Steel firm gets full control of African mine

State-owned Shandong Iron and Steel Group Co Ltd said on Monday that it has acquired the remaining 75 percent stake it does not own in a mining project in western Africa's Sierra Leone.

Shandong Steel had earlier acquired a 25 percent stake in the project, Tonkolili Iron Ore mine, for about $1.5 billion in 2011.

With the completion of the stake purchase from the loss-making African Minerals Ltd, Shandong Steel also owns the associated infrastructure company African Port and Railway Services.

It, however, did not release the financial details of the acquisition.

Considering the significant debts of the project, the deal value should not be that big, said Wei Zengmin, an analyst at Shanghai-based domestic industry information consultancy Mysteel. 

According to public information, AML had $167 million of unpaid debts by the end of November 2014.

Wei said iron ore prices were high when the Chinese company bought the mine. However, it was still not a very reasonable decision because the mining costs in Africa were high.

"At this moment, it is wise to keep the assets even though the industry is experiencing a downturn," Wei said. "Steel demand in Africa will grow rapidly in the next two decades as the continent has increasing population and growing economy."

He said keeping the assets will help Shandong Steel realize its future potential in Africa, especially if it can get through the current tough cycle.

According to the Chinese company, it has invested more than $1.67 billion in Tonkolili in the past five years, including $170 million in connection with the recent acquisition of the AML stake, and will provide further funding as required including $600 million to phase 2 of the mine, which will see production lifted to 25 million metric tons a year.

Tonkolili, the second-largest iron ore mine in Africa and one of the largest magnetite deposits in the world, has 13.6 billion tons of iron ore resources and a mine life estimated in excess of 60 years.

At present, the Chinese company intends to take steps to return the mine to full production and to protect the assets against the imminent wet season.

The mine has been on care and maintenance since November last year, mainly due to debt default.

Jeremy South, global mining leader at Deloitte Touche Tohmatsu Ltd, said during a previous interview with China Daily that this year would be relatively quiet for mergers and acquisitions in the global mining market, but is the right time to press ahead if the companies believe commodities prices will go up in the longer term.

Dujuan@chinadaily.com.cn