[miningmx.com] – EQUATORIAL Resources is expected to pare back the $231m it said in July it may spend building its two million tonnes/year (mtpa) Mayoko-Moussandji iron ore project.
John Welborn, MD and CEO of the Australian-listed development firm, said he planned to lease processing equipment and rolling stock instead of buying it at a combined cost of $123m as per the firm’s feasibility study in 2013.
“All that equipment is modular and is capable of being secured under a leasing contract which would significantly reduce the cost,” Welborn said in an interview. “We have also upgraded the resource which has formed the basis of a revised mining plan.”
This would result in a lower stripping ratio reducing the operating cost of the mine and providing the company with “flexible opportunities,” Welborn said. An updated feasibility study, as well as financing arrangements, would be concluded this year.
The third part of Equatorial Resources development plan was securing a mining licence and convention from the Republic of Congo (RoC) where the mine was being built. Equatorial Resources announced today it had received a mining licence. Negotiations on a mining convention were expected to follow.
“The approval of the mining licence is a major milestone, and provides Equatorial with an exclusive 25-year right to develop and mine the project,” the company said in an announcement. Shares in Equatorial Resources were unmoved at about 53 Australian cents/share after trading at about A$1/share a year ago.
“Equatorial … is currently valued at a market cap of $65m and an EV (enterprise value) of just $20m!,” said Investec Securities in a note. Equatorial holds about $45m in cash.
Analysts said the iron ore price was expected to fall under pressure in the second half of 2014 owing to increased supplies and a decline in demand from China.
Infrastructure related projects are also known to run over budget and time, although Welborn said Equatorial Resources was assisted by the fact infrastructure was already available in the RoC.
There is a 5mpta capacity rail route between Equatorial Resources’ Mayoko-Moussandji project and the Mayoko-Lekoumou venture of Exxaro Resources. In February, however, Exxaro said it had halted further investment in its project until it received certainty on rail and project upgrades to Pointe Noire, RoC’s nearest port some 465km away.
Exxaro said it was expecting to finalise the paperwork on a mining convention with the RoC in the current interim period and would take a view on the feasibility of the project thereafter. “From now onwards, we are going to be able to work on numbers,’ said Sipho Nkosi, CEO of Exxaro.
“Please wait and be patient. We are trying to ensure that we don’t waste your money by deploying capial where it is not necessary,’ he said.
Welborn said he expected Exxaro to finalise an agreement in about six months. “If it was to take two years, I’d be worried,” he said. “I am cheering them [Exxaro] on from the sidelines.”
