Asset management firm BlackRock World Mining Trust is to buy a small stake in London Mining's Marampa licence in Sierra Leone.
Blackrock will acquire a two per cent revenue-related royalty from any iron ore sales over the life of the mine, paying $110m in cash. The transaction will be immediately earnings-enhancing and gives Blackrock direct long term commodity price exposure to iron ore whilst avoiding mining sector cost inflation.
The royalty will be paid quarterly in arrears, calculated on the amount receivable at the relevant point of sale.
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Anthony Lea, Chairman of the BlackRock, said: "For some time we have been reviewing a range of ways to invest in mining royalties. This deal meets our investment objective of trying to raise income for the portfolio whilst at the same time also being exposed to growth in production and to changes in commodity prices. We are delighted to be partnering with London Mining in this regard.
"In last year's annual report we recognised the increased emphasis that investors are placing on income and as such increased the dividend by 133%. By adding this royalty to the portfolio we expect to be able to materially enhance the dividend paying ability of the company whilst at the same time, remain exposed to both commodity price changes and growth in production at the mine."
For London Mining's part, the deal raises funds which can be used to pay for the development of the Marampa licence.
"Although the company is already funded to achieve 5Mtpa [5m tonnes per annum] of capacity next year, the proceeds from this deal provide a further financial buffer and provide funds to advance the expansion at Marampa to 9Mtpa at the appropriate time," said Graeme Hossie, Chief Executive Officer of London Mining.
The bankable feasibility study for the 9Mtpa expansion is due for completion in the third quarter of 2012 and Standard Chartered has been engaged as lead advisor on the debt financing component of the expanded operation.
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