TABLE OF CONTENTS
Sumitomo Buys Usiminas Stake for $1.93bn
Price Rise Spurs Demand for Brazilian Iron Ore
Avanti Mining Receives Section Order Under Environmental Assessment Act
Rio Tinto to Exercise the Series A Warrants in Ivanhoe Mines
BHP, Rio Tinto Agree to Pay Higher Royalties
Mincor Says Miitel Nickel Mine Could Contain Second Nickel Deposit
South Africa Unveils New Mining Plan
Mine Study Shows Baomahun Mine in Sierra Leone Worth $172m
Lucara Announces AK6 Feasibility Study Update
Iamgold Essakane Mine Started Ahead of Schedule
Usiminas , Brazil's largest maker of flat steel, said recently it is selling 30 percent of its mining unit to Japan's Sumitomo Corp for $1.93 billion, in a bid to raise cash to develop its fast-growing iron ore assets.
Sumitomo agreed to subscribe for new shares of the unit, called Mineracao Usiminas (MUSA), as part of the deal, Usiminas said in a filing with Brazil's securities regulator.
Sumitomo will pay $1.35 billion by the end of August and the rest upon confirmation of the mine's expansion plan and the quality of the ore, Sumitomo told reporters in Tokyo.
By bringing in Japan's third-biggest trading house as a partner, Usiminas Chief Executive Wilson Brumer, who took over in April, will likely mitigate potential risks in developing iron ore assets, unlocking value for shareholders.
Usiminas and Sumitomo are expected to seal terms of the transaction by the end of August, the filing added.
Usiminas expects to invest up to 4 billion reais ($2.2 billion) by 2015 to develop its iron ore assets, Brumer said. Recent geology studies indicated that Usiminas mines have potential reserves of 2.6 billion tonnes of the mineral, he noted.
Under the project, MUSA's iron ore output is expected to reach 8 million tonnes next year, up from this year's 7 million tonnes. Usiminas and Sumitomo aim to expand the output to as much as 29 million tonnes by 2014 or 2015, Sumitomo said.
Brazil’s mining sector has been gearing up to meet rising demand from China and other fast growing markets. Price rises and the prospect of a tight market for iron ore over at least the next two or three years have given added impetus to several projects in the sector.
“There has never been a better moment to sell iron ore assets,” says Pedro Montenegro, an analyst at Banco Brascan in Rio de Janeiro. “Ore is worth a lot of money, the market is very tight and the new prices mean there’s an even greater chance that projects will go ahead.”
At the top of the agenda is a proposal by CSN, Brazil’s third-biggest steelmaker, to spin off its iron ore and logistics assets. CSN declined to comment, saying capital market regulations prevented it from doing so while negotiations were under way. However, Benjamin Steinbruch, chief executive, said at a recent presentation that the company was opening talks with bankers on how to structure the operation. The central issue will be whether to sell CSN’s iron ore assets separately or together with its logistics assets.
On the iron ore side, CSN owns Casa de Pedra, one of the biggest iron ore mines in Brazil, which last year produced 17.1m tonnes of ore. It also owns Namisa, a company created in 2007 that owns a collection of mines and last year produced 5.5m tonnes of ore.
A consortium of Japanese and Korean steelmakers owns 40 per cent of Namisa, and they would have to be persuaded to go along with any spin-off plan.
In logistics, CSN has 32 per cent of MRS, a rail company, and other rail and port facilities.
CSN has long argued that the value of its non-steel assets is not reflected in its share price and that putting them into a separate company and either floating it or selling it to a strategic investor would help realise unrecognised value.
It says that Casa de Pedra alone would be able to produce more than 70m tonnes of ore a year after planned investments of $3bn.
That would make it a significant competitor to Vale, which is currently producing about 300m tonnes. Mr Steinbruch said he hoped the operation would be completed this year.
At a less advanced stage are plans by Usiminas, Brazil’s biggest maker of flat steel products, to spin off its mining and logistics assets. It bought four iron ore mines in February 2008 for $925m.
Usiminas’s logistics assets include a 20 per cent stake in MRS and a planned port due to enter operation in 2014. Usiminas aims to complete a spin-off this year and then look for a strategic investor to buy 20 per cent of the new company. Later, the company would be floated.
“They need a partner that knows the market well and can add value to their mining assets, as this isn’t their main area,” says Mr Montenegro.
He says there is no shortage of potential partners, including big miners such as BHP Billiton, Rio Tinto or Anglo-American, or big steel makers with mining assets such as Arcelor or one of the big Asian producers.
