African Minerals May Seek China Debt for $2.1 Billion Mine

African Minerals Ltd., the Sierra Leone iron-ore producer that got a $1.5 billion investment from a Chinese steel mill last year, may seek debt funding from the Asian nation for a mine expansion scheduled for 2016.

“We have a range of different options,” Chief Executive Officer Keith Calder said in a phone interview from London, referring to the $2.1 billion development plan. “We have the opportunity for project-level debt, which would be a combination of perhaps Chinese and western banks.”

African Minerals began shipments from the Tonkolili mine in November of 2011 and today said it expects to reach its targeted production rate of 20 million metric tons annually this quarter. The stock jumped the most in almost four years, surging 14 percent in London trading.

The company also issued its first forecast for exports this year of 13 million tons to 15 million tons. That estimate “is well above market expectations,” according to Jefferies Group Inc. analyst Seth Rosenfeld, who had predicted 12 million tons.

“We are close to a major cash flow pick-up,” Rosenfeld wrote today in a report. “While investors were disappointed by a series of delays to ramp-up targets in the last year, reaching the end of a bumpy ride should help African Minerals gradually rebuild some investor confidence.”

The stock, which fell to its lowest level since June 2009 on April 8, closed at 257 pence. The shares have dropped 19 percent this year, giving the company a market value of 851 million pounds ($1.3 billion).

Chinese Interest

The company may need about $1.5 billion of debt on top of about $500 million of its current cash to fund the expansion, known as Pepel, that will increase capacity to 35 million tons, Chief Financial Officer Miguel Perry said today in an interview. China’s Shandong Iron & Steel Group Co. owns 25 percent of the Sierra Leone mine.

“We’ve got interest coming from the Chinese to put in project funding debt,” Perry said. “That really proves the strength of the relationship and the benefits of the relationship from partnering with Shandong.”

African Minerals produced 5.1 million tons last year and shipped 4.3 million tons, with sales of $242 million.

It posted an operating loss of $225.6 million, from a 2011 loss of $41.5 million. That included a $51.1 million charge for breaching an accord with its Chinese partner relating to missing production and sales targets. The company is seeking to recover losses from an estimated $18 million fuel theft, it said today.

Fuel Theft

“Management is continuing with efforts to recover losses incurred and to identify more accurately the exact amount of fuel theft,” African Minerals said. It has “also strengthened controls around the delivery and issue of fuel supplies to prevent the recurrence of fuel loss.”

The company reported a profit after tax of $4.3 million, from a loss of $40.4 million a year earlier.

The profit was largely due to a $288.4 million fair value financial gain on a put option with Shandong relating to an agreement where Shandong can sell back its 25 percent interest in the company’s Tonkolili project “in the unlikely event” Chairman Frank Timis chooses to resign from the board. That option liability is now estimated at $706.1 million, it said.

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