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- African Minerals is in bad shape and needs to transfer funds from the project level to the company level to solve its working capital problem.
- Even though the situation was indeed quite bad after the iron ore price drop, this is quite a drastic measure and indicates I was too optimistic in the past.
- This has an impact on how to look at this company because it looks like it isn’t generating free cash flow at this point in time.
- African Minerals' current operating margin has been greatly reduced by the drop in the iron ore price.
- However, the company is still on track to increase the average grade of its end-product as the first concentrator should be up and running by 2016.
- Fortunately, the management team realizes it needed an additional partner and brought Tewoo in, which will invest $990M for a direct and indirect stake of 16.5%.
- Should the Tewoo deal go ahead, Tewoo will invest in African Minerals at a price of $10.6/share (current share price: $1.75).
- African Minerals will have to run a tight ship in the next few years, but it looks like the company will be able to survive the current Fe-crisis.