Funding for London Mining Progresses; Shares Hit Record Low
Iron ore miner London Mining PLC (LSE:LOND) has entered into detailed discussions with a potential strategic investor for the expansion of the company’s Marampa iron ore mine in Sierra Leone.
The LSE-listed company, which is battling record-low prices of iron ore, agreed last week to a $30 million revolving, two-year pre-export financing facility with Afreximbank that required approval from its existing lenders.
“[The] funds [secured] from Afreximbank are not expected to be available in the required time period with discussions on structure ongoing. The company's lenders are working constructively with us to enable investment into the group and, in addition, are currently considering the provision of further finance,” the company said in a statement.
Although it would take several weeks to implement, if the proposed investment comes through, it would enable a material cash injection into the company, significantly diluting the existing equity and lead to a revised capital structure of the company.
London Mining also announced its lenders were considering the provision of further finance and that they were supportive of the process.
"The requirement for a revised capital structure indicates that the banks need be involved in the strategic partner negotiations, presumably adding to the delay," analysts at Investec Securities said.
Shares hit record low
News of the company’s insufficient operating cash sent the miner’s shares plunging on Monday, falling 59 percent to a record low.
According to Reuter, London Mining has trimmed its full-year production forecast and deferred a $175 million extension at its Marampa mine by two years and put off a $20 million of non-essential capital expenses on the mine.
The news comes one week after it said it would end an iron ore supply contract with Glencore due to a payment dispute.
Global iron ore production to recover by 5.1% in 2021
Global iron ore production fell by 3% to 2.2bnt in 2020. Global production is expected to grow at a compound annual growth rate (CAGR) of 3.7% to 2,663.4Mt between 2021 to 2025. The key contributors to this grow will be Brazil (6.2%), South Africa (4.1%), Australia (3.2%) and India (2.9%). Key upcoming projects expected to commence operations include South Flank in Australia (2021), Zulti in South Africa (H2 2021), Serrote Da Laje in Brazil (H2 2021) and Gudai-Darri (2022), according to GlobalData, a leading data and analytics company.
Vinneth Bajaj, Associate Project Manager at GlobalData, comments: “Declines from Brazil and India were major contributors to the reduced output in 2020. Combined production from these two countries fell from a collective 638.2Mt in 2019 to an estimated 591.1Mt in 2020. The reduced output from the iron ore giant, Vale, was the key factor behind Brazil’s reduced output, while delays in the auctioning of mines in Odisha affected India’s output in 2020.
“Miners in Australia were relatively unaffected by COVID-19 due to effective measures adopted by the Australian Government, while a speedy recovery in China led to a significant 10.4% increase in the country’s iron ore output.”
Looking ahead, the global iron ore production is expected to increase by 111.3Mt to 2,302.5Mt in 2021. Rio Tinto is expected to produce up to 340Mt of iron ore, while BHP has released production guidance of 245–255Mt, supported by the start of the Samarco project in December, which is expected to produce between 1–2Mt.The company has retained its guidance for Australian mines at 276–286Mt on a 100% basis, due to scheduled maintenance work at its ore handling plant and tie-in activity at the Area C mine and South-Flank mine.
Bajaj added: “The remaining companies are expected to produce more than 600Mt of iron ore, including FMG, whose production is expected to range between 175–180Mt supported by its Eliwana mine that commenced operations in late December 2020, and Anglo American, which is expecting to produce between 64–67Mt. Vale is expected to resume 40Mt of its production capacity, taking its overall production capacity to 350Mt in 2021, with production guidance of 315-335Mt.”