RoC, Exxaro to return Mayoko to drawing board

[miningmx.com] – EXXARO Resources said it and the Republic of Congo (RoC) would return the Mayoko iron ore project to the drawing board which may include new proposals and fresh concessions in respect of infrastructure development in the country.

Wim de Klerk, CFO of Exxaro, said at a media roundtable following the group’s full-year results presentation that he was unsure whether the project could be developed “to its original size” and that discussions with the government were required.

“We will have to sit down with the government of the Republic of Congo and work on the project again,” said De Klerk. “We know the RoC government is being realistic on the project as well,” he said.

“I don’t think the RoC can develop the project in the short-term. They need to work out how to fund the port and the line. We have to be realistic about where we are in the cycle,” he said.

De Klerk’s comments come just as iron ore prices slumped to a new six-year low of below $60 per tonne.

The Financial Times, citing the Steel Index, a price reporting agency, said benchmark Australian ore for immediate shipment to China fell $2.8, or 4.5%, to $59.3/t. The Mayoko project was benchmarked on a minimum price of $80/t, said De Klerk.

De Klerk also confirmed the group had in the last seven days received a preliminary study into a technical review of the project which was completed by Hatch, a metals industry consultancy.

“We want to discuss the report with the board first. But as we’ve said in the past, there seems to be nothing that suggests the project has a fatal flaw,” he said.

Exxaro wrote-down assets totalling R5.96bn in its 2014 financial year of which R5.76bn related to the Mayoko project.

Exxaro bought Mayoko after successfully bidding R2.8bn for Australian-listed African Iron in January 2012. Exxaro then spent a further R3bn on the project which it believed could produce 12 million tonnes a year (mtpa) of iron ore.

However, delays in signing a mining convention, as well as uncertainty over port and rail tariff agreements, frustrated the project’s progress. Analysts said the quality of the ore at Mayoko was also over-estimated affecting the project’s dynamics.

Exxaro said in comments to its results announcement that the second amendment to the Mayoko mining exploitation convention is under way and will be submitted to the RoC government in the second quarter of 2015.

De Klerk also said Exxaro had no interest in joining forces with Equatorial Resources, an Australian-listed exploration business that owns an iron ore property adjacent to Mayoko, saying that more resources was the last thing Exxaro wanted.

“This is not about having resources. The issues at Mayoko are about infrastructure and the cost of building the rail and the port,” he said. “Every new iron ore project in West Africa has been closed down. I think we were just one of the first to write ours down.”