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African Iron Ore Producer Facing ‘End of the Road’

African Minerals Ltd. (AMI), the Sierra Leone iron-ore producer once worth more than 2 billion pounds ($3 billion), has run out of cash amid an industry shake-out, prompting analysts to conclude the company may not survive.
The stock, down 95 percent this year, is suspended for a second day in London as African Minerals talks with its Chinese partner, Shandong Iron & Steel Group, about selling a stake in its Tonkolili operation to raise funds. A plan announced last week to raise debt failed and alternative sources of funding are “unlikely to materialize” in the near future, London-based African Minerals said in a statement yesterday.
“Another one bites the dust,” Numis Securities Ltd. said today in a note to clients. “Surely the end of the road a la London Mining?”
Fellow Sierra Leone producer London Mining Plc went into administration last month after iron-ore prices slumped by almost half this year. The biggest miners led by Rio Tinto Group (RIO) and BHP Billiton have pushed ahead with expansion plans, increasing a global glut of the world’s most traded commodity after oil. African Minerals, owner of 75 percent of Tonkolili, wants Shandong Iron, which holds the remainder, to release $102 million of cash to the operation.
“This reads a lot like death throe convulsions for African Minerals,” Investec Plc wrote today in a note. “While Shandong appears to be holding African Minerals to ransom, perhaps in order to secure a larger stake of the asset for little cost, it needs to be careful what it wishes for.”
Benefiting Someone
African Minerals Chairman Frank Timis, who owns 12.7 percent of the company, earlier this month struck a deal with the administrators of London Mining to purchase its Marampa iron-ore mine. His private company, Timis Corp., wants access to African Minerals’ port and rail operations on “fair” commercial terms.
African Minerals has a market value of 33 million pounds and closed at 10 pence a share yesterday.
“Frank Timis still holds the keys to Marampa, which he bought for a song from London Mining’s administrators,” Numis wrote. “It’s unclear how realistic or affordable it is for Timis Corp. to take on Tonkolili ‘at fair market value’ as well. Either way, African Minerals falling apart will benefit someone, somewhere, at some point.”
A spokesman for Timis declined to comment.
Source: Bloomberg