At the same time, other miners are appearing on the scene in Brazil. MMX, created in 2005 by Eike Batista, a billionaire entrepreneur, raised $509m when it floated in June 2006.
Last November, Wuhan Iron and Steel of China bought 21.5 per cent of the company for R$1.2bn ($682m), guaranteeing MMX at least one big customer.
Other recent arrivals include Ferrous Resources of the UK and German-backed Steel do Brasil, which last month bought mining assets in northern Brazil for $245m.
Avanti Mining Inc. announced that it had received an order under section (10) of the British Columbia Environmental Assessment Act ("BCEAA") in respect of its Kitsault mine project.
"This is significant step in Avanti's efforts to re-open the Kitsault molybdenum mine because it formally commences the environmental assessment. (EA) process under BCEEA" said Craig Nelsen, President & CEO.
The next step is to receive a section 11 order that specifies the "Application Information Requirements" (AIR) to be included in the EA application. The Company has been collecting baseline environmental data on the Project since 2008 as well as evaluating the existing database of environmental information that exists because of the previous operations dating back to the 1960's and an approved Reclamation Plan from 1996.
Avanti is focused on the development of the past producing Kitsault molybdenum mine located north of Prince Rupert in British Columbia.
Kitsault has Proven and Probable reserves of 215 million tonnes grading 0.085% Mo and containing 368 million pounds of recoverable molybdenum as outlined in the Technical Report dated December 15, 2009 which is available on the Company's website as well as at www.sedar.com.
Afghanistan has some ambitious plans to develop its undoubted mineral potential which could see a 200,000 t/y copper mine producing within about another three years and first iron ore from a massive deposit within five years. Whether these goals can be achieved remains to be seen but from the Afghan side there is tremendous enthusiasm to see mining development get started.
The recent article in The New York Times talking of mining potential based on $1 trillion in resources raised worldwide interest. The truth is that very little work has been done on Afghanistan's exploration potential since the Soviets left the country. They and their predecessors, like the British, did, however, leave enough good quality records (particularly those from the Soviet era) to indicate great mineral potential.
An interview with His Excellency Wahidullah Shahrani, the Minister of Mines, his Minerals Adviser Dr Atiq Sediqi and other members of the team, recently published in Mineweb, stated that a modern geological data centre is being established in Kabul.
This decade has seen a significant amount of work done on the old geological reports. Both the US Geological Survey (USGS) and the British geological Survey (BGS) have been doing resource estimate work and the USGS has flown some surveys.
While it's still early days, work so far has led to MMC (a joint venture of China Metallurgical Group and Jiangxi Copper) winning the tender for the Aynak copper project, south of Kabul, and that project progressing, and the imminent tendering of the Hajigak iron ore deposit - possible resources over 1,000 Mt at 63% Fe.
Afghanistan has great potential in resources that will not need a lot of infrastructure (like gold in the north of the country and lithium) but the first modern mines are likely to be Aynak and Hajigak, which will require considerable infrastructure.
MCC will provide a great deal of the rail infrastructure needed for both of those mines. It is building, at an estimated cost of $3 billion, a rail line from Aynak to Kabul and then east to the Pakistan border and another north towards Kunduz and the Tajikistan border. This branch going west and then north would require a spur of just 15-20 km (at a cost of perhaps $35-40 million) to connect to Hajigak. That rail system will not be tied solely to Aynak and will be available for use by other paying customers. MCC will also build a 400 MW power plant (requiring 1.2 Mt/y of Afghanistan's plentiful coal) and will supply 200 MW of this to Kabul.
Aynak is a 10 Mt copper resource. MCC is currently working on social, environmental and engineering studies. All of which should lead to the completion of the full feasibility study by January 2011. This looks like becoming a mine producing 200,000 t/y of copper for a 30 year life of mine.
The Minister demonstrated what can be done with the security situation in the country. He explained that the area of Aynak in Logar Province was "relatively insecure." Today, with the help of the locals, who wish to see development and employment, and a 1,500-strong Afghani protection unit, it is a safe area where there have been no incidents for two years.
Hajigak is situated in the Bamyan Province, 130 km west of Kabul, the Afghanistan capital. An Afghan-Soviet project, between 1963 and 1965, carried out an extensive study which mapped and described the deposit in some detail. That demonstrated the mineral potential of the region, and estimated the resource at 1,800 Mt, but that is at a confidence level below `Inferred' and will need a lot more than the four holes that have been drilled into it so far to prove it up.
