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Sundance Resources visit shines a light on potential of Afferro, IMIC and West African Minerals

Published: 21:25 13 Jun 2013 AEST

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The management of Aussie miner Sundance Resources (ASX:SDL) is in town updating on progress.

Ordinarily a visit from a junior of this kind would go without mention. 

However the group holds the key to unlocking the huge iron ore potential of Cameroon and the Republic of Congo.

And this then has knock implications for a handful of London-listed explorers active in the region – names such as Afferro (LON:AFF), West African Minerals (LON:WAFM) and IMIC (LON:IMIC).

Those familiar with story will know that Sundance was the subject of an aborted US$1.2bn from Hanlong, chaired by Chinese billionaire Lui Han.

It leaves the ASX-listed with a project that requires some US$4.6bn investment, including a major contribution towards a railroad stretching 500km to the coast.

Of course the potential bounty is huge. The resource at Sundance’s Mblam deposit is in the order of 4bn tonnes at 36.3% iron. 

However the real prize is some 436mln tonnes of high-grade (63%) direct shipping ore (DSO) that can be extracted and sent for export without the need for beneficiation (expensive processing). 

“The DSO is key to the viability to the economics of the project as it provides the basis of the funding for the railway,” said analyst John Meyer, of boutique resources house SP Angel.

 “Once Sundance secures the funding for the project, it will pave the way for other projects in the region.” 

According to SP Angel, the company told analysts and investors that it is currently in talks with a “number of parties”, including steel mills in China and commodity traders outside the People’s Republic.

Here in London the players in the region are jockeying to be the next big thing in Cameroon.

West African Minerals, co-chaired by rainmakers Steve Dattels and Jim Mellon, has the Djadom property next to Mblam and is in the process of compiling a maiden resource estimate.

Analysts who follow the company are working on the basis that WAFM will define a DSO resource roughly half the size of Mblam’s.

Even so this leads to a very punchy valuation well ahead of the current share price. 

At the same time consolidation is taking place, with IMIC agreeing an in-principle deal to acquire Afferro Mining for £126mln.

UK and TSX-listed Afferro’s flagship project is the 2.5bn Nkout deposit, in Cameroon, which has significant pockets of highly prized DSO and is closer to the coast than Sundance and West African Minerals’ resources.

IMIC’s plan is, along with partner African Iron Ore Group, to take a leading role in the provision of infrastructure, therefore helping to unlock the potential of Nkout and its smaller projects in Cameroon.

The business geo-politics of west and central African iron ore reveal an interesting land-grab.

The traditional western axis of Rio Tinto and BHP Billiton, with the addition of Brazil’s Vale, are already staking their claim to the next big discoveries. However, they often leave these huge ore deposits fallow.

This allows the trio to mine out existing resources, before then opening up these new mines.

In the meantime, prices remain stubbornly high for huge consumers such as China due to constrained low-cost supply.

Granted, iron ore prices have weakened of late. 

However, over the longer-term they are expected to gravitate towards the levels seen before this mini-slump, principally because Chinese depleting domestic iron ore is low grade and therefore very expensive to mine.

Not surprisingly, the People’s Republic has a vested interest in getting the best and cheapest ore out of the ground as quickly as possible, as do the local economies that would undoubtedly be boosted by the emergence of these new mining districts.

So the likes IMIC and AIOG are coming into countries such as Cameroon offering a more collaborative approach with local government, while building partnerships with the Chinese.  

“We try to work with Chinese who will help build the infrastructure: railroad as well as the port, power and beneficiation. The relationship even extends to the crucial off-take,” said IMIC’s Ousmane Kane in recent interview with Proactive Investors.

“If you give the contract to a Chinese partner to build the railway line then you could get funding from the Chinese banks – there are a number that might fund the projects we are talking about.”

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