Vale SA

West Africa iron ore race intensifies as majors and China pile in


By Barry Sergeant, Mineweb.com

The rush into West Africa's iron ore, centering on Guinea, continues, with London-listed Bellzone Mining today announcing that Hong Kong-based China International Fund (CIF), noted for its investment to date in Angola, is to invest USD 2.7bn in 286km rail and port facilities for Bellzone's Kalia iron ore project.

Bellzone would eventually hold 10% of the infrastructure company. CIF has the right to purchase 100% of the off‐take from Kalia, where Bellzone previously said it "is committed to the development of a USD 4.45bn, 50m tonnes a year iron ore facility with supporting rail and port infrastructure for the export of iron ore in the Republic of Guinea, West Africa, by 2014".

While the Bellzone stock price soared on Monday, by around 50%, its market value of nearly USD 400m leaves it with stiff challenges on financing the building of the Kalia mine as such.

The news from Bellzone follows the announcement on 30 April that Brazilian supergroup Vale, the world's No 1 name in seaborne iron ore, had agreed to pay USD 2.5bn for a 51% stake in BSG Resources Guinea, which apparently holds rights to blocks 1 and 2 in the Simandou iron ore system, Guinea. This meant that the three names dominating about 75% of global seaborne iron ore, Vale, Rio Tinto, and BHP Billiton, are full force involved in West African iron ore.

Rio Tinto, which discovered Simandou in 2004, had claimed a 95% stake in all four Simandou blocks, seemingly until December 2008, when soldiers took Guinea over. A general election in the country is anticipated next month. On 19 March 2010 Rio Tinto announced a non-binding MOU with China's Chinalco to establish a Simandou joint venture, where the new partner would acquire a 47% interest by providing a USD 1.35bn earn-in over the next two to three years.

On 19 January ArcelorMittal, an integrated global steelmaker, announced it had entered into initial discussions with BHP Billiton to potentially combine its respective iron ore mining and infrastructure interests in Liberia and Guinea within a joint venture.

Among smaller players, London-listed African Minerals is advertising that "the success of the geophysics and reconnaissance drilling over the 20km strike length of Kasafoni has propelled the Tonkolili Iron Ore Deposit to the top of the list for largest JORC compliant magnetite reserves in the world". Tonkolili is to be found in Sierra Leone.

The most direct routes from Simandou to the Atlantic coast are either through Sierra Leone, or Liberia.

Across the Atlantic, Anglo American, which holds a controlling stake in South Africa's Kumba Iron Ore, is busy with Minas Rio in Brazil. During cyclical highs in the iron ore market, during 2007 and 2008, Anglo American spent USD 6.7bn on iron ore assets in Brazil, including 100% of Minas Rio, and 49% of LLX Minas Rio (port of Açu).

The build at Minas Rio is set to absorb around USD 4bn for phase I, which proposes first production in 2012, with full ramp-up to 26.5m tonnes a year of iron ore in 2013. Bellzone's market value of close to USD 400m can be compared to Anglo American's USD 48.4bn. Bellzone wants Kalia to start out with production at about twice the levels planned for Phase I at Minas Rio.

Little-known Core Mining, a private Isle of Man company, which appears to be based in Australia, recently announced a deal with integrated Russian steelmaker Severstal, which in return for 16.5% of Core can invest up to USD 55m into Core Mining up to the end of 2012. Core claims exploration licences for the Avima iron ore deposit in Congo-Brazzaville, and the Kango iron ore deposit in Gabon.

Quick facts: Vale SA

Price: $10.88

Market: NYSE
Market Cap: $55.8 billion


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