African Minerals Ltd (AIM: AMI) (AML) said the mineral exploration and development company with significant iron ore and base metal interests in Sierra Leone, West Africa, said it has entered into a conditional strategic agreement with state-owned China Railway Materials Commercial Corp (NYSE:CRM) in respect of AML's flagship iron ore project at Tonkolili and the related infrastructure projects.
Subject to due diligence by CRM, the parties expect to execute on or around March 31 2010 definitive agreements for long term iron ore off-take, an investment by CRM in the company and the procurement of equipment and services relating to the project.
CRM will enter into two long-term off-take agreements with AML, both for a minimum of 20 years, with an option to extend for a further five years, for iron ore production from Tonkolili.
Under the off-take agreements, CRM will purchase between five and eight million tonnes per annum of hematite iron ore from AML's first stage of production at Tonkolili for a minimum of 20 years, expected to commence by 2011.
The Chinese group will also purchase a minimum of 10 million tonnes per annum of magnetite iron ore production from AML's second stage of production at Tonkolili for a minimum of 20 years, expected to commence by 2013.
CRM will subscribe for approximately 30.5 million new common shares of AML at £5.00 per share, for a cash consideration of approximately £152.6 million representing 12.5 percent of the enlarged issued share capital. The funds will provide the majority of the funding expected to be required for AML's first phase of iron ore production. CRM will be appointed to procure equipment and services for the project.
AML CEO Alan Watling commented: “We expect that this strong and strategic relationship with CRM will help underwrite Tonkolili's start-up hematite production of up to 8 million tonnes per annum by 2011. This, coupled with the parties' agreement to enter into an off-take agreement for a further 10 million tonnes per annum of the magnetite for a minimum of 20 years, should provide AML with a strong foundation from which to secure its funds for its second phase of iron ore production, targeting 45 million tonnes per annum."
Disclosure: I don hold hold a position