Name and Location
Tonkolili iron-ore project, Sierra Leone.

Client
African Minerals (75%) and Shandong Iron & Steel Group (SISG) (25%).

Project Description
The Tonkolili deposit comprises Numbara, Simbili, Marampon and the newly surveyed Kasafoni, which have a Joint Ore Reserves Committee-compliant resource of 12.8-billion tonnes.

The project entails the development of a 45-million-tonne-a-year direct shipping ore (DSO) hematite operation.

The project, which has a 60-year life-of-mine, will be conducted in three phases, with the potential to increase capacity to 75-million tonnes a year in a fourth phase.

Phase 1 involved the complete reconstruction of the Pepel port and the 74 km of existing railway, the completion of a new 126 km narrow-gauge railroad and the establishment of a mine.

Processing will principally be through a 15-million-tonne-a-year wet plant, supplemented by other semimobile plants.

The resource will be capable of supporting production in Phase 1 for about seven years, at an expected cost of $27.50/t of product.

Phase 2 will result in the expansion of the mine by 30-million tonnes a year to a total of 50-million tonnes a year. This entails the development of a new purpose-built port at Tagrin Point.

The new port will have the ability to load Capesize vessels alongside the quay, avoiding the costs of using transshipment vessels.

At the mine, a new major concentrator will be built, producing 30-million tonnes a year of high-grade hematite concentrate.

This phase will be capable of supporting this expanded production for about 15 years, at an estimated cash cost of $21/t.

Phase 3 involves the production of magnetite concentrate from the primary magnetite mineralisation, following the construction of a series of large-scale magnetite concentrators on site.

Value
Phase 1 – $1.7-billion.

The capital costs, operating costs and construction schedule for Phase 2 are being developed by African Minierals’ engineering partner – China Communications Construction Corporation. Previous assessments of capital intensity for Phase 2 suggested a capital cost of about $3-billion.

The capital costs and maximum production tonnage for Phase 3 are yet to be determined.

Duration
Phase 1 entered into production in the fourth quarter of 2011 and ramped up to 20-million tonnes a year of DSO since May this year.

Latest Developments
A DSO resource was delineated in December 2010, with a total resource of 126-million tonnes. However, several high potential areas remained untested at that time. Drilling is to be undertaken on areas within the north-east section of the mining lease, along the Kasafoni structure, and African Minerals is confident that significant additional DSO tonnage will be delineated.

The company expects to start its Phase 2 expansion in 2014 with an initial capacity that maximises the capabilities of the existing infrastructure. Hatch (South Africa) has been appointed to review the capacity of the existing rail and port infrastructure and the most cost effective approach to increase output to optimum capacity. Their report is expected in the fourth quarter of this year.

The saprolite concentrators in Phase 2 will then be designed and constructed to use this enhanced capacity, and, subject to the extension of the DSO resource, production of premium-grade concentrates will take place alongside extended DSO production for some time, thereby delaying additional capital requirements that will otherwise be needed for the construction of additional concentrators.

African Minerals indicates that this strategy maintains optionality for further expansion, with an upgrading of rail and port capacity at Pepel, while minimising immediate capital requirements and improving free cash flow.

To fully utilise the expanded infrastructure capability and the planned extension of the DSO resource, the project will also expand its DSO processing capacity. The design of a new nine-million-tonne-a-year A32 plant has been completed, and procurement has started with orders placed. It is expected that this plant will be delivered, constructed, commissioned and ramped up during the first half of 2014.

To support the saprolite process flowsheet design, initial testwork has been performed by CSIRO, in Australia. The next stage of industrial-scale process flowsheet testing will take place at Tonkolili through a purpose-built configurable pilot plant. The pilot plant has been dispatched and was expected to arrive on site in November and to start operating once it has been commissioned around year-end, with flowsheet parameters to be decided during the first half of 2014.

Meanwhile, in September the company announced the signing of a binding memorandum of understanding with Tianjin Materials and Equipment Group Corporation (Tewoo) for selling 10% of the underlying project companies from African Minerals to Tewoo, and for African Minerals to make a private placement to Tewoo for a post-issue holding of 10% of African Minerals, for $990-million.
Part of the due diligence and approval process was the receipt of two trial shipments. The first of those shipments departed from Sierra Leone at the end of September 2013 and the second sailed at the end of October 2013. Due diligence by Tewoo and negotiations regarding outstanding commercial terms of the transaction are continuing.

Key Contracts and Suppliers
African Railway & Port Services (rail infrastructure); Prudential Group (investor); SRK Consulting (estimation services); China Railway Materials Commercial Corporation and Standard Bank (finance); Shangdong Iron & Steel Group (investor); WorleyParsons Europe (definitive feasibility study and front-end engineering design); and Sprott Resource Lending Partnership with Dundee Resources (lead financial arrangers).

On Budget and on Time?
Not stated.

Contact Details for Project Information
African Minerals, Mike Jones, tel +44 20 7104 2280.
Prudential plc, tel +44 20 7220 7588.
SRK Consulting, tel +44 29 2034 8150 or fax + +44 29 2034 8199.
China Railway Materials Commercial Corporation tel + 86 010 51895188.
WorleyParsons Europe (head office), tel +44 208 326 5000 or fax +44 208 710 0220.
Sprott Resource Lending Partnership, tel +1 416 943 4698.