WEST AFRICA MINING: Low capex, higher opex iron ore projects valued highest

Low upfront costs are critical to attracting capital for West African iron ore development projects at a time of growing global supply, delegates heard at the West Africa Mining Investment Summit in London.

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Absolute global demand for iron ore is expected to grow on Chinese buying up to 2020, but supply will grow faster, Serafino Capoferri, consultant at mining and metals research company CRU, said on Wednesday April 9.

Only 40% of probable and possible production will be needed for the market, he added.

As a result, not all mining projects will provide incentives for investors.

“The most valuable assets in West Africa are often ‘low capex, higher opex’ ventures,” according to Capoferri.

The region’s iron ore projects can compete on the global stage due to good geology and low mining and processing costs, but high domestic transport and international freight costs are offsetting these benefits.

The weighted average rail distance to port is the highest for West African iron ore projects at around 600km, compared with less than 400km for Australian projects, Capoferri said.

Yet capital costs for the region’s iron ore projects are not above the global average despite the significant infrastructure requirement, he added.

A higher marginal cost of capital in the region means that projects must have lower upfront costs to remain competitive, however, given a trade-off between operating and capital expenses in the conceptual phase.

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