JOHANNESBURG (miningweekly.com) – London-listed iron-ore firm African Minerals has entered into a memorandum of understanding (MoU) with China-based import and export enterprise Tianjin Materials and Equipment Group Corporation (Tewoo) in respect of the Tonkolili iron-ore project and its associated infrastructure in Sierra Leone.

In terms of the MoU, Tewoo would pay African Minerals $990-million for a 16.5% economic interest in the Tonkolili project, based on a project valuation of $6-billion.

"African Minerals is delighted with Tewoo's intended investment. With [our] history of successful relations with Chinese industrial entities, I am confident that this transaction will be successfully completed,” African Minerals executive chairperson Frank Timis said.

He added that the transaction would, once completed, provide African Minerals with nearly $1-billion of additional funds at the corporate level, significantly strengthening the company’s balance sheet and providing flexibility in financing options for the company's future development. 

“Tewoo's offer to subscribe to African Minerals’ equity at about £7 per share will provide a strong endorsement of the company's value to the market,” he stated.

The transaction would be accompanied by a 20-year offtake agreement, at a price to be agreed on by the parties, for a total of ten-million tons a year of iron-ore, or proportionately less if the capacity of the Phase 2 expansion was less than 35-million tons a year, and with best efforts to supply four-million tons a year from the current operation’s 20-million-tons-a-year capacity.

"Tewoo's partnership will also provide additional guaranteed long-term offtake for our product. With Tewoo, China’s Shandong Iron & Steel Group and China Railway Materials as our long-term offtake partners, we will have almost all of the Tonkolili project's production committed for the next 20 years," Timis commented.

Further, African Minerals would also form a joint venture with Tewoo to investigate the development, construction and operation of a blending facility at Tianjin port, with a view to souring, blending, marketing and selling blended products into China.

Following the signing of the MoU, Tewoo would now carry out technical, legal and financial due diligence investigations on African Minerals, which would include the receipt and testing of two test cargoes.

The iron-ore miner would arrange for the shipment of these cargoes to Tewoo later this month.

The parties would seek to close the transaction by December 31, and would develop and seek to execute the final legal contracts relating to the development of the Tianjin port blending facility as soon as was reasonably practicable.