New deal to develop West African iron ore project
Ferrex plc, the AIM quoted iron ore and manganese development company, has announced a major deal with Anglo American and its subsidiary Kumba Iron Ore, to develop its Mebaga iron ore project in Gabon, West Africa, for up to two years.
The three parties have signed a binding term sheet for exploration funding which also includes provision to refund Ferrex the US$1 million it has spent to date on exploration costs and in return Anglo American and Kumba, who will operate as a 50:50 joint venture, will receive the option to acquire 100 percent of the project.
In summary, the Term Sheet outlines a transaction whereby Anglo American and Kumba fund the exploration of Mebaga and surrounding areas over a period of up to two years and includes a provision to refund Ferrex for the majority of the exploration spend to date.
The term sheet also allows Anglo American and Kumba to move to 100 percent ownership of the Project at its election via a purchase arrangement or alternatively for Ferrex to maintain 100 percent ownership of Mebaga if Anglo American and Kumba do not elect to purchase the project.
Exploration will be managed by Anglo American and Kumba; however will utilise the existing in-country exploration team of Ferrex.
The Agreement is subject to final due diligence, completion of a detailed legal agreement, the approval of all parties’ boards and the approval of the Gabonese government.
Further details on the investment by Anglo American and Kumba will be provided when these requirements have been successfully met, and the market will be informed of these developments in due course.
Ferrex’s Managing Director Dave Reeves said: “This represents a significant milestone for Ferrex. To have secured the interest of a major mining house such as Anglo American and the operational experience of Kumba Iron Ore, reinforces our confidence in Mebaga as a leading DSO iron ore project in West Africa, and of Gabon as a desirable mining investment destination.
“We believe Mebaga has significant value uplift potential, highlighted by the Exploration Target of 90 to 150Mt @ 35 to 65 percent Fe and 550Mt to 900Mt @ 25 percent to 40 percent Fe defined over an 8km strike length of a total 19km strike identified at the Project.
“With Anglo American managing the project utilising our highly-experienced in-country team, Mebaga will benefit from leading technical expertise while maximising the exploration work undertaken, providing Ferrex with access to substantial value accretion whilst minimising exposure to exploration expenditure.
“ Due diligence is targeted for completion in February 2014 and at this point the full commercial terms of the agreement will be announced to the market."
Billionaire Kumar Birla Champions Regional Supply Chains
As the head of the Aditya Birla Group, a US$46bn firm that operates in 36 countries, Kumar Mangalam Birla is no stranger to splashy strategic moves. Yet his recent announcement that he no longer wants to acquire globally distributed supply chains stood out. While many companies have struggled to cope with shipping backlogs, his firm has chosen to pivot and focus on regional networks. Said Birla: ‘We wouldn’t look at a company or a business where you source in one corner of the world and sell in another’.
He cited protectionism, the pandemic, and the limited movement of products and people around the world as ABG’s primary causes of lost profits. And they aren’t alone. Over the past year, 900 of the U.S. and Europe’s biggest IT, defence, and financial services firms have lost an average of US$184mn apiece.
An Era of Global Disruption
Over the past few decades, low shipping rates and rapid delivery times have lulled multinational firms into a false sense of security. In the early 2000s, companies chose to take on significant global supply chain risks in exchange for increased profits. First, it made sense to manufacture higher-value goods, such as electronics, in low-cost regions throughout Southeast Asia, India, and Africa. Second, first-tier suppliers started to outsource the manufacturing of specific components to second-, third-, and even fourth-tiers—leaving supply chains with extremely limited visibility.
So when COVID-19 disruptions struck certain regions, companies were caught unprepared. Usually, these events come few and far between. But over the past ten years, we’ve seen a number of ‘black swan’ events that have thrown the supply chain industry into chaos. Here’s a quick history of the most significant events in recent years, thanks to the MIT Sloan Management Review:
- 2010. China creates export quotas for rare earth elements.
- 2011. The Tōhoku Earthquake hits East Japan; flooding sweeps throughout Thailand.
- 2016-present. Trade wars between the U.S. and China hurt suppliers.
- 2020-present. COVID-19 pandemic shuts down international shipping ports.
Now, Kumar Birla is one of many who want to re-evaluate how we run our supply chains. Though his company has acquired 40+ companies in the last quarter decade, Birla intends to build up local hubs rather than expand operations.
Why Pursue Regionalisation?
Combine Chinese economic dominance, global supply chain vulnerabilities, and major government policy shifts around the world, and you have a storm brewing on the horizon for big multinational firms. As Brookings noted, ‘the biggest risk for trading opportunities in the developing world is growing protectionism in more advanced economies, often dressed up as national security protection’.
Altogether, from the U.S. to the European Union, governments are trying to protect their domestic supply chains, secure adequate stockpiles of materials, and build world-class local networks. Consider Biden’s recent executive order, which seeks to bring semiconductor manufacturing back to home soil, or Japan’s bid to open more memory chip fabrication factories near Tokyo. The Aditya Birla Group intends to react in kind. Said Birla: ‘We’re looking at regionalism as a very big theme’.
Will Others Follow Suit?
In the post-pandemic economy, global businesses must decide whether to expand or contract. On one hand, the Alibaba Group’s Cainiao Smart Logistics Network recently launched a direct flight between Hong Kong, China, and Lagos, Nigeria. On the other, the Japanese government is desperate to make its chip manufacturing domestic. Indeed, as two supply chain strategies diverge in a post-pandemic world, the one businesses take may make all the difference.
Yet Birla is confident that regionalisation is the right call. According to his words at the Qatar Economic Forum, even necessary cross-border transactions should be smaller in scope. And as the Bloomberg Billionaires Index now lists his net wealth at US$10.4bn, up 52% from 2020, he may have the cash to test his theories out. ‘Regional hubs, regional presence, regional employment, catering to regional demand’, he stated. ‘We’re a global company rooted in local economics’.