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West Africa:  The New Iron-ore Frontier
 

West Africa: The New Iron-ore Frontier

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West Africa is increasingly developing into a strategic player in the global iron-ore markets. The region is emerging as a significant alternative iron-ore source to Brazil and Australia’s Pilbara ...

West Africa is increasingly developing into a strategic player in the global iron-ore markets. The region is emerging as a significant alternative iron-ore source to Brazil and Australia’s Pilbara region. West Africa is endowed with significant deposits of high-quality iron-ore which are suitable for export to steel markets, writes Mining Research Analyst Christy Tawii at global consulting and research firm, Frost & Sullivan.

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    West Africa:  The New Iron-ore Frontier West Africa: The New Iron-ore Frontier Document Transcript

    • West Africa: The New Iron-ore FrontierBy Frost & Sullivan’s Mining Research Analyst, Christy TawiiWest Africa is increasingly developing into a strategic player in the global iron-ore markets. Theregion is emerging as a significant alternative iron-ore source to Brazil and Australia’s Pilbararegion. West Africa is endowed with significant deposits of high-quality iron-ore which aresuitable for export to steel markets, writes Mining Research Analyst Christy Tawii at globalconsulting and research firm, Frost & Sullivan.The Mount Nimba iron ore deposits that stretch from the Ivory Coast into Liberia hostapproximately 6 billion tonnes of high grade iron-ore. Iron-ore production is expected to increasein the near term with new mines coming on-stream from the large scale iron ore developmentprojects in West Africa. Approximately 20 mining companies, including the Big Three; namelyVale, Rio Tinto plc and BHP Billiton, amongst others, have embarked on iron-ore projects in theregion. With these current exploration initiatives, proven reserves in the region are estimated toreach 400 million tonnes by 2020.Demand from steel end-user sectors, such as infrastructure, construction and automotive, inChina’s iron and steel market is expected to drive growth in West Africa’s iron-ore industry. Inaddition, China’s planned infrastructure spending is projected to reach $1 trillion in 2012 and$1.8 trillion by 2017; which will require new sources of iron-ore supply to meet the demand.China has already committed significant investments into the West African mining industrythrough financing mining and infrastructure projects, as well as off-take agreements to assistiron-ore entities in the region to translate projects into operation.Global steelmakers are shifting from reliance on iron-ore from the Big Three who control 71.1%% of global seaborne iron-ore market, to owning iron-ore assets. Steel producers, such asTata Steel, ArcelorMittal and Severstal are benefitting from the rise in regional growth in iron-oremining by investing in developing large scale iron projects. ArcelorMittal owns two tenements inSenegal and Sierra Leone that are collectively worth approximately U$3 billion. Africa isforecasted to supply approximately 10 %% of the world’s iron-ore needs by 2025. In 2011,African countries produced approximately 3.4 %% of global iron-ore production output. China’sIron and Steel Association (CISA) projects that China’s steel demands will increase toapproximately 800 million tonnes by 2015. The steel market increasing iron-ore consumptionprovides excellent opportunities to develop West Africa iron-ore assets, with approximately twothirds of African iron-ore expected to be exported to China.Moreover, three new mines have been commissioned into production in the region in the lastyear, with a combined production output of 1.5 million tonnes. Spurred by abundant high-gradeiron-ore resources, a total of 15 green-fields and brown-field expansion projects are planned forregion’s iron-ore mining industry, at a capital expenditure value of U$36.93 billion between 2012and 2017. Capital investment in the region’s iron-ore mining sector has increased significantly,with the majority of iron ore projects located in Guinea.Developments of iron-ore assets within the region include the development of Rio Tinto’sSimandou, Vale’s Zogota, Bellzone Mining’s Kalia, London Mining’s Marampa, Sable MiningAfrica Limited’s Mount Nimba project, Cape Lambert ‘s Sandeina and West African Iron-oreCorporations Forécariah, Wondima and Kérouané exploration projects.
