Chinese firm buys African mine stake

Tianjin Materials & Equipment is buying a stake in Sierra Leone's largest iron ore mine for US$990 million.

African Minerals, the biggest producer of the steelmaking ingredient in Sierra Leone, said it had agreed to sell 17 per cent of its Tonkolili mine to Chinese commodities importer Tewoo.

The deal boosts financing at the miner, which had shelved a US$2.5 billion expansion after missing sales forecasts.

For China, the world's biggest steelmaker, it increases access to iron ore to feed growth in construction and cars.

"This transaction will provide African Minerals with additional funds at the corporate level, significantly strengthening our balance sheet, and will provide flexibility in financing options for the company's future development," chairman Frank Timis said.

Tianjin Materials' offer values Tonkolili at US$6 billion. The deal, approved by the boards of both companies, will be accompanied by a 20-year offtake agreement for 10 million tonnes of ore.

African Minerals began exporting ore from Tonkolili in 2011 and has since been dogged by operational setbacks. The London-based company cut its sales forecast for this year from Sierra Leone to a range of 11 million to 13 million tonnes from as much as 15 million tonnes, having also reduced output targets a year ago.

Former chief executive Keith Calder and chief financial officer Miguel Perry resigned last month and 40 per cent of its London head-office staff were fired, cutting costs by US$15 million a year.

The firm deferred a planned expansion of mine, port and rail facilities at Sierra Leone's Pepel project after talks with Chinese partner Shandong Iron & Steel, which invested US$1.5 billion in African Minerals last year.

"Hats off to management for pulling a rabbit out of the bag," Numis Securities said in a note to investors. "The market cap of African Minerals is US$800 million and you would have to question why Tewoo would not just buy the whole project in partnership with Shandong."