North of the current Aynak copper project, closer to Kabul, there is more copper and another project will be tendered there. Other tenders to come in the mid-term are likely to include the Balkap copper prospect, Sheberghan oil and gas, Nuristan gemstones and lithium and Badakhshan gold.
Rio Tinto confirmed today that it has given notice to Ivanhoe Mines Ltd (Ivanhoe) that it is exercising all of its Series A warrants which will increase Rio Tinto’s ownership of Ivanhoe shares by 7.3 per cent to 29.6 per cent and provide sufficient funds to Ivanhoe to continue the development of the Oyu Tolgoi copper and gold complex in Mongolia as currently scheduled. The Series A warrants entitle Rio Tinto to acquire 46,026,522 shares at a subscription price of US$8.54 per share, for total consideration of approximately US$393 million.
“Exercising the warrants early ensures Ivanhoe has sufficient funds to meet the current Oyu Tolgoi development schedule. Our further investment in Ivanhoe Mines underlines our confidence in the quality of the world class Oyu Tolgoi deposit and its priority in our project portfolio.”
Andrew Harding, chief executive, Copper, Rio Tinto said “Exercising the warrants early ensures Ivanhoe has sufficient funds to meet the current Oyu Tolgoi development schedule. Our further investment in Ivanhoe Mines underlines our confidence in the quality of the world class Oyu Tolgoi deposit and its priority in our project portfolio.”
Rio Tinto and Ivanhoe are development partners for the Oyu Tolgoi project. Production is expected to commence in 2013, with a five year ramp up to full production. After the completion of the exercise of the Series A warrants, Rio Tinto will own 144.66 million shares of Ivanhoe. If Rio Tinto were to exercise all of its remaining share purchase warrants and convert its US$350 million loan into shares it would own approximately 267.8 million shares of Ivanhoe representing an interest in Ivanhoe of around 44 per cent.
Pursuant to certain existing contractual arrangements between Rio Tinto and Ivanhoe, Rio Tinto has the right at any time to exercise its remaining share purchase warrants and/or convert its convertible loan into shares of Ivanhoe. Rio Tinto also has, among other things, the right to acquire additional securities so as to maintain its proportional equity interest in Ivanhoe, and the right to acquire additional Ivanhoe securities in certain other circumstances and subject to certain limits.
Depending upon its assessment of Ivanhoe’s business, prospects and financial condition, the market for Ivanhoe’s securities, general economic and tax conditions, and other factors, Rio Tinto will consider availing itself of its rights to acquire additional securities of Ivanhoe.
BHP, Rio Tinto Agree to Pay Higher Royalties
BHP Billiton Ltd. and Rio Tinto Ltd. said Monday they have agreed to pay higher royalties on their giant iron-ore operations in Pilbara region of Western Australia.
While the agreement with the Western Australian state government isn't conditional on a planned iron-ore joint venture between the two miners proceeding, analysts said it seems designed to win support from the government for that deal.
The miners may also use the change to bolster their campaign against the federal government's planned 40% Resource Super Profits Tax, as they continue to argue they are already paying their fair share in taxes and royalties.
Under the agreement, royalty rates will rise to 5.625% of sales of iron-ore fines from 3.75%, while the rate for lumps will be set at 7.5%.
BHP said the deal features amendments to the state agreements that the miners operate under, which will allow them to share infrastructure and blend products. "The ability to blend iron ore from any of our mines, and the flexibility in the use of all rail and port infrastructure, will be major enablers for our operations," said Marcus Randolph, BHP Chief Executive, Ferrous and Coal.
"This will improve our operating efficiency and we are pleased to be able to share the gains from this enhancement with the people of Western Australia."
The two mining giants were granted concessions on royalty rates under decades-old state agreements designed to encourage them to invest in the infrastructure needed to develop the state's vast iron ore resources.
Western Australian Premier Colin Barnett has argued that if the pair are to be allowed to extract up to US$10 billion in synergies from bringing together their operations in the joint venture, they should be forced to give up the concessions and pay higher royalties.
Mr. Barnett welcomed the agreement, which he said would add 340 million Australian dollars (US$295.7 million) to consolidated revenue in fiscal 2011 and would be accompanied by a one-off payment of A$350 million from the two miners for a new children's hospital.
Rio Tinto Iron Ore Chief Executive Sam Walsh said amendments would deliver "profound benefits" to the company's iron-ore business and assist it when it is able to launch the next phase of expansion in the Pilbara.