    • In Sierra Leone, Iron-ore exports from the London Mining Plc’s Marampa mine commenced inJanuary 2012, producing 57,000 tonnes of iron-ore notes Frost & Sullivan. The company iscurrently developing Phase II of the Marampa mine. Production in Sierra Leone’s iron-oremining sector is projected to increase to 30 million in the 2017, when the Marampa and AfricanMinerals Limited’s Tonkolili iron-ore projects become fully operational. Going forward, the valueof mining export and tax revenues in Sierra Leone is expected to increase, accelerating GDPgrowth to 6 %, from the current 4.5 %.Africa’s largest oil economy, Nigeria, is also investing in iron-ore mining. The country’s miningsector has the capacity to rival the oil sector and diversify its natural resources industry byexploiting the huge unexploited mineral reserves. With the iron-ore boom in the West Africaregion, Nigeria is well placed to contribute to the growth of the region’s mining industry.International companies from Indonesia, United Kingdom, Australia and South Africa, such asBakrie Group, Savannah Mining, and VML Resources have collectively invested approximately$2 billion towards the development of Nigeria mining sector. Australian Energio Limited iscurrently developing the Agbaja Plateau 2 billion tonnes resource asset.The iron-ore mining boom in West Africa is also proving to be beneficial to junior miners. Juniorminers have formed strategic alliances with financiers, steel mills, international engineering,procurement, and construction companies to develop infrastructure. However, the region is yetto establish efficient ports and rail infrastructure. West Africa does not have the port capacity tosustain the level of iron-ore imports required to meet the international demand. Road and railInfrastructure deficits continue to be cumbersome for the efficient transportation of iron-ore toports of exit for international markets.Nevertheless, iron-ore development projects in West Africa are boosting investment ininfrastructure. An estimated 5,000 kilometres of rail and 11 new ports are expected to bedeveloped. Rio Tinto Plc and ArcelorMittal have committed U$25 billion towards rails and portdevelopment. Third party agreements to access new and refurbished infrastructure facilities arebeing established between mining companies and governments to share infrastructure.Cape Lambert Resource Limited has secured 2 million tonnes capacity access for its Marampaproject, in Sierra Leone, to African Minerals Limited’s Marampa railway and Pepel port. Theconstruction and refurbishment of roads, ports and railway lines is expected to contribute to asubstantial increase in foreign direct investments in West Africa’s mining industry. Soundlogistical infrastructure, and an export market for iron-ore, will assist in driving multinationaltrade within West Africa. However, the length of these infrastructure projects remain a challengeas infrastructure developments can take years to bring online, which is expected to furtherconstrain already undeveloped port and rail capacities in West Africa.Certain factors such as corruption, political instability, energy capacity constraints, increasingfiscal demands, shortages of mining equipment and consumables, represent significantchallenges to the development of long term investment in the region.Only 10 % of the West Africa’s population has access to electricity. The region will require atotal of 25,000 MW additional electricity generation capacity by 2020, in order to meet thegrowing demand for power that is growing at over 10 % per annum. The industrial demand forelectricity from the emerging mining industry is largely unmet by current supplies. Therefore,demand for power is expected to continue in the long term due to the booming mining industry.
    • The surge of increasing taxes recorded in Southern Africa has also been documented acrossthe West African region, as governments aim to gain a greater share of revenues from themining sector. These evolving fiscal policies are likely to affect the certainty and predictability ofinvestment in the region’s mining sector. However, the Economic Community of West AfricanStates (ECOWAS) is expected to implement a unified mining code to promote a harmonisedmineral resources sector in the region.Overall, the iron-ore mining rush in the region offers an abundance of opportunities. Increasedinvestment within the sector will be accompanied by an increase in demand for exploration,extraction, mineral processing and financial services. A significant restraint to the developmentof iron-ore projects and infrastructure is the lack of skills in the engineering and constructionsectors, present in most West African countries. This represents a significant opportunity forinternational engineering and construction firms interested in penetrating the West Africanmarket.The World Bank recently released a report criticising mining companies in West Africa for notsupporting local procurement. However, the shortages of mining equipment and consumableshave been cited as major constraints. Mining equipment and consumables are procured fromSouth Africa and Australia. Investment opportunities also exist for mining equipment suppliersoperating in the matured Southern African iron-ore mining sector.Furthermore, the iron-ore mining industry is primarily export driven, making it a lucrative marketfor logistics and shipping companies. An expected increase in exports, due to a growing globaldemand for steel products within the Asia-Pacific regions, is predicted to have an associatedpositive impact on iron-ore sector in the West African region.With the increasing global demand for steel products, and increasing infrastructure developmentprojects, it is expected that iron-ore exploration initiatives in the region will intensify in the near-to-long term. An increased focus is also expected to be placed on West Africa in order tosustain the growing demand in steel markets, concludes Frost & Sullivan.Contact:Samantha JamesCorporate Communications – AfricaP: +27 21 680 3574F: +27 21 680 3296E: samantha.james@frost.comhttp://www.frost.com