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The Great Fortunes of Iron Ore

May 17, 2010

The great fortunes of iron ore

Now OAO Severstal, an integrated Russian steelmaker, piles into West Africa’s iron ore riches.

Author: Barry Sergeant
Posted:  Thursday , 13 May 2010

JOHANNESBURG – 

Little-known Core Mining, a private Isle of Man company, which appears to be based in Australia, has 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

The deal follows the announcement on 30 April that Brazilian supergroup Vale 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. The UN stated that “Guinea’s interim president Sékouba Konaté has reassured the United Nations and its African partners that presidential elections will be held as scheduled on 27 June”.

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 others, London-listed Bellzone Mining is also in the area, where “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”. This is known as the Kalia Iron Project.

For its part, 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 barriers of entry into the mining, and logistics, of seaborne iron ore are gigantic. In 2007, Vale flagged a new mine, Serra Sul, within it Carajás system in Brazil, as “the largest greenfield site in our history and the largest iron ore project in the world”.

Project completion was initially slated for the first half of 2012; this has now been pushed forward to the second half of 2013. At least part of the reason is the massive budget required to build Serra Sul: USD 11.3bn (revised up from the original USD 10.1bn). Serra Sul is yet to be approved by the Vale board.

Severstal is an interesting one; its mining division is Severstal Resources, one of Russia’s biggest mining companies. It holds two iron ore mining complexes (Karelsky Okatysh and Olcon), a coking coal complex (Vorkutaugol) in northwest Russia, a coking coal complex in the US (PBS Coals), an iron ore exploration project in Liberia, and a mine design company (SPb-Giproshakht).

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 in capital, demands that during 2009 in particular fuelled strong speculation that Anglo American would have little choice but to find a partner for Minas Rio. Just how smaller companies, even tiny ones, hope to raise the finance to compete with iron ore heavyweights is going to be a good game to keep an eye on.

Phase I at Minas Rio First proposes first production in 2012, with full ramp-up to 26.5m tonnes a year of iron ore in 2013. Bellzone holds a market value of USD 271m, which can be compared to Anglo American’s USD 54bn. Bellzone wants Kalia to start out with production at about twice the levels planned for Phase I at Minas Rio.

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