Tiomin Resources has signed an investment agreement with one of China’s largest companies, the Jinchuan group, with the latter gaining control of the Kwale mineral sands project in Kenya. This agreement will see Jinchuan acquire a controlling equity interest in Tiomin Kenya Limited (TKL), a wholly owned subsidiary of Tiomin that owns 100% of the Kwale mineral sands project.
According to the agreement Jinchuan will acquire a 70% equity interest in TKL by committing to finance develop and operate Kwale, with Tiomin to retain a 30% carried equity interest. Jinchuan will invest US$25 million into TKL for project development with Tiomin to contribute no further capital.
All net cash flow generated by Kwale will be used initially to repay project debt. Thereafter net free cash flow will be distributed pro-rata 70% to Jinchuan and 30% to Tiomin.
The transaction is subject to the government of Kenya extending to ten years the five year period originally granted to TKL in 2004 to finance and build the project.
The commissioner of mines and geology in Kenya has approved the extension and it was awaiting approval by the minister of finance.
Robert Jackson, president and CEO of Tiomin, says, “Closing this flagship deal, which has had such a long and painful gestation period, will be a key event for Tiomin. A 30% carried interest in a good project for no further investment is highly valuable particularly given the potential upside of higher commodity prices and exploration success. There is also the long-term value to Tiomin of owning a 30% carried interest in a project to be financed, constructed and operated by one of the world’s largest mining companies in a time of capital shortage.”
Tiomin’s 2006 evaluation contemplated initial annual sales of US$70 million, capital spending of about US$200 million and production of 330,000 tonnes of ilmenite, 75,000 tonnes of rutile and 40,000 tonnes of zircon.
Jinchuan has prepared its own feasibility study. Jinchuan is engaged in mining, concentrating, smelting and chemical engineering that produces nickel, copper, cobalt, rare and precious metals. Jinchuan’s output of nickel and platinum group metals respectively accounts for more than 90% of China’s total production.