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Sesa has agreed to acquire a 51% stake in Western Cluster Limited for US$90mn which has the
mining lease for three iron ore deposits in Western Liberia. The deposits have total resources of
1.05bn tonnes with saleable product volumes of 330Mt at 64% Fe.
To acquire 51% in Western Cluster Limited, Liberia for US$90mn
Sesa Goa has agreed to acquire 51% stake in Western Cluster Limited (WCL), Liberia for
US$90mn. WCL is the operating subsidiary of Elenilto Minerals and Mining, which was
chosen by the Government of Liberia to develop the project and this will hold the balance
49% stake. The investment is still subject to the ratification of the legislature of Liberia which
is expected soon.
Consists of 3 iron ore deposits with total reserves and resources of 1bn tonnes
The deposits are located in Western Liberia covering 270 sq km with total reserves and
resources of 1.05bn tonnes (330Mt of saleable iron ore with Fe of 68% grade post
processing). The concession consists of 1) Mano river deposit which has estimated reserves
of 80Mt with 51.4% Fe. 2) Bomi hills deposit with estimated reserves of 50Mt at a cut-off
grade of 68% Fe. 3) The Bea mountain deposit which inferred/indicated reserves of 923Mt
with average 37% Fe grade. While the Mano river and Bomi hills deposits have been
exploited in the past and are brownfield projects, the Bea mountain with bulk of the resources
(~90%) is greenfield.
Expects to complete feasibility by end FY12. First shipment by FY14
Post ratification by the Liberian legislature, the company expects to start exploration and
complete feasibility and project plan by end FY12. It hopes to start the first shipment by FY14.
The mining lease is for a period of 25 years. Production capacity is expected to be 5-8Mt/
year initially before it is scaled up. The mines are at a distance of 70km-140km from the
nearest port of Monrovia. The company will have to invest in a railway line and rolling stock in
order to evacuate the ore. Land is already available for the railway line and two peers have
also been allotted at the port. Though management stopped short of giving the capex
required for the project, it did note that it will be in the lower end of the range of US$90-125/t
of annual capacity. Cost of production is expected to be US$30/t FOB.
Payments to government include profit sharing apart from taxes and royalties
The company tax rate is capped at 30% while royalty rate is capped at 4.5% for the duration
of the project. The company is also getting import tax exemption before start of commercial
production and thereafter for a period of two years. It will have to pay an advance payment of
US$25mn along with annual payments of US$3mn upon commencement of production. 21%
of profits are also shared with the government post a 22.5% return on capital employed.
Stable political climate in Liberia has attracted global miners
Liberia is located in the west coast of Africa with capital city of Monrovia. Liberia covers an
area of 111,369 sq km and has a population of ~3.9mn. The local currency is the Liberian
dollar though the US dollar is also legal tender due to its long association with the US. After
years of civil war, the political climate has been stable for the last few years and has aided
foreign investment. Arcelor Mittal has already started iron ore production post the
commissioning of a 267km line. Severstal and Vale among other companies have also
committed to iron ore projects in the country.
Addition of 1bn tonnes of resources crucial for Sesa Goa
With production at its home turf of Goa and Karnataka constrained by regulatory hurdles and
logistical issues, Sesa Goa has been looking to invest in international assets. The current
reserves of resources of 305Mt will last for only ~15 years at current levels of production
though the company has been adding to its reserves through successful exploration efforts.
The investment in WCL will crucially add 1bn tonnes of reserves to Sesa Goa and is in-line
with its ambition of becoming one of the top producers of iron ore globally over the next few
years. Successful exploration and timely development is crucial however, in our view.
We have a Buy rating on Sesa Goa with TP of Rs360.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sesa has agreed to acquire a 51% stake in Western Cluster Limited for US$90mn which has the
mining lease for three iron ore deposits in Western Liberia. The deposits have total resources of
1.05bn tonnes with saleable product volumes of 330Mt at 64% Fe.
To acquire 51% in Western Cluster Limited, Liberia for US$90mn
Sesa Goa has agreed to acquire 51% stake in Western Cluster Limited (WCL), Liberia for
US$90mn. WCL is the operating subsidiary of Elenilto Minerals and Mining, which was
chosen by the Government of Liberia to develop the project and this will hold the balance
49% stake. The investment is still subject to the ratification of the legislature of Liberia which
is expected soon.
Consists of 3 iron ore deposits with total reserves and resources of 1bn tonnes
The deposits are located in Western Liberia covering 270 sq km with total reserves and
resources of 1.05bn tonnes (330Mt of saleable iron ore with Fe of 68% grade post
processing). The concession consists of 1) Mano river deposit which has estimated reserves
of 80Mt with 51.4% Fe. 2) Bomi hills deposit with estimated reserves of 50Mt at a cut-off
grade of 68% Fe. 3) The Bea mountain deposit which inferred/indicated reserves of 923Mt
with average 37% Fe grade. While the Mano river and Bomi hills deposits have been
exploited in the past and are brownfield projects, the Bea mountain with bulk of the resources
(~90%) is greenfield.
Expects to complete feasibility by end FY12. First shipment by FY14
Post ratification by the Liberian legislature, the company expects to start exploration and
complete feasibility and project plan by end FY12. It hopes to start the first shipment by FY14.
The mining lease is for a period of 25 years. Production capacity is expected to be 5-8Mt/
year initially before it is scaled up. The mines are at a distance of 70km-140km from the
nearest port of Monrovia. The company will have to invest in a railway line and rolling stock in
order to evacuate the ore. Land is already available for the railway line and two peers have
also been allotted at the port. Though management stopped short of giving the capex
required for the project, it did note that it will be in the lower end of the range of US$90-125/t
of annual capacity. Cost of production is expected to be US$30/t FOB.
Payments to government include profit sharing apart from taxes and royalties
The company tax rate is capped at 30% while royalty rate is capped at 4.5% for the duration
of the project. The company is also getting import tax exemption before start of commercial
production and thereafter for a period of two years. It will have to pay an advance payment of
US$25mn along with annual payments of US$3mn upon commencement of production. 21%
of profits are also shared with the government post a 22.5% return on capital employed.
Stable political climate in Liberia has attracted global miners
Liberia is located in the west coast of Africa with capital city of Monrovia. Liberia covers an
area of 111,369 sq km and has a population of ~3.9mn. The local currency is the Liberian
dollar though the US dollar is also legal tender due to its long association with the US. After
years of civil war, the political climate has been stable for the last few years and has aided
foreign investment. Arcelor Mittal has already started iron ore production post the
commissioning of a 267km line. Severstal and Vale among other companies have also
committed to iron ore projects in the country.
Addition of 1bn tonnes of resources crucial for Sesa Goa
With production at its home turf of Goa and Karnataka constrained by regulatory hurdles and
logistical issues, Sesa Goa has been looking to invest in international assets. The current
reserves of resources of 305Mt will last for only ~15 years at current levels of production
though the company has been adding to its reserves through successful exploration efforts.
The investment in WCL will crucially add 1bn tonnes of reserves to Sesa Goa and is in-line
with its ambition of becoming one of the top producers of iron ore globally over the next few
years. Successful exploration and timely development is crucial however, in our view.
We have a Buy rating on Sesa Goa with TP of Rs360.
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