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

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

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

The project has a DSO resource estimate of 142.1-million tonnes, grading 57% iron, up from the 2010 estimate of 126.5-million tonnes of DSO, grading 58.1% iron. The resource comprises 99.6-million tonnes measured, 33.9-million tonnes indicated and 8.5-million tonnes inferred, with 2.9% silica, 6.6% alumina and 0.08% phosphorus.

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 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.

Net Present Value/Internal Rate of Return
Not stated.

Value
Phase 1 – $1.7-billion.

The capital costs, operating costs and construction schedule for Phase 2 are being developed by African Minerals’ 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 are yet 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 from May 2013.

Phase 2 is expected to enter production in 2016.

Latest Developments
African Minerals has started the controlled shutdown of operations at the mine as it moves to put the operation on care and maintenance owing to insufficient working capital.

The operation will remain on care and maintenance until the $102-million in cash, due to it by Shandong Iron and Steel Group (SISG), is paid or until African Minerals can secure additional short-term funding.

African Minerals has been in discussions with SISG over the timing of the release of the $102-million in cash, which SISG had, in August, agreed to provide for the company.

African Minerals’ management is doing everything possible to secure the agreement of a funding solution with SISG.

Further, the company has started the process to sell a partial stake in the Tonkolili mine to deal with its short-term financing issues.

“[African Minerals] is talking to several groups who have expressed strong interest, and discussions are being progressed as quickly as possible, though there is no certainty a transaction will be forthcoming,” the company has noted.

The company warns that, without a significant injection of working capital, it is unable to initiate the cost-reduction strategies, which will return the operation to a positive cash flow status.

“The receipt of funds from shipments in recent weeks, including from SISG, provides the operating companies with sufficient funds to meet critical payments necessary to maintain the security, safety and, when necessary, the evacuation of staff and contractors in Sierra Leone, as well as to maintain salary payments in the short term.

“This plan allows for the continued safeguarding of the company's assets and will allow for a rapid ramp up and resumption of operations when a financial solution is achieved,” African Minerals states.

The company has allocated available funds to keep the operating assets in a condition that will allow for operations to be quickly restarted. As part of this, local staff will continue to be employed on normal wages and will be allocated to care and maintenance activities.

Meanwhile, 5.2-million tonnes of DSO had been mined at Tonkolili during the third quarter of the year. Of the mined material, 4.9-million tonnes was treated to produce 3.3-million tonnes of product.

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); SISG (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, tel +44 20 7104 2280.
Prudential, 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.