructure connecting the mines to ports can be constructed.

“I do think there will be a new railway in there. The projects are too big, there’s too much money being spent on them – they are just too valuable not to be accessed by then,” Mr Welborn told WA Business News.

“There’s going to be an enormous unlocking of value in what will be construction of one of the world’s great railways.”

The infrastructure challenge has to this point been offset by the prospect of low-cost operations similar to those in the Pilbara. Analysts have predicted costs to fall below $US45 a tonne at some mines.

Sundance’s Mbalam project, which straddles the border of Cameroon and the Republic of Congo, is expecting costs in this range and has also established a high-grade 500 million tonne resource.

The company has overcome the tragedy of its entire board being killed in a plane crash during 2010 to be the subject of a $US1.7 billion takeover by privately owned Chinese company Hanlong Mining Investment. 

Despite question marks over the deal eventuating due to a complex approvals process, Sundance chairman George Jones told the Global Iron Ore & Steel Conference in Perth last week it would go ahead. 

“It has a number of conditions about it and we are trying to satisfy those conditions,” Mr Jones said. “Hopefully we can reach agreement on the mining convention, which is the main hurdle, by the 27th of April, then it will become procedural.”

The Mbalam project is predicted to produce 35mt a year of DSO-quality hematite over 10 years and then 35mt/year of concentrate product from Itabirite for a further 15 years.

North of Mbalam, British explorer Core Mining owns the Avima project, which has a massive 1 billion tonne resource.

Sundance and Core announced earlier this month they are in talks to share rail and port infrastructure facilities in the area.

This announcement was followed a week later by Sundance and Equatorial signing a memorandum of understanding to also share infrastructure.

Mr Welborn believes corporate agreements like this will be a regular occurrence as the region further develops.

He said the company had been promoting the idea of a Congo-based alliance, similar to what was originally arranged for the Oakajee Port & Rail project in WA’s Mid West.

“My view is that before infrastructure gets put in there will be some level of project amalgamation,” Mr Welborn said. “The investment banker in me says it doesn’t make sense for someone to put all that capital into one project.”

Outside of the Sundance deal, WA’s African Iron, which also owns assets in the Congo, is another early case of iron ore consolidation in Africa through its takeover by South Africa’s Exxaro Resources.

Despite the potential, the region still suffers from the perception of risk, the result of political instability and a history of war, but analysis by UK-based investment bank Fairfax suggests the situation has improved.

The investment bank believes the emergence of an iron ore sector alone demonstrates the better sentiment, with the standout regimes being the Congo, Cameroon and Liberia.

“The political history of West Africa has not been for the faint-hearted but closer examination would suggest sensible, not necessarily democratic regimes are emerging where new mining regimes are being put in place,” Fairfax analysis said.

“Most regimes are learning from the experiences of their southern counterparts – setting higher royalty streams and a minority ownership at the outset.”

Mr Jones, who is also chairman of Mid West iron ore hopeful Gindalbie Metals, dismissed the risky perception hovering over [Central] West Africa through a comparison with the project approval process in Australia.

He said since Gindalbie completed its feasibility study at joint venture project Karara, the carbon and Mineral Resources Rent Tax had been introduced, while WA had raised royalties.

“We’ve been negotiating the port service agreement in Geraldton for three years and that is exactly the time I’ve been negotiating this whole deal in the Cameroon and Congo,” Mr Jones said.  “So is it more difficult in Africa? Work it out for yourself.”