Could this tiny company change African mining?
Tom Bulford Jul 12, 2012
Tucked away on the western coast of Africa, sits a country roughly the same size as the United Kingdom. This little country is abundant in natural resources. It possesses bauxite, gold and diamond mines. It is also sitting on one of the world's largest iron ore mines - the Simandou South mine. The mine could supply 100 million tonnes of iron ore in a few years' time - that would make up 5% of the world market.
But there is one big problem for Guinea - it is proving a logistical nightmare to transport this valuable commodity to waiting consumers in China.
Let me tell you a bit about the problems being faced by the Guinean government. Because there is a fascinating story here of a company that thinks it can resolve the problems in Guinea, and for many other mining projects around the world.
The trouble in Guinea
The problem with Simandou is its location. It is situated in the south-eastern corner of Guinea. The quickest route to the coast would be a straight line to the west, but that would run through Liberia and Sierra Leone. If a railway is to be built - as it must - the government of Guinea wants to see it run only over its own soil, opening up the inner reaches of this country. That means a 700 km route that heads first north and then turns west until it reaches the port of Kabak.
The question, of course, is who is going to build this railway and how is it going to be paid for? A company such as Rio Tinto, which is developing the iron ore mine in Simandou, could probably pay for the whole thing out of its own pocket. But for that it would want to keep plenty of the economic benefit.
The Guinean government would love to build the railway, but it lacks the money and the expertise. This is a familiar dilemma for developing countries. The infrastructure of roads, railways, power lines and water supply is crucial to the progress of the mining industry, which in turn is crucial to the prosperity of the national economy.
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Guinea calls in the big guns
One man who reckons this presents a commercial opportunity is Haresh Kanabar. Mr Kanabar has been in business long enough to acquire plenty of contacts, and he has assembled a star-studded team for his AIM-listed International mining and infrastructure corporation (IMIC). Last month, investors backed him to the tune of £10m, a tidy sum in today's depressed market conditions, and they will be expecting the team to deliver.
On the board are Dr Rilwanu Lukman, whose 40 years in the African oil business include a founding role in the FTSE 250 oil stock Afren (AFR); and Dr Babacar Ndiaye, another hugely experienced African banker and businessman who is currently an ambassador for Senegal. In case their combined sagacity is insufficient, Kunabar can also call upon the members of his advisory board, who include the former chairman of Barclays Bank, Andrew Buxton; Magnus Ericsson, an industry watcher known as 'Mr Iron Ore'; and the Hong Kong-based lawyer Carson Wen.
I think it is fair to say that IMIC will be shelling out plenty of shareholders' cash for the advice of these great men. But I think it is a sensible assumption to make that these prolific figures would not be giving their valuable time if they did not believe in the venture.
What is his plan? I dropped in to see him at his predictably smart West End address to try to find out more…
Could a go-between change African mining?
The basic premise seems to be this: mining projects, especially in Africa, often lack crucial infrastructure. Governments don't know how to provide this infrastructure, but fear that if they hand the responsibility over to foreign-owned miners they will get the blunt end of the deal. IMIC sees a role for an intermediary, with experience of the mining industry, infrastructure projects and finance, to sit alongside these host governments and protect their interests.
The first such deal concerns Rio's Simandou iron ore mine, where IMIC will oversee the building of the railway alongside its 'strategic partner', the privately-owned African Iron Ore Group headed by another veteran African businessman, Ethelbert Cooper.
Beyond that, IMIC is promising to invest in junior mining companies to which it can add value by arranging the necessary infrastructure. It is promising to assemble a "best of breed" consortium of Chinese partners that can build this infrastructure. It reports discussions with "leading mine contracting, shipping, trade finance and equipment leasing companies"; and says that "negotiations with a number of African governments and other companies are in progress".
Within all of this there is the germ of a good idea – adding value to mining projects by arranging the infrastructure. But frankly, it is a little obscure just yet. One to keep a watchful eye over, though…
• This article is taken from Tom Bulford's free twice-weekly small-cap investment email The Penny Sleuth. Sign up to The Penny Sleuth here.
Information in Penny Sleuth is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. Penny Sleuth is an unregulated product published by Fleet Street Publications Ltd.
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