African Minerals stabilising Tonkolili at 20 Mt/y, lowers sales guidance

11th September 2013 By: Leandi Kolver - Creamer Media Deputy Editor

African Minerals stabilising Tonkolili at 20 Mt/y, lowers sales guidance

JOHANNESBURG (miningweekly.com) – London-listed African Minerals was making continued progress towards stabilising its Tonkolili iron-ore operation at the 20-million-tonnes-a-year level, new CEO Bernie Pryor said on Wednesday.

Pryor was appointed CEO of the company on August 14, replacing Keith Calder, who became CEO in July last year.

The Tonkolili operation, in Sierra Leone, achieved an export rate of 20-million tonnes a year during the second quarter, with total production for the six months ended June amounting to 6.1-million tonnes, of which 5.5-million tonnes were exported.

African Minerals also reported revenue of $405-million for the first half of 2013, with earnings before interest, taxes, depreciation, amortisation and operating exceptional items amounting to $99-million.

The company recorded a total comprehensive loss for the period of $18-million, compared with a loss of $107-million a year earlier, and reported group cash of $502-million at June 30.

“The first half of 2013 has demonstrated strong volume, production and sales capability, coupled with the benefits of improved financial control and therefore the ability to reduce cash cost,” Pryor commented.

African Minerals executive chairperson Frank Timis added that after a good start during the first half of this year, the company’s executive team would now focus on stabilising the Tonkolili project to produce consistently at 20-million tonnes a year.

Pryor added that African Minerals’ wet season strategy was performing well, but that the company had suffered interruptions to its shipping during the third quarter of this year owing to major maintenance and operational issues with its contracted trans-shippers.

“As a result, we are lowering our sales guidance for 2013, to export between 11-million tonnes and 13-million tonnes of product, as opposed to previous guidance that targeted between 13-million tonnes and 15-million tonnes. We continue to focus on bringing down cash cost to our targeted $30/t level, which we expect to achieve by the end of the year as we increase our monthly volumes,” he said.

He added that the company was also working to redefine its Tonkolili Phase 2 expansion plans with a focus on efficient capital investment and increasing returns on investment.

“We currently aim that all capital requirements for Phase 2 will be met by available cash and existing debt facilities, plus new project level debt," Pryor said.

Meanwhile, African Minerals on Wednesday also announced that it had settled claims raised by Shandong Iron & Steel Group under the investment documents for its $1.5-billion equity investment in the Tonkolilli project companies.

The investment agreements with Shandong required delivery of two-million tonnes of iron-ore to Shandong in 2012, and contained guarantees that during 2012 the project subsidiaries would sell 10-million tonnes of iron-ore and reach a production rate of 12-million tonnes a year.

“Although the project has now demonstrated achievement of its target 20-million tonnes a year export run rate as announced on June 18, 2013, production in 2012 did not meet the production guarantees and offtake obligations given to Shandong.

“In accordance with the provisions of the investment agreements and applicable law, Shandong is to be compensated for these shortfalls, and for certain warranty breaches claimed following its post-closing audit,” African Minerals explained.

The company settled all warranty breaches and production guarantees under the Shandong investment agreements for $42.4-million in addition to the amount that had already been provided for the in the group’s 2012 accounts and what had already been paid, African Minerals said.

The company added that the balance of the claims was to be paid by Tonkolili project companies at times to be agreed between the parties.

"Shandong has been, and continues to be, a very supportive partner. The partners have together agreed that the additional $42.3-million, due now by African Minerals, over and above that which was already fully provided for, will be carried by the project, with appropriate gross up. Leaving these funds with the project provides additional liquidity, and demonstrates the continuing support that Shandong has provided, which we greatly appreciate," Timis commented.