West African junior miners' iron ore prospects shine
Thursday, 31 May 2012
Junior miners are pushing ahead with plans to tap West Africa's iron ore resources and break into the lucrative market for the steel-making ingredient, saying tough market conditions have not cooled interest from buyers or potential investors.
Worries over slackening demand from China, which has led demand for iron ore for the past decade, combined with soaring operating costs and uncertain equity and commodity markets, have led investors to fret over the future of dozens of junior miners and exploration companies working on deposits from Mauritania to the Republic of Congo.
"With China slowing down, people are jittery ... Juniors' exploration is going down, project implementation is slowing down," ArcelorMittal's chief executive for West Africa, Rajesh Goel, said on the sidelines of a London conference. The steelmaker produces iron ore in Liberia as it aims to become more self-sufficient, though given weak European steel demand, it is currently selling tonnes mostly to China.
Juniors hope major deposits, such as Simandou in Guinea and Belinga in Gabon, will help West Africa challenge an iron ore market dominated by Australia and Brazil.
And they say there have seen no slackening of interest in the region from potential strategic partners or buyers for their ore.
The juniors' prospects for success in the region are still far from clear, however, largely because of the heavy capital investment most will need to build rail, port and road links.
They say that a possible pullback by major miners in the region, as they come under pressure to tighten spending on riskier projects, could help.
"Africa represents an opportunity to get a foothold in a commodity that has been dominated ... by a small number of companies. Copper has dozens of producers; iron ore has basically three," John Welborn, chief executive of Equatorial Resources said, referring to Rio Tinto, BHP Billiton and Brazil's Vale
"If those three change their investment strategy, that creates opportunity," he added, brushing off worries about the impact of a softer iron ore price and cooling Chinese growth.
Benchmark iron ore is currently trading around $130 a tonne, down from highs of over $190 early last year.
Juniors say that, though some projects will not see the light of day due to high capital costs and funding constraints, those with operating costs as low as $20, $30 or $40 a tonne will remain feasible even in softer conditions as China's high-cost domestic production keeps prices strong.
China, avid for raw materials, has been a major funding partner in the region, particularly as miners operating in West Africa try to overcome one of their toughest hurdles - a dearth of basic infrastructure, which can consume the lion's share of budgets.
Funding from Chinese steelmaker Shandong Iron & Steel, for example, has been key to African Minerals' flagship project in Sierra Leone.
But there is evidence of increased reluctance by China to bet big on risky resources projects, even as it aims to boost iron ore supply from projects its firms own.
Some analysts cite delays in Halong Mining's bid for Sundance Resources, currently developing the Mbalam iron ore project on the border of Congo and Cameroon.
"African Minerals in Sierra Leone has (seen) a phenomenal transformation in just over four years, and that was only possible with the human resource and funding (from China), but I do believe there are alternatives. It doesn't have to be a Chinese solution for everyone," said Luis da Silva, chief executive of Afferro Mining, which is developing the Nkout iron ore project in Cameroon.
Welborn said that there is intense competition among potential investors for stakes in promising projects, which will be beneficial for junior miners.
"Everyone is looking for an opportunity to extract value out of the sea-borne iron ore market, which will go from 1 billion tonnes at the moment to 3 billion by 2030 under the most pessimistic forecasts," he said.