Equatorial Resources

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Africa continues to transform into iron ore’s next major frontier with plans in place for the development of several new multibillion tonne projects. And as the reality of African iron ore production unfolds, which mining companies will traverse the many issues surrounding infrastructure, generate lasting value, and satisfy environmental and social concerns en-route?

Which assets have the capacity to provide near-term production backed by iron mineralisation of a scale and quality that warrants world-class mines, coupled with management who possess the drive and motivation to meet the many challenges of building an operating iron ore mine and pioneering the world’s next iron ore province?

With two 100 per cent-owned large scale iron projects in the Republic of Congo (ROC), Equatorial Resources (ASX: EQX) (“Equatorial”) has already attracted investment from the lion’s share of London’s blue chip natural resources institutions.

Equatorial’s Mayoko-Moussondji Iron Project (“Mayoko”) has access to existing bulk commodity infrastructure and an exploration target of almost four billion tonnes of iron mineralisation, and  the company’s confirmed geological model supports the potential to fast-track high grade hematite production to generate early cashflow.

“I see the West of Africa as the world’s third great frontier for iron ore. The value that has been created out of the Pilbara and South America is going to be matched in the next 20 years by an incredible ramp up in iron ore production along the west coast of Africa,” John Welborn, managing director and chief executive says.

“The challenge is the development of infrastructure, and at Mayoko we have the opportunity to rapidly advance to production given the existence of operational rail and port facilities which service the project.”

Equatorial is also developing it’s 100 per cent-owned Badondo Iron Project in the ROC’s northwest—similar in geophysical scale to neighbour Sundance’s Mbalam project, with haematite samples collected from surface bearing grades as high as 68 per cent iron. The project’s exploration target weighs in at between 1.3-2.2 billion tonnes (at 30 per cent to 65 per cent iron) and combined with Mayoko, Equatorial could be sitting on up to six billion tonnes of iron across its wholly owned ground; potentially the largest iron footprint in the region.

“Badondo is an extremely exciting project,” Welborn says.

“Our team of very experienced geologists continue to maintain that the ground is the best they’ve seen and we are looking forward to the current drilling program confirming the extremely high grade potential of this asset.”

Mayoko’s maiden JORC resource is on course for release during the second half of 2012, and the company will continue to fast-track its feasibility work to capitalise on the benefit of having existing rail and port infrastructure. Welborn says that Equatorial is going to be “a big contributor” in the opening up of Africa as the world’s next iron ore province, and given the explorer-developer’s unique potential to generate early cashflow and subsequent scalable production, it seems a fitting observation to make.

Early DSO & infrastructure at Mayoko

Having secured its wholly-owned 1,000 square-kilometre permit at Mayoko in June 2010, Equatorial’s belief in the area’s potential was demonstrated in December 2011 by the addition of two new 100 per cent-owned prospecting permits contiguous to its existing tenement, increasing the company landholding to more than 3,700 square kilometres. The past 18 months have been extraordinarily productive, Welborn says, adding that Equatorial was able to hit the ground running at Mayoko thanks to the bulk commodity railway line that runs through its permits to the deepwater port of Pointe-Noire.

“We have three drill rigs working to define a maiden JORC resource there in the second half of this year,” he explains.

“Expanding our footprint by continuing along that railway west towards the Gabon border, adding around 3,000 more square-kilometres, is important given how globally significant the resource looks to be.”

The rail and access to port are pivotal in Equatorial’s plans to reach production quickly. Likening Mayoko to the Tonkolili Iron Project—from which London-listed African Minerals Limited (L:AMI) loaded the first shipment to leave Sierra Leone’s shores for 30 years in 2011—Welborn notes that projects triggering the start of West Africa’s globally significant production profile are those with the infrastructure edge.

“At Mayoko, with our huge exploration target made up of more than 500 million tonnes of haematite potential overlaying a large body of magnetite, there is the very real opportunity to commence production using existing infrastructure and to then develop a much higher capacity production profile in due course,” he says.

“That’s why we have a particular approach. It’s unusual to be doing the detailed feasibility work we’re doing on the rail and port at our relatively early stage. We’re drilling out our exploration targets to define a maiden resource and at the same time preparing for a ramp up to production.”

Mayoko’s iron mineralisation consists of a large magnetite banded iron formation (BIF) capped by weathered haematite. At the Makengui Prospect, from which surface haematite samples graded as high as 62 per cent iron, initial drilling in 2011 contained intersections such as ~20 metres from surface at 60 per cent iron as part of a 40 metre intersection showing 55 per cent iron. The haematite cap is the focus for the current 33,000 metre drilling programme focused on generating a sufficient sized JORC resource of haematite mineralisation to justify initial production.

“The current drilling programme will give us the opportunity to delineate an initial resource of between 50 and 100 million tonnes of iron ore,” Welborn says.
“This will come from an area which represents a small fraction of the 46 kilometres of iron strike on the tenement.

“The initial JORC resource will enable us to identify the high quality, high grade material that we can ship immediately using existing infrastructure to start generating cashflow. The resource base will continue to grow as we work on our longer-term goal to convert our large exploration targets into resources.”