The amendments to the state agreements on infrastructure and blending would have been required for the miners to successfully proceed with their planned joint venture, which remains subject to approval by competition regulators and shareholders.
Australia's Miitel nickel mine could be bigger than previously estimated, owner Mincor Resources Ltd said recently, citing new exploration data which has revealed a possible second nickel deposit.
The west Australian mine site is now being reactivated after it was mothballed in December 2008 due to depressed metals prices. It is set to return to previous annual production rates of 4,500 to 5,000 tonnes of nickel in concentrate to meet renewed demand from stainless steel makers.
Production could restart as early as this month, Mincor said.
Concentrate from Mincor's mine is delivered to BHP, which processes the ore at its Kalgoorlie smelter for a fee under a contract running until 2019.
South Africa unveiled the country's new mining plans recently, and stuck with the previous mining charter's target of transferring 26 percent of mine ownership to black people by 2014.
The revised plans will seek to speed up black ownership, skills development, employment equity, procurement, housing and living conditions, and mining beneficiation.
The government said in April it would endorse a new mining charter -- which oversees the mining industry -- in May.
Mineral Resources Minister Susan Shabangu, who unveiled the new plans, gave no reason why the charter had not been adopted and why only a strategy had been agreed with mining groups.
Shabangu said plans to raise black mine ownership had been implemented slowly both by foreign mine owners and also black people who were forming companies merely to profit from the programme instead of seriously mining for metals.
"The 15 percent target for 2009 was missed and there is now an opportunity for the industry to make up for that," she said, adding "The 26 percent target is confirmed for 2014."
Shabangu and South African mining executives signed a document -- the mining industry strategy for sustainable growth and meaningful transformation -- which sets out a strategy to raise competitiveness and enhance transformation or ownership of mines by black people.
Cluff Gold Plc shares rose after a new study showed that its Baomahun mine project in Sierra Leone is worth $172 million and will become its flagship mine.
"The results of the preliminary assessment are very encouraging and indicate that Baomahun will become Cluff Gold's flagship asset," said Douglas Chikohora, technical director of Cluff Gold.
The mine would produce 157,000 ounces of gold per year on average at a cash cost of $500 per ounce over an eight-year mine life, the study found.
Cluff said on June 4 that it had found 27 percent more gold at Baomahum.
The firm -- which also had operations in Ivory Coast, Burkina Faso, and Mali -- aims to produce 100,000 ounces of gold this year.
Lucara Diamond Corp. and partner African Diamonds Plc have received an updated Feasibility Study on the Boteti Mining (Pty) Ltd AK6 project in Botswana. Lucara, the project operator, holds a 60% interest in Boteti and AFD 40%.
The study details a cost effective technical solution with a process plant initially designed at a throughput rate of 2.5 million tonnes per annum increasing to 4.0mtpa after 4 year. This phased production approach, combined with contract mining reduces up-front capital required to bring this project on steam.
From an Indicated Resource of 51 million tonnes containing 8.2 million carats of diamond, the mine design delineates Probable Reserve of 36.2 million tonnes of ore, containing 6.3 million carats of diamond in an open pit to a depth of 324 metres. The reserves are mined over an 11 year mine life.
The study indicates that the first phase will require a capital investment, including contingency, of US$120 million, which includes the process plant and all mine site and off-site infrastructure. Operating costs over the life of mine are estimated to be US$17.20 per tonne treated. The financial model, on an all equity basis using June 2010 costs, generates a free cash flow NPV (at 8%) of US$164 million and an IRR of 29%. Diamond revenue data used was from the recent March valuation. The execution schedule indicates that with work commencing in July 2010, diamond production is expected to ramp up to full design capacity during 2012.
Lucara are also announced that project engineering has been awarded to DRA Africa (Pty) Ltd and work will commence immediately.
Lucara is an African focused diamond production company with currently two mines under development: the newly commissioned Mothae mine in Lesotho and the AK6 project in Botswana. Both projects are known for their large, high-quality, high-value diamonds including Type IIA stones produced from the Mothae mine.
Canadian miner Iamgold Corp said that it had started up its Essakane gold mine in west Africa six weeks ahead of production schedule and six months ahead of the original year-end 2010 target.
The mine, located in Burkina Faso, is expected to produce more than 500,000 ounces of gold from start-up until the end of 2011.
Iamgold owns 90 percent of Essakane, with the government of Burkina Faso holding the remaining 10 percent stake.
McIlvaine Company
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Tel: 847-784-0012; Fax: 847-784-0061
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