London Mining Nails Serious Investment For Its West African Iron Ore Holding

on Jul 30, 2012
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Black Rock, Inc (BLK) has announced an innovative deal with emerging iron ore producer London Mining plc (LOND) whereby in return for $110 million payable up front by Black Rock, the New York-based investment manager will receive a two percent royalty on ore sales out of London Mining’s Sierra Leone prospect. Black Rock, with a market capitalisation nudging $30 billion, will use its LSE-listed World Mining Trust (BRWM) to fund the deal.

London-based London Mining was established in 2005 by its playing-through CEO – Canadian Graeme Hossie – to raise investment capital for iron ore exploration and production. It early on identified the potential of the Marampa prospect in Sierra Leone on Africa’s west coast, securing rights to the field in 2006. Other interests are located across the planet – in Greenland, Saudi Arabia and Columbia.

London Mining’s website describes its Marampa mine as being an area of nearly 14 square kilometres located 125km by road north-east of Freetown and 40km via a dedicated haul road from the freight terminal on the Thofeyim river. The company advises that the Marampa deposit was discovered back in 1926, with limited open pit extraction undertaken by various interests between 1933 and 1975, when low iron ore prices forced the mine’s closure. The subsequent and protracted (11 years till 2002) Sierra Leone civil war saw the mine inoperative until London Mining stepped in.

!m[](/uploads/story/206/thumbs/pic1_inline.png)Six years down the track, in December last year, consultants assessed the Marampa deposit at 1,078 million tonnes (Mt) with a grading of 31.2% FE (iron content). The Phase 1 operation, in part financed by the Black Rock investment, will focus on 150Mt of ‘lower capital intensity’ weathered rock and 40Mt of tailings from previous mining. According to London Mining’s press release, “While the company is currently implementing its previously funded expansion to 5Mtpa capacity in H2 2013 next year, the proceeds from the deal [with Black Rock] will strengthen the Company’s balance sheet and provide further financial resources to facilitate the expansion at Marampa to 9Mtpa at the appropriate time.”

For its part, Black Rock has yet to upload any media statement on the deal but the Financial Times of 30 July quoted Evy Hambo, fund manager at the World Mining Trust, as saying, “We are seeing plenty of companies asking about alternative ways to finance growth or development projects. The scarcity of capital for midsized and junior companies, the cost of capital and the covenants attached to it make it less attractive than in the past.” Black Rock obviously liked what it saw in London Mining’s Sierra Leone holding and doubtless sees continuing growth in global iron ore demand. The markets appear to have agreed, with shares in the World Mining Trust rising 2.14 percent on news of the deal. Shares in London Mining jumped 15.5 percent to 171.5 pence.

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That optimism may come under threat from continuing news out of the world’s largest consumer – the People’s Republic of China takes some 60 percent of seaborne volumes. The FT reported on 25 July of a drop to nine-month lows in world iron ore prices on the back of requests for delivery deferral by a number of Chinese buyers. Indeed, commodity producers around the world anxiously await signs of where to from here for the Chinese economy. At best, a degree of slow-down seems inevitable. No-one is even wanting to think about the dreaded ‘R-word’.

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