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Posts Tagged ‘Tonkolili’

Baosteel and China Steel in iron ore move

November 17, 2010 1 comment

“Taiwan’s China Steel and China’s Baosteel are planning to invest jointly in overseas iron ore mines. …

The co-operation also highlights the pressures that volatile iron ore prices impose on mid-sized steel mills. In recent months, this has led to a number of iron ore mine acquisitions by steel companies, as well as a new pricing system for iron ore this year.

Tsou Jo-chi, China Steel chairman, has previously said he hoped to increase his company’s self-sufficiency in iron ore from 2 per cent to 30 per cent within five years. China Steel uses about 20m tonnes of iron ore a year.”

Source: Financial Times, November 17 2010

Observations:

  • China Steel’s 30% self-sufficiency for 20m tonnes iron ore content requires the company to gain control over approx. 6Mt mine production. This is approx. 0.3-0.4% of global production.
  • Recent Chinese steel maker’s investments in mining capacity abroad include Shandong’s investment in Sierra Leone Tonkolili mine and Wuhan’s joint venture with Australian Centrex Metals Ltd corporation.

Implications:

  • Upward vertical integration by steel makers will increase due to the increased risk for the downstream business of the new iron ore pricing system. However, as the Chinese steel makers don’t have the expertise to operate the iron ore mines, they will typically need to look for investments with a western operating partner.
  • Analysts suggests the companies are partnering in order to have a stronger financial position for acquisitions. This implies they will not be looking for many small acquisitions, but rather for 1-3 major operations.

©2010 | Wilfred Visser | thebusinessofmining.com

African Minerals in $1.5bn China pact

July 14, 2010 Comments off

“The scramble for west Africa’s iron supplies gained pace on Tuesday when a Chinese steel mill agreed to pay $1.5bn for a minority interest in a single non-producing iron ore project in Sierra Leone. …

Shandong Iron and Steel Group, one of China’s largest state-owned mills, has agreed to pay African Minerals $800m followed by two other cash payments totalling $1.5bn. The proceeds will help build African Minerals’ flagship mine at Tonkolili, a rich iron ore deposit in Sierra Leone, as well as the rail and port infrastructure required to make Tonkolili viable.”

Source: Financial Times, July 13, 2010

Observations:

  • Shandong’s money will mainly be used to build the infrastructure (railway and port) required to ship the ore to China.
  • Shandong will gain access to 10mln tonnes of iron ore per year at a price 15% below spot benchmark price.
  • Final agreement on the deal should be sealed in September.

Implications:

  • Total investments in iron ore projects in Sierra Leone, Guinea and Liberia this year are over $6bln already. Shared infrastructure for the various projects might create large synergies (like Rio Tinto and BHP Billiton are trying to achieve in Western Australia). Obviously, national governments are trying to force the companies to invest in the infrastructure of the deposit’s country.
  • Other Chinese companies might be interested in buying shares of the Tonkolili project. It will be up to mr. Timis to decide if he wants to run the project or wants to move on to new ventures.

©2010 – thebusinessofmining.com