African Minerals’ New CEO Shelves $2.5 Billion Expansion

The new chief executive officer of African Minerals Ltd., the biggest iron-ore producer in Sierra Leone, shelved a $2.5 billion expansion and acquisition plans as its Tonkolili mine failed to achieve sales forecasts.

The company’s focus is on improving its existing operation, which will miss a 2013 sales goal, CEO Bernie Pryor said today. African Minerals sank to a four-year low in London trading after revising its sales forecast, described by Investec Plc analyst Hunter Hillcoat as a “disappointment.”

The iron-ore miner, valued at about $875 million, began exporting the steelmaking material from Tonkolili in 2011 and has since seen shipping disrupted by “operational issues” with vessels. Former CEO Keith Calder and Chief Financial Officer Miguel Perry quit last month and 40 percent of its London head-office staff were fired, cutting costs by $15 million a year.

“While the reduced guidance for the year is a disappointment, it also adds pressure to African Minerals’ cash position,” Investec’s Hillcoat wrote today in a report. Outgoing CFO Perry said in an interview that the London-based company doesn’t need to raise funds in the short term.

African Minerals lowered its 2013 forecast for sales from Sierra Leone to a range of 11 million to 13 million metric tons from 13 million to 15 million tons. The company also reduced production targets a year ago, cutting its 2012 output goal to as little as 5 million tons from about 10 million tons.

The shares slumped 15 percent to close at 167 pence in London, the lowest price since May 2009. The stock has dropped 47 percent this year.

Pepel Deferred

African Minerals shelved its planned expansion of mine, port and rail facilities at the Pepel project, which would have increased capacity to 35 million tons a year from 20 million tons, after consulting Chinese partner Shandong Iron & Steel Group Co., which invested $1.5 billion in the company last year.

A cheaper and smaller expansion of the operation is expected to be completed by 2016, Pryor said today by telephone from London. The revised plan will be outlined next year, he said, declining to elaborate on costs and estimated production.

“A positive for a market that is concerned about financing large capital developments is that African Minerals appears to be stepping back” from expansion proposals likely to cost more than $2.5 billion, said Hillcoat, who is reviewing his 393-pence price estimate for the stock.

“It’s about enhancing shareholder returns, which is to the benefit of both Shandong and ourselves,” Perry said.

Former CEO Calder, who was in the role for about 12 months, said in June the company was studying acquisitions in commodities such as copper and steelmaking raw materials to diversify.

“Those plans are currently on the backburner,” Pryor, a former Anglo American Plc executive, said today. Aside from improving Tonkolili, “there is nothing else for us to focus on at this point in time.”

Before it's here, it's on the Bloomberg Terminal.