London Mining has entered into a conditional subscription agreement with Wits Basin Precious Minerals to become a joint venture partner for its iron ore projects in China. Under the subscription agreement it has agreed to subscribe $39.25 million for 50% of the shares in the joint venture company, China Global Mining Resources (BVI). It has also agreed to make a loan of $5.75 million to Wits Basin. The subscription and loan will be funded from London Mining’s existing cash resources.
CGMR BVI has entered into certain escrow arrangements in China in respect of the acquisition of two Chinese companies: Xiaonanshan Mining Co (XNS) and Nanjing Sudan Mining Co. The two companies operate iron ore mining and processing operations near Maanshan in the Anhui and Jiangsu Provinces in China. It is a condition of completion of the acquisitions that CGMR will also be granted the right to acquire a further iron ore mining company, Maanshan Zhaoyuan Mining (Matang), which is owned by the sellers of XNS and Sudan.
Cost reduction and expansion of the existing operations (targeting a run rate of 1.2 Mt/y production capacity during 2011), combined with a more focussed marketing strategy are expected to ensure operating margins remain strong despite the near term outlook for lower commodity prices. The close proximity to local steel mills of the mines enables premium pricing due to the low transportation costs.
The completion of the subscription agreement with Wits Basin and the acquisition of XNS and Sudan are subject to certain closing conditions, including the receipt of business licences and permits relating to the transfer and the operation of the mining properties. It is anticipated that the acquisition of XNS and Sudan will complete by the end of the first quarter of this year.
Christopher Brown, Managing Director of London Mining said “This joint venture with Wits Basin is of great strategic importance to us and it should help to regenerate interest in our company. We will be one of the first western companies to own a profitable iron ore mine in China, a country which is the largest importer of iron ore in the world. The concentrates are of good grade and we expect premium pricing compared to other exporting producers to China, due to the much shorter transport distances to local steel mills. This deal not only is expected to give us solid cash flows, but also to give our company access to market intelligence on what really is happening to iron ore markets in China, as well as further iron ore mining opportunities in the region.”