Ben James, Managing Director, Baobab Resources

Baobab Resources seeks to beneficiate iron ore with local coal in Mozambique.

Baobab-MACIG-BLOGphotoCan you give a brief overview of Baobab Resources and your pig iron and ferro-vanadium project in Mozambique?

Ben James (BJ): Baobab Resources has been in Mozambique since 2006 and is listed in London. We are wholly focused on Mozambique with most of management in the country. Baobab’s flagship project is the Tete pig-iron ferrovanadium project, which we are developing in collaboration with our strategic partner, the International Finance Corporation (IFC). Baobab first started working on the project in 2008 and drilled the first hole in March 2009. Since then we have completed over 90,000 meters of drilling and had found a global resource of over 750 million metric tons (mt). We have taken the project through a prefeasibility study and are in bankable studies now. The unique strategic advantage of the project is that our deposit is right in the middle of the vast coal developments in Tete, and Baobab would like to take its produced iron ore and beneficiate it with the aid of locally available coal. It is feasible to add significant value in country through mine-mouth smelting. Baobab will be producing not only an iron product but also a vanadium byproduct and potentially a titanium byproduct as well.

What incentives are there for in-country beneficiation?

BJ: At this stage, the Tete pig-iron/ferro-vanadium project will be the first project of its kind and Baobab is working with the government to make it as attractive as possible for investors to join this project. There is a global trend towards in-country beneficiation and Baobab is proud to be the vanguard of that movement in Mozambique. This project has the potential to have an economic zone built up around it and a long-term goal for Baobab is to see that come to fruition. Baobab is aiming to complete the bankable feasibility study by the end of 2014/early 2015 and the financing for this part of the project is already secured. Financing to bring the mine into operation remains a challenge, with the prefeasibility indicating an estimated capital requirement of a $1.1 billion, a significant hurdle for a small company in a very tough market. As part of the bankable feasibility study, Baobab is looking at how it can reduce the capital burden. In the prefeasibility study, Baobab investigated three models to achieve a 1 million mt pig-iron production and is looking at perhaps staging that development so that the upfront capital cost can be reduced. Baobab is also exploring EPC opportunities out of China, as we have seen that considerable savings can be made. With the IFC on board it adds a significant amount of credibility to getting the project financed. Baobab is also getting significant support from the European debt and government funds.

Will Baobab be operating the mine itself or is the hope to establish joint venture partnerships for this endeavor? What is the timeline for starting production?

BJ: Baobab will be operating the mine, but we are certainly looking for strategic partners. Baobab was born as an exploration company and has been fortunate that it made a discovery of this magnitude. Baobab will certainly be involved the mining aspect, which is only a small part of the whole project, which is more of a heavy industry asset. Baobab is aware of our own capacity and are talking to a whole range of potential partners from different sectors to take the project into production. The construction period for a project of this scale is no less than 24 months. If Baobab assumes six months for financing, which may be very ambitious, it hopes to start production in the end of 2017. The logical long-term solution for this project is to take it through to steel manufacturing, which is one additional downstream step after pig-iron production. To support the domestic envisioned growth, Baobab will have a very low operating cost so that it can compete in domestic markets. 2018 will be a very good time to establish a steel distribution in Mozambique, as Baobab and the Mozambican government recognize that a developing economy needs a domestic steel industry.

As an explorations company, what has been your greatest challenge and how do you think Mozambique differs in the area of exploration to its Southern African mining neighbors?

BJ: The biggest challenge has been prioritizing targets, as Mozambique has so many resources. Baobab started off up in Manica with a copper project and defined a 3 million mt copper resource. There is massive poten-tial in a substantial amount of greenfield operations in this area. Baobab’s next priority is a joint venture in Tete, which is looking at iron phosphate and limestone and we are also exploring another joint venture, looking at Broken Hill type base metal deposits. Baobab is always on the lookout for other opportunities, as we are explorers at heart.

What advice would Baobab give investors looking at Mozambique?

BJ: Mozambique has all the key components for rapid and sustained development. There are not only raw materials like gas and mineral resources, but also agricultural potential, tourism potential and power potential. All of this is underpinned by a true and young democracy,. The election in 2014 is going to be key to demonstrating that Mozambique is committed to a democratic process, and it is important to have accountability at the top levels of government. Mozambique is also strategically located, not only to access growth markets in Asia and the Middle East, but also Africa. Africa is no longer just a source of raw materials to be exploited and exported, but is the next big development story after China. The next ten years in Mozambique is going to be phenomenal.

This interview was part of the research being conducted by GBR for its upcoming Mining in Africa Country Investment Guide (MACIG) 2015. To participate in this report, please contact Sharon Saylor at ssaylor@gbreports.com.

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