London/Bangalore - African Minerals will seek to sell part of its stake in the Tonkolili iron ore mine in Sierra Leone in what analysts say is a last-ditch effort to stay afloat, after it failed to secure the release of funds held by its Chinese partner.
The Sierra Leone-focused miner, which owns a 75 percent stake in Tonkolili, said on Thursday that it was considering the sale after it was unable to reach an agreement with Shandong Iron and Steel. The Chinese group bought 25 percent of Tonkolili in 2011 in a $1.5 billion deal.
Standard Chartered advised the miner separately that it would not be able to structure a new debt deal.
African Minerals, one of several west African iron ore developers caught out by weaker demand, is burdened by $790 million in gross debt. All the while, it is burning cash at Tonkolili, struggling with a 48 percent drop in the iron ore price and higher costs due to the Ebola epidemic.
Its share have lost 95 percent of their value this year making its market capitalisation about $52 million currently.
“It may still be premature to say, but this reads a lot like death-throe convulsions for African Minerals,” Investec analysts said in a note.
African Minerals said $102 million held by Shandong as restricted cash had been earmarked for expansion of Tonkolili, but was now urgently needed to keep operations going.
It warned investors that there was “no certainty of the timing or financial outcome” of an eventual sale.
The company in September outlined a rescue plan that it said would help Tonkolili generate money by the end of 2014, but market conditions have since deteriorated. Iron ore hit a fresh 5-1/2 year low at $70 a tonne this week.
Macquarie analyst Alon Olsha said a key question was why Shandong had not agreed to release the much-needed funds yet.
“There's two ways to read its actions. It either believes there's a future but it wants to own a bigger stake for a much cheaper price than what they originally bought it at or it believes there's no future at all and that's why the funds are being withheld,” Olsha said.
African Minerals shares were suspended on Thursday, pending funding news.
Reuters