Mining group African Minerals has signed a deal with a Chinese steelmaker for a $1.5 billion (£989 million) investment that will help it develop what could be the biggest iron ore mine in the world.
The memorandum of understanding which has been signed with Shandong Iron & Steel—one of the world's largest mill operators—is subject to due diligence and the two parties agreeing a discount for the iron ore produced.
The money will be invested in African Minerals' Tonkolili project in Sierra Leone. The company’s chairman Frank Timis claims that the resource could contain up to 10.5 million tonnes of ore.
The investment will allow the firm to boost production from the first phase of the project to 10 million tonnes a year from eight million tonnes. It will also speed up the launch of the second phase to the fourth quarter of 2012.
The new funds will also allow an improvement in the planned infrastructure so that all transport will be on rail, rather than mixed with road haulage.
This means that there will be "uninterrupted year-round shipment, unaffected by the wet season", the company said.
Shandong’s investment also secures sales of as much as 10 million tonnes of iron ore a year at discounted prices.
Commenting on the investment, Frank Timis, executive chairman of African Minerals said: "African Minerals welcomes the investment of SISG, one of the world's largest steel mills. When completed, this strategic investment will enable us to accelerate the development of Tonkolili.
“Our partnership provides African Minerals' shareholders with significant funding for the project, accelerating its delivery, and it provides SISG with a long term supply of iron ore and a 25 per cent interest in what we believe is a world class project that has many opportunities for future expansion. The new partnership will also bring great benefits to our hosts, the people of Sierra Leone."
Timis owns 15 per cent of the group, which has a market value of more than £1 billion. Shares in African Minerals surged 14 per cent after news of the China deal broke—the most since 24 June 2009.
African Minerals sold a 12.5 per cent stake in the company to China Railway Materials Commercial Corporation in April, for £167.8 million.