Equatorial has a systematic approach to the work on rail and port requirements seldom seen at this stage of play. A second stage rail agreement with the ROC rail authority has been inked, which will allow the company to fund rail refurbishment works confident in the knowledge that its expenditures will be offset as pre-payments against future transport charges. Negotiations on similar agreements for building ship loading facilities to cater to the first production profile are well advanced, and inland—where the team has an extensive heavy equipment fleet—Equatorial has already built an air strip, exploration base camp housing 40 staff, sample lab and satellite telecommunications and internet facilities.

In taking up residence at Mayoko, Welborn adds, Equatorial has chosen to integrate its facilities within the project’s namesake village and hired over 100 local people in the process.

“We have more than 100 locals as staff onsite training with us and there are various programmes in relation to up-skilling the local population with a view to having them work with us for the long-term,” he explains.

“We’ve also invested in facilities for the village, not just our camp: Water purification and pumping facilities which were broken before we arrived, providing power and establishing the local medical clinic to service our workers and provide a previously non-existent service to the local population.”

Equipped with the landholding, high grades, infrastructure, funding, government accords and local presence to take Mayoko into quick and long-term production, and working with world leading consultants to get ahead in environmental impact works, Equatorial continues to attract the attention of investors by delivering on Mayoko’s potential.

High grade & multinational interest at Badondo

In CMEC’s Belinga project, Core Mining’s Avima project (note Glencore International AG’s April 2011 investment in the company) and Sundance’s Mbalam project (and Sichuan Hanlong Group’s A$1.65 takeover bid for the company), the ROC’s northwest houses a knot of heavy duty iron-focused residents with multibillion dollar values. These groups affirm investor appetite for the locale, and also enable Equatorial to draw synergies for Badondo with some of its more advanced neighbours.

SRK Consulting completed detailed mapping and sampling across the Badondo’s targets during 2011, Welborn says. These results are in the pipeline, and given that rock chip assays confirm high grade surface haematite of up to 68 per cent iron, anticipation is mounting ahead of the scout drilling set to commence in the first quarter of 2012.

“This campaign will see us put down a series of scout holes to illustrate the potential. The best way of describing what we’re looking to achieve from this is to look at Mbalam when Sundance first purchased the project,” Welborn explains.

“They had a limited amount of historical drill results which demonstrated the potential and they’ve now defined a JORC reserve of 352 million tonnes at 62 per cent iron. At Badondo, our scout drilling programme is designed to achieve a similar start point and give an early indication of the scale and quality of future resources.”

Equatorial’s first pass drilling will identify the depth and consistency of the high grade haematite found at Badondo and, noting that the only downside of having so much iron is that it can be tough to drill, Welborn says that the team eagerly awaits the arrival of its specially built, heavy duty yet highly portable diamond drill rig currently on its way from Perth.

While perhaps overshadowed by Mayoko—and Equatorial’s break-neck speed progress at the flagship project—Badondo’s potential hasn’t gone amiss with the multinationals. It might not have fairly impacted the company’s market cap just yet, but if Sundance’s reception with Mbalam offers any indication, it’s possible that the scout campaign could pose massive re-rating implications for the company.

Interest swirls in Africa’s iron ore frontier

During 2011 a swell of multinational miners clamoured to get into the ROC, not least Xstrata, Glencore, Hanlong, and most recently Exxaro Resources with a A$338-million cash takeover bid for African Iron; a company in which Equatorial holds a crucial 20 per cent interest.

“I am convinced that in 20-30 years’ time people will say that it was obvious Africa would become a major iron ore producer. Currently we have almost one billion tonnes of seaborne iron ore hitting the market every year. In the future this will grow and a significant percentage of that growth will come out of Africa,” Welborn says.

“The Congo has had strong and stable oil production for more than 30 years. The new mining code of 2005 was a direct response to the government’s desire to diversify the economy and reduce the reliance on the oil industry. Mining has a huge future in the ROC and iron ore will lead the way.”

Equatorial is emerging as one of the few companies blessed with both large projects and infrastructure advantages, and has a genuine local-level commitment to lead Africa’s emergence as the next iron ore frontier. The prior successes of its board and management (think Mantra Resources and Coalspur Mines) and its early positioning of Mayoko towards fast production have gained the good opinion of international investors, and moves to carry out detailed feasibility studies and work with the government on port and rail reflect an ability to think outside the box and maximise competitive advantages.

Welborn has even mastered French—a product of a professional rugby career in France—which has been another important factor when coupled with Equatorial’s commitment to be a positive economic force in the country; resulting in strong support from the ROC government for the company’s agenda.

2012 will be a monumental year for Equatorial with a maiden JORC resource at Mayoko underpinning plans to fast-track production and move the company from an ambitious, successful explorer-developer to a first stage producer.

In the longer term, the expansion of Mayoko’s capacity and realising potential from Badondo will form steps in what promises to be a fascinating story. All told, Equatorial’s goal to become a large iron miner and a pioneer of Africa as the world’s next iron ore province is a mere matter of time from fruition.

www.equatorialresources.com.au