African Aura Mining (LON:AAAM) announced that the government of Liberia has granted a Mineral Development Agreement (MDA) for the Putu iron ore project.
The 25 year agreement sets the fiscal regime and social development conditions for the mining and development of the Putu iron ore project in eastern Liberia. The agreement is extendable in line with the life of mine.
Under the terms of the deal, the project will be subject to a production royalty of 4.5% and exploration will be extended for two years until September 2012, while commitments for total social contributions amount to US$15.75 million up to 2017 and then the greater of US$3 million per year or 0.5% of prior year taxable income.
The principal fiscal terms of the MDA are fixed for the first fifteen years after completion of the project’s definitive feasibility study.
The terms are in accordance with the draft Revenue Code, which is currently under consideration by the legislature of Liberia, with certain concessions in respect of customs fees, tax rate on profits set at 25%, withholding tax and service charges.
The project and local community will also benefit from the paving of the 185 km (kilometre) road that links the coastal port of Greenville with the town of Zwedru, located to the north of Putu, by June 2017.
African Aura called the agreement a significant milestone for it and its joint venture partner Severstal Resources and that it also provided a win-win scenario for both investor and Liberia.
The company believes Putu will emerge as the main regional economic driver.
“The agreement fixes the fiscal terms for the development and mining of the Putu project and provides assurances for substantial investment in the social welfare and sustainable development under the guidance of a stakeholder committee,” said president and chief executive of African Aura Mining, Luis da Silva.
A 62 km (kilometre) resource delineation programme is currently underway on the property.
African Aura is expecting to provide a more detailed project update in near future once the final metallurgical work has been completed, which is anticipated imminently.
Putu has a current NI 43-101 resource of 1.08 Bt (billion tonnes) at a grade of 37.6% iron, which was estimated from 22% of the project’s 13 km strike length.
Severstal Resources is currently investing US$30 million towards completion of a pre-feasibility study (PFS), which is anticipated in 2012, to earn a 61.5% interest in the project. The company holds a 4.72% stake in African Aura.
Estimated base case economic analysis calls for a magnetite concentrate production of 20 Mt (million tonnes), capex (capital expenditure) of up to US$2.5 billion to bring the project into production and royalties of US$1.6 billion to the Liberian government over an initial 20 year life of mine.
“We look forward to moving the Putu project into production and to creating lasting direct and indirect benefits to the country and to the project's surrounding communities,” added da Silva.
African Aura’s iron ore division also holds a 100% interest in the Nkout iron ore project and surrounding targets in Cameroon.
The gold division includes the New Liberty greenstone gold deposit with a current 43-101 Resource of 1.4 Moz (million ounces), which is being advanced through a bankable feasibility study, and the proximal Weaju, Gondoja and Silver Hills projects all in western Liberia.
The diamond division is represented by a 32% interest in AIM listed diamond producer Stellar Diamonds (LON:STEL).
Shares in the company rose 5% on the news in early deals.