-- London Mining gets $110M up front in exchange for a 2%
royalty on iron ore sales from the Sierra Leone Marampa mine
-- The cash helps fund Marampa's expansion to 9 million tons per
annum from 5 million tons annually at a time when funding options
have been limited
-- Liberum says deal is a vote of confidence from a major
investor in Marampa, management and Sierra Leone
-- London Mining shares up 15.3% on the news
(adds details and updated share price)
By Alex MacDonald
LONDON--U.K.-listed miner London Mining PLC (LOND.LN) said
Monday that BlackRock World Mining Trust PLC (BRWM.LN) has agreed
to pay $110 million in return for a 2% royalty payment on iron ore
sales from the Sierra Leone Marampa mine, a move that will help
fund the mine's expansion plans at a time when funding has become
more scarce.
The deal will help finance the expansion of the mine to a
production capacity of the steel-making ingredient to 9 million
metric tons a year. London Mining has already fully financed the
expansion of the mine to 5 million tons a year by the second half
of next year. The company hasn't set a specific date
At 1024 GMT, London Mining's shares were up 15.3% or 23 pence at
171 pence a share, having risen nearly 25% earlier in the day
following the announcement while BlackRock World Mining Trust was
up 2.5% at 551 pence a share. London Mining's shares are down 43%
since the beginning of the year while the trust's shares are down
nearly 13% during the same period.
"The deal removes any questions regarding a funding squeeze for
delivery of Phase 1 at Marampa and is a significant vote of
confidence from a major mining investor in the Marampa project,
London Mining management and Sierra Leone," said Liberum Capital in
a note. It valued the Marampa project at $1.6 billion based on the
royalty agreement.
Evy Hambro, chief investment officer of the BlackRock Natural
Resources Team and fund manager of the BlackRock World Mining
Trust, said that adding the royalty to the fund's portfolio not
only complements its existing commodity allocation but also meets
the fund's objective of using income to attract new investors. "We
continue to evaluate a number of other opportunities that are
similar in nature to this royalty," he said.
The investment comes at a time when iron ore prices have dropped
to a two-and-a-half year low as slower economic growth in China has
led to weaker demand from Chinese steel mills. China, the world's
largest consumer of iron ore, currently has ample stocks of the
steelmaking ingredient, which has kept buyers on the sidelines,
according to analysts.
The spot reference price for 62% Fe grade imports at China's
Tianjin Port fell 0.9% Friday to $116.20 a dry metric ton,
according to data from information provider The Steel Index. It is
the benchmark's lowest level since Dec. 29, 2009. The price, which
has fallen for 13 consecutive weekdays, is now down 14% on
month.
Despite the current iron ore price downturn, Mr. Hambro said:
"we remain positive on the long term outlook for iron ore and
believe that existing producers are in the strongest position to
deliver further supply."
-Write to Alex MacDonald at alex.macdonald@dowjones.com (Tapan
Panchal and Rhiannon Hoyle contributed to this story.)
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