London Mining
London Mining is incorporated and registered in the UK and is developing mines to supply the global steel industry. The Company has iron ore mining, exploration and development projects located in Saudi Arabia, Greenland, Sierra Leone, Mexico and coal projects in South Africa and Colombia. London Mining has off-take agreements in place with Chinese steel producers. The company is listed on the Oslo Stock Exchange.
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London Mining heads for London town
Incorporated in the UK and run from London, London Mining has taken the decision to augment its Oslo Axess listing by applying for admission to AIM. The Oslo market has served them well since their listing in 2007, and has provided the funding necessary to build the company's current iron ore and coal portfolio and large cash reserves.
But, say London, the time has come to gain exposure to experienced global mining analysts and a mining-educated global investment community. Although no fresh capital is likely to be raised, they plan to diversify their investor base and increase liquidity. "The admission," wrote Chairman Colin Knight in the company's half-yearly report, "scheduled for later this year, will be the start of a process for the Company to establish itself in London as it enters a period of significant growth".
Hmmm. A period of significant growth. One wonders, therefore, how they would describe the last two and a half years?
On first gaining an over-the-counter listing in Oslo on 1 May 2007, London Mining had already raised US$138 million and owned iron ore assets in Brazil, Sierra Leone and Greenland.. A listing on the Oslo Axess market came in October, and just months later, the company entered a 50-50 JV agreement with Saudi-based National Mining, to develop the Wadi Sawawin iron ore project, located 60km from the Red Sea in western Saudi Arabia. A further $60 million of cash was raised and by the close of 2007, Colin Knight was able to announce that the company's market capitalisation had soared from £1.3 million pre-listing to more than £275 million during the year.
And that was just 2007!
By the end of 2008, following several expressions of interest in Minas Itatiaiucu, and a ten-fold expansion of production capacity, a strategic review had been launched, which culminated in the sale of the entire Brazil operation to ArcelorMittal for US$810 million. A Memorandum of Understanding was signed between Saudi London Iron - the Wadi Sawawin JV vehicle - and SAPIS (Saudi Advanced Production for Iron & Steel Ltd) under which SAPIS will take the entire output from SLI's pelletising plant to feed direct reduction plants to be built in Saudi Arabia.
The company also made a strategic move into the natural partner for iron ore, coal, and made their first acquisition in South Africa in August. The subscription for an initial 28% of DMC Energy (Pty) Ltd brought them a proportional share of DMC Energy's 70% interests in almost a billion tonnes of steam coal, metallurgical coal and anthracite. China was next to join the portfolio, when London Mining agreed on an iron ore JV with Wits Basin Precious Minerals for the acquisition of two iron ore properties. The globetrotting continued as London Mining then took up a 20% slice of International Coal Company Ltd, (ICC) owner of coal exploration and development interests and coke manufacturing facilities in Colombia. The year ended with the return to shareholders of almost £220 million from the proceeds of the Brazilian disposal.
So what of 2009?
Progress has continued unabated. Formally reorganised into two divisions, housing the iron ore and coal interests, London Mining now has a portfolio which spans the world. But it's a carefully constructed suite of projects, acquired for their capacity to be brought quickly and relatively inexpensively to production, their ability to add value - and, very importantly, logistical proximity to potential and existing customers. London's HQ is, appropriately enough, in London, where administrative, corporate and financing activity is focused, but experienced partners or on-site management teams with the appropriate skills operate at project level. 2009 has seen the strengthening of this management team with several experienced specialists.
On the iron ore front, the first major move of 2009 came in February, when London Mining delivered the feasibility study for Phase I of the Saudi Arabian Wadi Sawawin project. Existing resources of 230 million tonnes at a grade of 41% Fe will support a 14 year mine life, although further drilling is about to begin to expand the resource base. An initial output - from 2013 - of 11.6 million tonnes per annum (mtpa) will feed a 5mtpa DR pelletising operation. A bankable feasibility study is to be delivered by the end of the year. The Preliminary feasibility study identified an NPV in excess of $1bn.
