By Jamie Ashcroft
A host of new projects in West Africa are set to break the dominance of Australian and Brazilian iron ore supplies, according to Investec analysts Hunter Hillcoat and Mark Heyhoe.
“While Africa has some history of production during colonial times and while South Arica continues to provide a small supply, the continent is not noted as a producer of any significance,” the analyst said.
“That may all be about to change with a host of new projects being advanced across a number of countries.”
Investec has initiated coverage on four of six London-listed, West African mine developers who are set to bring new mines online in the next decade that will collectively produce 330 million tonnes each year – about 50 percent more than Rio Tinto’s current yearly output.
The analysts believe that all four stocks offer compelling upside value and as such they give ‘buy’ recommendations for each of them.
The analysts are targeting 751 pence for African Mining (LON:AMI). Afferro Mining (LON:AFF) is given a 177 pence a share target. Meanwhile Zanaga Iron Ore (LON:ZIOC) and Bellzone Mining (LON:BZM) are given price targets of 183 and 89 pence respectively.
The other two iron ore companies that are developing these West African mines are London Mining (LON:LOND) and Sundance Resources (ASX:SDL).
African Minerals is set to be the first of the West African iron ore producers, with the first shipment pencilled in for the fourth quarter of 2011.
“The focus has been on progressing development of its Phase 1 DSO project, including rehabilitation of existing infrastructure, new infrastructure and mine development and stock building, and progress thus far has been in line with expectations,” the analysts said.
The 751 pence a share target suggests the stock could rise over 60 percent from the current price of 536.5p.
Investec sees Afferro Mining – one part of the demerged African Aura Mining - as an interesting company that blends both moderate and high-risk iron ore exposure.
The analysts point out that the moderate risk comes from its 38.5 percent stake in the Putu project in Liberia, which is managed by Russian mining firm Severstal. The AFF’s high risk – and potentially high return - exposure comes from the wholly-owned Nkout project in Cameroon.
Investec’s 177 pence price target implies over 50 percent upside to the current price of 103p.
The analysts reckon Bellzone Mining (LON:BZM) is well funded for fast-tracked production as it pursues a very aggressive development schedule at Forecariah, its first project – which is a joint venture involving a Chinese investment fund and the government of Guinea.
Forecariah’s first production is pencilled in for the first quarter of 2012. Meanwhile Bellzone is also working on its wholly owned Kalia project, which is slated to come online in 2014.
Investec point out that Bellzone was recently boosted by around US$233 million in new capital and consequently it is well placed to advance these projects.
The broker’s 89 pence target implies that the shares could rise an impressive 90 percent from 49.25 pence.
The Zanaga Iron Ore Company (ZOIC) is in a cosy position because of its major partner, Xstrata (LON:XTA), is managing and sole funding the feasibility study for the 4 billion tonne (grading 33.9 percent iron) Zanaga project.
“Unlike most of its peer group, ZIOC is ably funded with negligible capital requirements over the next few years,” the analysts said. “ZIOC’s only role is now to ensure that the value of the project is maximised for the benefit of its own shareholders.”
Investec believe ZOIC shares could rise around from the current price of 178 to the 183 pence a share target. (sourced Proactiveinvestors)
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