🕐26.09.13 - 11:27 Uhr

INVESTEC: AFRICAN MINERALS LTD - CHINA TO DEEPEN INVESTMENT INTO TONKOLILI - BUY




African Minerals Ltd (Price: 157p | Target: Under Review | Rec: Buy) African Minerals has entered into a MOU to sell down a further interest in Tonkolili, with Tianjin Materials and Equipment Group Corporation (Tewoo) to potentially pay $990m for a 16.5% economic interest in the project, pricing it several times above what African Minerals’ market capitalisation would suggest.

The proposed transaction includes the establishment of infrastructure and marketing JV’s.

We retain our Buy recommendation, with our TP under review, pending further detail. * The proposed transaction confirms the earlier $6bn valuation for the Tonkolili project, when AMI previously sold down a 25% stake to Shandong Iron and Steel for $1.5bn.

The Tewoo investment should occur in two parts: $600m for 10% of the Tonkolili project and $390m for a 10% stake in AMI (which would then still own 65% of the project).

Tewoo would be investing in AMI at c.700p per share. * The transaction is to be accompanied by a 20 year off-take agreement, and it appears that some price discounting will be involved, as is done with the price-related discounting that Shandong receives.

The deal is subject to documentation and due diligence.

We value 100% of Tonkolili (NPV8 basis, unrisked), under a 35mtpa case, at $4.0bn.

At an iron ore price $10/t higher than we assume (i.e.

$95/t FOB WA), we would value it at $5.4bn. * This is potentially a significant positive for AMI, valuing the project and the company well above market value.

We recently reduced our risked NPV and TP for AMI (from 393p per share to 246p per share) on the basis that the expansion to 35mtpa would not be taking place and that AMI would focus only on optimising its installed 20mtpa capacity.

The Tewoo deal suggests that 35mtpa is back on the cards, in which case, additional financing will be necessary to support the potential $2.5-3.0bn capex, but this should be easier to obtain given the stronger balance sheet.

Maintain Buy.
To access the full note please click here Analyst: Hunter Hillcoat
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