Whoops, There Goes Another One: African Minerals Slides Into Administration

The home page of the African Minerals website makes for rather melancholy reading. On the one had there’s the optimistic bombast of the rolling gif in the top left hand corner which unashamedly trumpets “A World Class Resource”, “Exports on Track”, “Partnering With The Community”, and “A Multigenerational Project with Significant Growth Opportunities”.

That slick positivity is reinforced by the right hand column lower down the page, where the key bullet point is: “Three phase development approach for rapid attainment of cash flow.”

Alas, cash flow will there be none, or at least not for African Minerals shareholders. Because it’s in the left hand column that all the gloss of elsewhere is undone.

This column highlights the company’s three most recent regulatory news announcements. In chronological order they run thus: “Transfer of PXF [pre-export finance facility] and Sierra Leone legal proceedings”; “Enforcement of security by PXF lenders”, and “Decision to appoint administrators and resignation of NOMAD”.

In short, African Minerals has run out of money and had its assets seized by its major creditor, Shandong Steel.

So now we know why Frank Timis, African Minerals’ founder, wasn’t inclined to put the defunct assets of iron ore neighbour London Mining into African Minerals when he acquired them towards the end of last year. Frank could see the writing on the wall.

And as time went on, so could many others. Because, in spite of Frank’s oft-mentioned exotic past, the collapse of African Minerals owes everything to the sudden demise of the market for iron ore, the price of which is now at a third of the peaks of 2011. London Mining was one of the first high profile collapses.

Now comes African Minerals. But there will be others. Over in Australia we remarked in our weekly roundup this week on a restructuring of the major index there, the ASX Top 200. Three once prominent names in iron ore, Atlas Iron, BC Iron, and Mount Gibson have all left the index as margins have evaporated and share prices shrivelled.

In contrast, the majors continue to pump out huge volumes of iron ore, compensating for lower margins with higher sales, putting further downward pressure on the price and squeezing the juniors even more.

West African iron ore projects were all the rage a few years ago. Now they are distinctly thin on the ground. Those that did get built, like London Mining’s Marampa and African Mineral’s Tonkolili are no more. The reduced margins have meant that the debt finance which was put in place to get them built has become insupportable. Those that were in development or at the exploration stage, like IMIC, West African Minerals and Bellzone now look dead in the water.

Will the tide turn? Inevitably, some time. But probably not soon enough to save the current crop of beached juniors. In fact probably not for a good few years yet, what with dollar strength, China’s growth rate slowing, Europe stuttering and the majors still cranking out product like there’s no tomorrow. No wonder investors are running for the hills.