London Mining soars on Blackrock deal

LONDON Mining, the secondlargest iron ore producer in Sierra Leone, jumped the most on record in London trading after agreeing to a $110m royalty deal with BlackRock’s World Mining Trust.

London Mining advanced as much as 25% to 185,5p, the most since the company started trading in November 2009. It gained 15% to 171,5p in early trade yesterday, valuing the company at about $372m.

The agreement gives the $2bn BlackRock fund managed by Evy Hambro 2% of all revenue from ironore sales at the Marampa mine, which is being expanded to 5-million tons a year, London Mining said yesterday. The transaction implies a value for the Marampa project of more than $1,6bn, or more than four times the market value, according to Liberum Capital.

The deal is “a major positive and should significantly reduce balance sheet concerns and provide a value uplift well beyond that implied by the current share price”, Credit Suisse analysts Liam Fitzpatrick and Michael Shillaker said yesterday. “Concerns over funding and falling iron ore prices have completely obscured the growth and value case for London.”

The funds would be used to strengthen its balance sheet and help pay for a further expansion of Marampa to 9-million tons annually, the company said. That is likely to cost about $600m, Liberum said.

A financing study for the larger operation is due to be completed this quarter and Standard Chartered has been appointed to advise it on raising debt, London Mining said yesterday. The company started shipments from Freetown in February.

“We think this is a clever deal by London, who are in effect trading long-term value, which has gone unappreciated by the market, for cash today, which de-risks future growth plans,” Liberum analyst Richard Knights said.

BlackRock’s World Mining Trust had been reviewing how to invest in mining royalties, trust chairman Anthony Lea said. BlackRock owns a 7,3% stake in the London-based mining company.

“We remain positive on the longterm outlook for iron ore and believe that existing producers are in the strongest position to deliver further supply,” BlackRock’s Mr Hambro said. London Mining said it was advised by Goldman Sachs.

London Mining agreed to a $30m royalty with Anglo Pacific Group over its Isua project in Greenland next month. That was for 1% of future sales of iron ore concentrate. London Mining is studying development of a 15-million-ton-a-year operation starting in 2015.

“This agreement is a solid vote in confidence for the company and comes at a time when questions were being raised as to the company’s ability to fund the balance of the 5million tons per annum under current market conditions,” Macquarie said in a note to clients.

“We continue to believe the current share price reflects only a small fraction of the value of the Marampa project,” the company said.

The royalty is payable quarterly in arrears and will be calculated using the net freight on board price, London Mining said. The price of iron ore, used to make steel, has dropped 16% this year as economic growth in China slows. It dropped to the lowest level in 31 months on July 27, at $116,20 a dry ton.

“We’ll probably see prices form a floor around current levels,” UBS analyst Tom Price said. Bloomberg