African Minerals

REDUCE

02/08/2011 Robert Tyerman

Shandong Iron & Steel is committed to pay entrepreneurial Frank Timis's African Minerals (AMI) $1.5bn (£937m) for 25% of its Tonkolili iron ore project. The Chinese group has also agreed an offtake deal guaranteeing long-term orders for production from the project in Sierra Leone, starting at two million tonnes a year and later rising to an annual 10m tonnes at discounts of up to 15%.

African Minerals, based in Guernsey and quoted on AIM, says it will spend the Chinese group's money expanding and developing Tonkolili, which boasts a formally estimated resource of 12.8bn tonnes, and on repaying a $417m loan facility. The company says it will receive the payment once the Chinese authorities have approved the deal, with a mutually-agreed cut-off date of 31 December this year.

Floated at 75p four years ago and recommended by Growth Company Investor at 399p in February 2010 and at 425p in December, African Minerals shares later hit 653.5p and now trade at 634p, down 12.5p this morning. 

Partial profit taking might be prudent, while retaining a significant chunk for further potential gains. 

Tags: AIM market, Chinese steel group, Frank Timis, Iron ore, Sierra Leone

Sector: Mining

Companies: African Minerals

Market cap: £2.1bn

PE Forecast: n/a

Share price: 634p