Tonkolili mine opens for business, as African Minerals Ltd. make a big impression on the mining landscape
Just 14 months from receiving all mining licences and environmental permits for its 12.8 billion tonne Tonkolili iron ore project in Sierra Leone, London listed African Minerals Ltd. (LON: AMI) (“AML”) has made its first 40,000 tonne trial shipment to China. This constitutes the first iron ore shipment from Sierra Leone for more than three decades and AML expects to soon become West Africa’s largest iron ore exporter.
The trial shipment utilised the integrated mine, rail and port infrastructure built by the company and will be tested by Shandong Iron and Steel Group CO. Ltd. (“Shandong”) prior to the closing of their US$1.5 billion investment in the Tonkolili by the year-end. AML’s corporate development and investor relations head Mike Jones says it is only “the end of the beginning” for this world-class project.
“When we embarked on the major construction stage of this project in late 2010, we said we’d be in production in Q4 2011, and here we are,” he affirms.
“The Tonkolili mine itself is a wonderful long life asset that can support pretty much any level of production you wish to throw at it and it’s going to be around for more than 60 years. Taking it to 20 million tonnes isn’t an issue, and as we go to Phase II and Phase III we’ll be looking at multiples of what that capacity is.”
AML’s ability to fast-track the development of the mine and infrastructure promises to transform the Sierra Leonean mining industry and bring very significant benefits to the country. Subject to variables such as iron ore pricing, the ramp up of production and the timing of the development of Phase II, payments to the government by AML in taxes and royalties could total more than $1 billion dollars over the next few years.
The road & rail ahead
While news of the first shipment was well received by the market, many investors are focussed on the growing scale of Phase I which has now been expanded to 20 million tonnes per annum. Production for 2012 has also been significantly increased to 15 million tonnes per annum from 12 million tonnes per annum.
Mike Jones however stresses the importance of focusing on the work ahead at the Tonkolili mine and its 200 kilometres of associated rail and port infrastructure, rather than dwelling on recent successes.
“The current capacity of the infrastructure and mine as a holistic process is 16.2 million tonnes. That is predicated on a certain production capacity at the mine, a certain export capacity at the port and the various transport arrangements,” he explains.
“We are building mining capacity to 20 million tonnes and through the course of 2012 we’d expect to produce 15 million tonnes, and export that amount through the current configuration of the existing infrastructure.”
Final port and rail commissioning will take place by the end of the year. The route is covered by a 99-year exclusive license signed with the government of Sierra Leone in 2009 which includes the transport corridor, the Pepel port and planned Phase II port which will be built at Tagrin Point. The port facilities, which include stockyards with a one million tonne capacity, are already capable of supporting exports of up to 20 million tonnes a year subject to minor infrastructure modifications. Regarding the rail, Jones says, AML has various options to consider in devising the ideal setup for that 20 million tonne annual target.
“At the moment we’re in the process of final commissioning of the rail,” he explains.
“It’s open from mine to port and is taking traffic, but post-commissioning you still need to finalise such things as the rail alignments and ballasting, in a process called de-stressing, and do additional works where necessary; akin to moving into a house with the decorators still in.”
Decisions on expanding the rail capacity to accommodate the 20 million tonnes per annum production level will be made shortly and funded through a mix of vendor financing, for equipment including locos and wagons, and internal cashflow.
Taking Tonkolili to the top
Since discovering the project in 2008, AML has been (and remains) fully focused on developing Tonkolili as a major iron ore mine. The company has progressively increased the size of the deposit from 4.7 billion tonnes in early 2009, to 5.1 billion tonnes and up to 12.8 billion tonnes in 2010. Innovatively, AML fast tracked the development of the project by raising capital and beginning construction ahead of the final resource estimate. This enabled the team to bring the project into production as soon as possible in order to benefit from the high iron ore price.
“Other companies might have waited until they got a resource and possibly a reserve on it before doing the financing and construction. We did it the other way round; that’s one of the reasons why we have managed to build this integrated mine, rail and port in such a short period of time,” Jones explains.
But fast doesn’t mean finished when it comes to developing this world-class asset to its full potential. With commissioning of a wet process facility due to take place in the first quarter of 2012 to lift production to 15 million tonnes per annum and ramping up to full capacity in the second quarter, work is under way to increase capacity to 20 million tonnes per annum. The company has now begun the construction of an additional five million tonne per annum expansion for the production of an AI32 (‘All-In 32’) hematite product to be commissioned in Q4 2011.
“The wet process facility is a major plant with 15 million tonnes per year head-feed,” Jones says.
“It creates very closely screened lump and fine product, and has high pressure washes incorporated into the system essentially giving you a cleaner and, incongruously, drier product.
“There’s a possibility of slightly improving the quality of the iron ore and that’s something we’re checking out now.”
The AI32 haematite product, he says, presents a low cost capital exercise with very meaningful revenues. Would-be buyers are those with their own screening facilities and it looks to be an attractive option for many.
“For us Tonkolili has always been about just getting in and getting on with it,” Jones says.
The same applies to securing the financial backing for future development. Whether raising more than $1 billion dollars by December last year, completing the $90 million Standard Bank vendor financing, and the $100m subordinated standby facility announced on the commencement of shipment, or moving swiftly towards closing on Shandong’s $1.5 billion planned investment, AML’s track record in rapid project execution is growing.
A gem for the country & company
With additional production capacity, AML remains well on course to reach 15 million tonnes per annum export targeted for the year ahead. Expanding its current infrastructure capacity of 16.2 million tonnes per annum will necessitate some further construction works during 2012, and achieving that all-important Phase I target of 20 million tonnes per annum for 2013 will be a key deliverable, and pave the way for the future expansions into Phases II and III.
“The key milestones in the coming months are the receipt of NDRC [National Development and Reform Commission] approval for the Shandong transaction, at the end of the year, and the flow of funds from that, the commissioning of the Phase One wet plant in Q1 next year, and the subsequent ramping up to full capacity. They’re all operationally based and we’re focused on making sure that they happen,” Jones states.
“This is not the end of this project. It’s the end of the beginning.”
It takes a team of highly skilled, experienced and motivated professionals to execute a project like Tonkolili as swiftly, comprehensively and in so controlled a manner as AML. Navigating development of the right resource tonnage, logistics and export scenario is, of course, a must for any mine. But in AML’s case, Tonkolili is an elephant with game-changing potential for both Sierra Leone and the company.