African Minerals and Tianjin Materials and Equipment Group (Tewoo) have signed a binding Memorandum of Understanding (MoU) with respect to African Minerals’ flagship Tonkolili iron-ore project in central Sierra Leone and related infrastructure projects. Under the terms of the MoU, upon successful completion of the transaction, 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. Tewoo also will secure a 20-year off-take agreement and will form a joint venture with African Minerals to blend and market iron ore through the major Tianjin port facilities in China, significantly enhancing Tewoo’s iron-ore trading business.
Tewoo is the largest import and export enterprise in China. The company provides iron ore, coal, energy and other materials to Tianjin and Hebei provinces and is the largest iron-ore trader in China, with 33 million metric ton (mt) traded in 2011. The company employs approximately 5,000 people and had a turnover of $32 billion in 2012.
African Minerals is headquartered in London, England.
The Tonkolili project currently has a mine life of more than 60 years and is being developed in phases. Phase 1 reached its design shipping rate of 20 million mt/y of direct shipping ore in June. A Phase 2 expansion to 35 million mt/y is currently in progress and will add 64% high-grade hematite concentrate to the project’s production mix. First production from Phase 2 is scheduled for 2016.
The proposed Tonkolili transaction is structured in two parts: subscription by Tewoo in African Minerals for gross proceeds of $390 million, with Tewoo to hold 10% of the shares of African Minerals post issuance; and sale by African Minerals of 10% of its interest in the “project companies” to Tewoo for $600 million.
The “project companies” are currently owned 75% by African Minerals and 25% by Shandong Iron and Steel Group, except for the infrastructure company, African Rail and Port Services Ltd., which is owned 75% by African Minerals and 25% by Shandong, with the government of Sierra Leone having the right to a 10% free carried interest from African Minerals.
The MoU includes a 20-year off-take agreement by Tewoo, at a price to be agreed, for a total of 10 million mt/y of iron ore, or proportionately less if the capacity of the Phase 2 expansion is less than 35 million mt/y, and with best efforts to supply 4 million mt/y from Tonkolili’s current 20-million-mt/y capacity.
The MoU also calls for establishment of a joint venture to investigate development, construction, and operation of a blending facility at Tianjin port, with a view to sourcing, blending, marketing and selling blended products into the Peoples’ Republic of China.