The focus of West African Minerals Corporation (AIM:WAFM) is unambiguous – the company is resolutely dedicated to the mining of high grade iron ore in West Africa, principally Cameroon.
The winning of the award for Best Performing Share at the AIM Awards 2012 in October, although an unforeseen honour, has to be a heartening confirmation of the company’s strategy — focused on iron ore assets in West Africa with a view to becoming an early beneficiary of what is turning out to be one the richest ever iron ore territories in the world.
Executive Vice Chairman Brad Mills explains West African Mineral’s rationale for embarking on the search for iron ore projects “specifically in West Africa and more specifically Cameroon”, guided by the knowledge of the immense scale of discoveries made at projects elsewhere in the country such as Sundance Resources’ Mbalam project. With this in mind aeromagnetic studies were obtained that indicated strong potential for significant anomalies extending beyond the known discoveries, and so the follow up with the acquisition of three concessions in the first instance, and when those turned out to be promising, three more near the coast.
While there’s no denying the geology of the region is attractive (formationally the other half of South America) Mills adds. “The underlying geology is identical to what is seen in Brazil and in terms of time and history to what gave rise to the Pilbara.”) The challenge to miners in Africa has more so been that of political stability – a problem that has not plagued Australia and Brazil in the same way, nor Cameroon as Mills makes apparent .
He speaks highly of the host country itself, emphasizing the stability of Cameroon. They have a long history with natural resource development, and it’s a relatively affluent nation for Africa. The government is very supportive of our efforts and those of the entire region.
But more compelling even than the peace of mind engendered by the stable nature of the jurisdiction is the parallels Mills sees between Cameroon and the world’s largest iron ore regions. The number, size and quality of the discoveries in the area in which West African Minerals is labouring hints at something even bigger.
“It’s a large district with no history of exploration, which suggested to us the opportunity to get in on the ground floor of what felt to be possibly the world’s third major iron ore district after the Pilbara in Australia and Brazil. Cameroon has a similar scale and size of district and deposit. Already, in two years it’s seen three major discoveries in the district, which is now pushing upwards of 500 million tonnes to a billion tonnes of high grade DSO ore. Our potential as one of the larger landowners in the district is compelling.”
Direct Shipping Ore (DSO) – the Holy Grail
Crucially, West African Minerals concentrates efforts on Direct Shipping Ore, ore of 60 to 65 per cent iron, a high enough cut off that no further upgrading is required, which Mills describes as “the holy grail” of mining.
“It is the simplest, lowest cost material to mine that has the highest value,” he says. “It’s surface mining, that simply requires crushing, loading and shipping – no beneficiation involved, operating costs are extremely low, particularly if it’s near the coast As you move inland transportation costs do increase, but even at a distance of 500 km the cost of transport to port, along with mining and crushing, would be in the region of $20-25 per tonne. From there, the cost for ocean freight to its destination –in the case of China about $25 a tonne — means you can deliver a tonne of iron ore to China for about $50 a tonne that’s worth $120 a tonne spot, so it’s extremely valuable.”
DSO is the easiest, simplest mining in the world with one of the highest margins. That’s why it’s so important from an economic perspective.”
Mills’ perspective also takes into account what he terms the “longer term view” for bulk commodities, recent price volatility notwithstanding. He points out that the long term macro driver is the much-anticipated third world growth, confined not only to China but also encompassing India, parts of sub-Saharan Africa and nations in South America, all of which have large populations striving towards middle class, which, with its various conveniences and accoutrements is, he points out “hugely metal intensive” and what drives the consumption of steel derived from iron ore. That process is happening globally, at a scale never before seen, in what accounts for the “super cycle.” Clearly it is this move towards the middle class that accounts for much of the demand that opened up the Pilbara; and so Mills says, is heading for West Africa.
The New Pilbara
In common with the Pilbara, the richness of the territory is staggering.
“The reason we like the Pilbara comparison is that there’s not one ore body, but rather a string of 50 or more ore bodies over 2-300 km of strike length,” says Mills.
“What we’ve seen so far in Cameroon is 600km long, so similar in scale to what we see in the Pilbara. We’ve found the size of individual deposits [in Cameroon] is 750 million tonnes, or 500 million tonne ore deposits. The scale is similar – the Pilbara has 100 tonne to billion tonne deposits and we expect over time we will discover a number of those, similar to the Pilbara.”
Mills points out the similar path of the Pilbara to its present day global importance–there was mining in the Pilbara for decades, but the start-up really intensified when discoveries reached a critical mass, with substantial and sustained activities over the last decade.
“Once that gets going, and I believe Cameroon is just a discovery or two away, it will follow along the same pathway. In all of these big districts it takes time – for the infrastructure to be in place – , but with that preponderance of discoveries a lot of things start happening very quickly.”
“Good geology in an emerging territory makes for good value.”
Pathways to market
A crucial factor that could materially assist Cameroon earning the title of the new Pilbara is the country’s fortuitous access to the ocean, and more importantly to deep water ports. “Cameroon is fortunate in that it has 25 km drop-offs within 3 km of coast,” says Mills, a distinction critical to the task of delivering product to market.
In the case of Cameroon, the sale of Sundance to Chinese Hanlong Mining, and the consequent construction of a rail line to the ocean, could be the factor that tips the balance.
However West African Minerals is in the fortunate position of not having to wait on the construction of the rail line. The company’s Binga deposit is close to both the coast and infrastructure, meaning that monetizing the deposit is not contingent on the completion of the rail.
First things first
Prominent in West African Minerals’ plan, then, is to move towards start-up at the Binga deposit — a property sufficiently close to infrastructure that it eliminates the imminent need for a rail line straight to port – an advantage which Mills says is likely to provide “the jump-start to building the larger projects to the east.”
The ability to monetize Binga early also fuels cashflow, to open up the large scale projects to the east. The alternative, Mills says is the eventuality of even larger discoveries on the eastern side of the country of such significance that “it becomes strategically important to one of the major players.
Almost forgotten in the compelling vision for Cameroon as the New Pilbara is the fact that West African Minerals also has properties in Sierra Leone – another rich territory that, even with abundant evidence of similarly impressive deposits, finds itself in the shadow of the Cameroon prospects. It is an enviable situation for West African Minerals to find itself in.