The first phase includes the development of the open pit mine and a 50 km conveyor to beneficiation and pelletising facilities on the Red Sea. Ultimately intended to produce up to 20mtpa of DR pellets by taking feed from London Mining's Isua project in Greenland as well as from Wadi Sawawin, the SLI operation intends to capitalise on the envisaged undersupply of pellets for the production of direct reduced iron within the Middle East and North African markets. Direct reduction is a means of producing "sponge" iron using natural gas instead of the traditional blast furnace/coke route, and is increasingly used in developing countries which have good supplies of natural gas. In conjunction with partners and under the guidance of Standard Chartered, funding is now being sought to take Wadi Sawawin and Isua - where resource drilling is also under way - through to production, and build port and pelletising facilities. Meanwhile, a PFS for Isua is expected in early 2010, along with updated JORC compliant resources.
In March, the China venture with Wits Precious Metals was finalised, and the resulting JV company China Global Mining Resources (CGMR) acquired a producing iron ore mine and concentrator plant with a 400,000 tpa capacity by purchasing XNS and Sudan. The cost to London Mining of $44.5 million - paid from treasury - will be recovered from CGMR's earnings via a priority dividend. The company will also receive a management fee of $5.5 million for the first year and $4.5 million thereafter, reflecting an extensive on-going programme to define further resources, improve productivity and reduce costs. Output since acquisition has been maintained at an annualised 300,000 tonnes of 62% Fe concentrate, at operating costs of less than $40 per tonne, although costs are expected to increase during the second half of the year as the improvement programme cuts in. Located within 100km of several major buyers, with whom London are busy cementing relations, the operation is cash flow positive: CGMR's revenue for the first quarter of ownership was almost $6 million - giving a gross profit attributable to London Mining of over $1 million - and this is expected to increase during the second half in line with rising prices and production improvements.
Future earnings will also increase through expansion: CGMR has an option to acquire a third nearby property known as Matang, and has entered an MoU with the neighbouring mine owner for the acquisition of assets, including a 300,000 tpa processing plant near to the XNS pit. The intention, provided for by an expanded licence issued by the local Land and Resources Bureau, is to consolidate CGMR's properties with those of other nearby producers into a 2 mtpa operation with a 10-15 year mine life. Additional profit increase may be seen by the recovering iron ore local spot prices since July 09 and by concentrate grade improvement.
In Sierra Leone, disputes with neighbouring miners and the Government have at last been resolved, and London Mining's licence area is to be expanded to the east, allowing access to further iron ore tailings. Focused on the Marampa mine, which operated successfully for forty years until 1975, the company's intention is to set up a tailings reclamation operation generating approximately 1.5 mtpa, which will double in time as the primary hard rock resource is developed. Resource definition is currently in progress, and JORC compliant resources are expected towards the end of the year for the tailings and in early 2010 for the primary orebody. The primary ore body is thought to be larger than historically identified and as such may provide for more than a doubling of phase one production.
Developments in the coal division are progressing, with DMC expected shortly to deliver the feasibility study for the open pit Rietkuil project, where 200 million tonnes of measured and indicated coal resources have been defined. DMC project resources now total over 1.5 billion tonnes at Rietkuil, Springbok Flats and Limpopo. However, due to environmental considerations, it is now unlikely that Pixley Ka Seme will be developed, and London Mining have prudently written down the value of their DMC investment by $6 million to reflect this. In Colombia, the company are in discussions which may lead to 100% ownership of ICC's met coal and coke manufacturing assets and lead to a variety of value-creating opportunities.
Financially, the company is sound. $245 million in the bank. Cash flow from China. Three new iron ore projects entering production between now and 2014. Future production rising to 20 mtpa by 2016. Funding in hand or indentified for all projects. More than 1.2 billion tonnes of attributable iron ore resources, and an interest in 1.5 billion tonnes of coal. No debt.
For that, investors are currently paying the equivalent of £1.97 per share in Oslo, up 104% in the last six months, giving a market cap of approximately £215 million. 36% of the company's shares are in the hands of founders, management and the Employee Trust, with a further 47% held by Caspian Investments, Passport Capital and the Government of Singapore.
Plenty of cash, very tightly held and growing fast....
London Mining's admission to AIM - which may be merely a precursor to a main market listing - should be interesting!
Other London Mining news
- London Mining enters iron ore JV in Chile
2010-07-30 - Colombian Potential for Coking Coal Producers
2010-05-04 - London Mining's Chinese joint venture posts $6 million net earnings
2010-03-22 - London Mining AIM listing scheduled for November 2009
2009-10-16 - London Mining appoints adviser and joint stock broker to proceed with AIM listing, targets 20Mtpa production by 2018
2009-10-12
