London Mining company has signed a US$110 million royalty agreement with BlackRock's World Mining Trust for iron ore sales from its Marampa mine in Lunsar, Port Loko district. It led to a 16% jump in shares to 172 pence for the iron ore miner.
The royalty is 2 per cent and is based on sales over the whole life of the company.
London Mining will get the money three days after expected completion on August 3 while the first royalty payment will be calculated on sales from the quarter ending 30 September 2012.
The royalty is payable quarterly in arrears calculated with reference to the net freight on board price received from sales of iron ore in Sierra Leone.
London Mining, which is reportedly expanding Marampa’s capacity to 5Mtpa by the second half of next year, said the proceeds from the BlackRock deal would help fund the second phase of expansion to 9Mtpa at the appropriate time.
The bankable feasibility study for this stage of Marampa’s expansion is due for completion in the third quarter of 2012.
Standard Chartered has been engaged as lead advisor on the debt financing component of the expanded operation, London Mining is quoted as saying.
Graeme Hossie, London Mining's chief executive, reportedly said that the deal was an innovative way to fund Marampa's expansion to 9Mtpa.
“BlackRock is one of the mining industry's most respected investors and this deal represents a clear endorsement of London Mining's execution capabilities, the quality of the Marampa asset and long term confidence in Sierra Leone,” he said.
He added that although the London Mining was fully funded to achieve 5Mtpa of capacity next year, the US$110 million proceeds provide “a further financial buffer and provide funds to advance the expansion at Marampa to 9Mtpa at the appropriate time".
Anthony Lea, BlackRock World Mining Trust’s chairman, said it had been looking to invest in mining royalties for some time.
“This deal meets our investment objective of trying to raise income for the portfolio whilst at the same time also being exposed to growth in production and to changes in commodity prices" he said.
Evy Hambro, the manager, added that the group was a long term investor in Sierra Leone and London Mining and is positive on the future of iron ore.
“This deal demonstrates our confidence in the London Mining management team to deliver 9Mtpa and further expansions over time at its Marampa mine.
“We remain positive on the long term outlook for iron ore and believe that existing producers are in the strongest position to deliver further supply.”
