West Africa: The New Iron-ore Frontier

By Frost & Sullivan’s Mining Research Analyst, Christy Tawii

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.

The Mount Nimba iron ore deposits that stretch from the Ivory Coast into Liberia host approximately 6 billion tonnes of high grade iron-ore. Iron-ore production is expected to increase in the near term with new mines coming on-stream from the large scale iron ore development projects in West Africa. Approximately 20 mining companies, including the Big Three; namely Vale, Rio Tinto plc and BHP Billiton, amongst others, have embarked on iron-ore projects in the region. With these current exploration initiatives, proven reserves in the region are estimated to reach 400 million tonnes by 2020.

Demand from steel end-user sectors, such as infrastructure, construction and automotive, in China’s iron and steel market is expected to drive growth in West Africa’s iron-ore industry. In addition, 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 industry through financing mining and infrastructure projects, as well as off-take agreements to assist iron-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 as Tata Steel, ArcelorMittal and Severstal are benefitting from the rise in regional growth in iron-ore mining by investing in developing large scale iron projects. ArcelorMittal owns two tenements in Senegal and Sierra Leone that are collectively worth approximately U$3 billion. Africa is forecasted 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’s Iron and Steel Association (CISA) projects that China’s steel demands will increase to approximately 800 million tonnes by 2015. The steel market increasing iron-ore consumption provides excellent opportunities to develop West Africa iron-ore assets, with approximately two thirds of African iron-ore expected to be exported to China.

Moreover, three new mines have been commissioned into production in the region in the last year, with a combined production output of 1.5 million tonnes. Spurred by abundant high-grade iron-ore resources, a total of 15 green-fields and brown-field expansion projects are planned for region’s iron-ore mining industry, at a capital expenditure value of U$36.93 billion between 2012 and 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’s Simandou, Vale’s Zogota, Bellzone Mining’s Kalia, London Mining’s Marampa, Sable Mining Africa Limited’s Mount Nimba project, Cape Lambert ‘s Sandeina and West African Iron-ore Corporations' Forécariah, Wondima and Kérouané exploration projects.

In Sierra Leone, Iron-ore exports from the London Mining Plc’s Marampa mine commenced in January 2012, producing 57,000 tonnes of iron-ore notes Frost & Sullivan. The company is currently developing Phase II of the Marampa mine. Production in Sierra Leone’s iron-ore mining sector is projected to increase to 30 million in the 2017, when the Marampa and African Minerals Limited’s Tonkolili iron-ore projects become fully operational. Going forward, the value of mining export and tax revenues in Sierra Leone is expected to increase, accelerating GDP growth to 6 %, from the current 4.5 %.

Africa’s largest oil economy, Nigeria, is also investing in iron-ore mining. The country’s mining sector has the capacity to rival the oil sector and diversify its natural resources industry by exploiting the huge unexploited mineral reserves. With the iron-ore boom in the West Africa region, 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 as Bakrie Group, Savannah Mining, and VML Resources have collectively invested approximately $2 billion towards the development of Nigeria mining sector. Australian Energio Limited is currently 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. Junior miners have formed strategic alliances with financiers, steel mills, international engineering, procurement, and construction companies to develop infrastructure. However, the region is yet to establish efficient ports and rail infrastructure. West Africa does not have the port capacity to sustain the level of iron-ore imports required to meet the international demand. Road and rail Infrastructure deficits continue to be cumbersome for the efficient transportation of iron-ore to ports of exit for international markets.

Nevertheless, iron-ore development projects in West Africa are boosting investment in infrastructure. An estimated 5,000 kilometres of rail and 11 new ports are expected to be developed. Rio Tinto Plc and ArcelorMittal have committed U$25 billion towards rails and port development. Third party agreements to access new and refurbished infrastructure facilities are being established between mining companies and governments to share infrastructure. Cape Lambert Resource Limited has secured 2 million tonnes capacity access for its Marampa project, in Sierra Leone, to African Minerals Limited’s Marampa railway and Pepel port. The construction and refurbishment of roads, ports and railway lines is expected to contribute to a substantial increase in foreign direct investments in West Africa’s mining industry. Sound logistical infrastructure, and an export market for iron-ore, will assist in driving multinational trade within West Africa. However, the length of these infrastructure projects remain a challenge as infrastructure developments can take years to bring online, which is expected to further constrain already undeveloped port and rail capacities in West Africa.

Certain factors such as corruption, political instability, energy capacity constraints, increasing fiscal demands, shortages of mining equipment and consumables, represent significant challenges 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 a total of 25,000 MW additional electricity generation capacity by 2020, in order to meet the growing demand for power that is growing at over 10 % per annum. The industrial demand for electricity 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 across the West African region, as governments aim to gain a greater share of revenues from the mining sector. These evolving fiscal policies are likely to affect the certainty and predictability of investment in the region’s mining sector. However, the Economic Community of West African States (ECOWAS) is expected to implement a unified mining code to promote a harmonised mineral resources sector in the region.

Overall, the iron-ore mining rush in the region offers an abundance of opportunities. Increased investment within the sector will be accompanied by an increase in demand for exploration, extraction, mineral processing and financial services. A significant restraint to the development of iron-ore projects and infrastructure is the lack of skills in the engineering and construction sectors, present in most West African countries. This represents a significant opportunity for international engineering and construction firms interested in penetrating the West African market.

The World Bank recently released a report criticising mining companies in West Africa for not supporting local procurement. However, the shortages of mining equipment and consumables have been cited as major constraints. Mining equipment and consumables are procured from South Africa and Australia. Investment opportunities also exist for mining equipment suppliers operating in the matured Southern African iron-ore mining sector.

Furthermore, the iron-ore mining industry is primarily export driven, making it a lucrative market for logistics and shipping companies. An expected increase in exports, due to a growing global demand for steel products within the Asia-Pacific regions, is predicted to have an associated positive impact on iron-ore sector in the West African region.

With the increasing global demand for steel products, and increasing infrastructure development projects, 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 to sustain 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.com

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