Name and Location
Tonkolili iron-ore project, Sierra Leone.

Client
African Minerals (75%) and Shandong Iron & Steel Group (SISG) (25%).

Project Description
The Tonkolili deposit comprises Numbara, Simbili, Marampon and the newly surveyed Kasafoni, which have a Joint Ore Reserves Committee-compliant resource of 12.8-billion tonnes.

The project entails the development of a 45-million-tonne-a-year direct shipping ore (DSO) hematite operation.

The project, which has a 60-year life-of-mine, will be conducted in three phases, with the potential to increase capacity to 75-million tonnes a year in a fourth phase.

Phase 1 involved the complete reconstruction of the Pepel port and the 74 km of existing railway, the completion of a new 126 km narrow-gauge railroad and the establishment of a mine.

Processing will principally be through a 15-million-tonne-a-year wet plant, supplemented by other semimobile plants.

The resource will be capable of supporting production in Phase 1 for about seven years, at an expected cost of $27.50/t of product.

Phase 2 will result in the expansion of the mine by 30-million tonnes a year to a total of 50-million tonnes a year. This entails the development of a new purpose-built port at Tagrin Point.

The new port will have the ability to load Capesize vessels alongside the quay, avoiding the costs of using transshipment vessels.

At the mine, a new major concentrator will be built, producing 30-million tonnes a year of high-grade hematite concentrate.

This phase will be capable of supporting this expanded production for about 15 years, at an estimated cash cost of $21/t.

Phase 3 involves the production of magnetite concentrate from the primary magnetite mineralisation, following the construction of a series of large-scale magnetite concentrators on site.

Value
Phase 1 – $1.7-billion.

The capital costs, operating costs and construction schedule for Phase 2 are being developed by African Minierals’ engineering partner – China Communications Construction Corporation. Previous assessments of capital intensity for Phase 2 suggested a capital cost of about $3-billion.

The capital costs and maximum production tonnage for Phase 3 still need to be determined.

Duration
Phase 1 entered into production in the fourth quarter of 2011 and ramped up to 20-million tonnes a year of DSO since May this year.

Latest Developments
African Minerals has entered into a memorandum of understanding (MoU) with China-based import and export enterprise Tianjin Materials and Equipment Group Corporation (Tewoo) in respect of the Tonkolili iron-ore project and its associated infrastructure.

In terms of the MoU, Tewoo will pay African Minerals $990-million for a 16.5% economic interest in the Tonkolili project, based on a project valuation of $6-billion.

The transaction will, once completed, provide African Minerals with nearly $1-billion of additional funds at corporate level, significantly strengthening the company’s balance sheet and providing flexibility in financing options for future development.

The transaction will be accompanied by a 20-year offtake agreement, at a price to be agreed on by the parties, for ten-million tonnes a year of iron-ore, or proportionately less, if the capacity of the Phase 2 expansion is less than 35-million tonnes a year, with best efforts to supply four-million tonnes a year from the current operation’s 20-million-tonnes-a-year capacity.

With Tewoo, China’s Shandong Iron & Steel Group and China Railway Materials as African Minerals’ long-term offtake partners, it will have almost all of the Tonkolili project's production committed for the next 20 years.

African Minerals will also form a joint venture with Tewoo to investigate the development, construction and operation of a blending facility at Tianjin port to sour, blend, market and sell blended products to China.

Following the signing of the MoU, Tewoo will out technical, legal and financial due diligence investigations on African Minerals, which will include the receipt and testing of two test cargoes.

The iron-ore miner will arrange for the shipment of these cargoes to Tewoo later this month.

The parties aim to close the transaction by December 31, and will develop and aim to execute the final legal contracts relating to the development of the Tianjin port blending facility as soon as possible.

Meanwhile, African Minerals has reported that it is making continued progress towards stabilising its Tonkolili iron-ore operation at the 20-million-tonne-a-year level.

The Tonkolili operation achieved an export rate of 20-million tonnes a year during the second quarter, with total production for the six months ended June amounting to 6.1-million tonnes, of which 5.5-million tonnes was exported.

The company reports that its wet season strategy is performing well, but that it has suffered interruptions to its shipping during the third quarter of this year, owing to major maintenance and operational issues with its contracted transshippers.

As a result, African Minerals is lowering its sales guidance for 2013 to export between 11-million tonnes and 13-million tonnes of product, as opposed to a previous guidance that targeted between 13-million tonnes and 15-million tonnes. African Minerals also continues to focus on reducing the cash cost to its targeted $30/t level, which it expects to achieve by the end of the year as its monthly volumes increase.

The company is also working to redefine its Tonkolili Phase 2 expansion plans, with a focus on efficient capital investment and increasing returns on investment.

African Minerals has also settled claims raised by Shandong Iron & Steel Group under the investment documents for its $1.5-billion equity investment in the Tonkolilli project companies.

The investment agreements with Shandong required the delivery of two-million tonnes of iron-ore to Shandong in 2012 and contained guarantees that, during 2012, the project subsidiaries would sell ten-million tonnes of iron-ore and reach a production rate of 12-million tonnes a year.

However, production in 2012 did not meet the production guarantees and offtake obligations given to Shandong.

As a result, in accordance with the provisions of the investment agreements and applicable laws, Shandong is to be compensated for these shortfalls and for certain warranty breaches, following its postclosing audit.

Key Contracts and Suppliers
African Railway & Port Services (rail infrastructure); Prudential Group (investor); SRK Consulting (estimation services); China Railway Materials Commercial Corporation and Standard Bank (finance); Shangdong Iron & Steel Group (investor); WorleyParsons Europe (definitive feasibility study and front-end engineering design); and Sprott Resource Lending Partnership with Dundee Resources (lead financial arrangers).

On Budget and on Time?
Not stated.

Contact Details for Project Information
African Minerals, Mike Jones, tel +44 20 7104 2280.
Prudential plc, tel +44 20 7220 7588.
SRK Consulting, tel +44 29 2034 8150 or fax + +44 29 2034 8199.
China Railway Materials Commercial Corporation tel + 86 010 51895188.
WorleyParsons Europe (head office), tel +44 208 326 5000 or fax +44 208 710 0220.
Sprott Resource Lending Partnership, tel +1 416 943 4698.