GEN extends offtake MOU with world's largest steelmaker
Our Investment Genmin (ASX: GEN) has just extended the Memorandum of Understanding (MoU) with Baowu Resources Holding for project offtake for its iron ore project in Gabon.
Baowu is the largest steel producer in the world - it was also one of the early offtakers in FMG, then known as Baosteel, FMG’s first shipment back in 2008 was delivered to them. (source)
Today’s deal comes a few weeks after GEN’s management did a trip around China recently - here were a few of the photos posted to LinkedIn:
(source)
After today, GEN has now extended the non-binding offtake MoU’s with all four of its Chinese partners - the other three were extended ~2 weeks ago (see our take on that here).
(source)
GEN owns 100% of the Baniaka iron ore deposit in Gabon.
The project has an 758.7Mt resource at 36.7% and is at the development stage.
(including a 48.2% high grade component that GEN is looking to develop first, source).
A prior PFS (subject to an update soon) has been done for a 5Mtpa startup operation returning:
(source)
At the moment, GEN has already secured:
- Long term power supply agreement
- Long term rail agreement
- Long term port agreement
- Offtake MOU’s with 4 Chinese steel manufacturers
- Mining Convention and Permitting signed
- LoI with a Chinese state-owned enterprise for project financing and co-development.
GEN is now at that point where it needs to raise the US$200M CAPEX funding needed to get its project developed. (from November 2022 PFS, updated DFS is being prioritised source)
Last year, GEN raised funds which will see it through to the final investment decision and then in December signed a Letter of Intent for project financing and co-development of the project.
(Source)
The LOI is from Sino-Hunan International Engineering and Development Co., Ltd (SHICO), with a proposal to fund 60% of total project funding requirement, which would leave 40% for GEN.
Based on the 2022 PFS the CAPEX requirement for GEN’s project is around US$200M total (so that would mean GEN would need to fund ~US$80M).
(assuming the LOI became binding)
So we wait to see what comes of all of this as GEN aims to have a clear path toward mining around mid year.
We are hoping the extensions to the offtake MoU’s (IF turned into binding deals) can help bridge the funding gap to get GEN’s project developed.
Chinese corporates are willing to back African iron ore projects…
News such as today’s also shows that there is desire, especially from Chinese producers (where the majority of steel production occurs) to be very willing to look into African production, specifically central West Africa.
In neighbouring Guinea, the Simandou mine recently started producing which contained the world's largest undeveloped iron ore project, now producing at a start up cost of $35BN. (source)
GEN chairman Greg Lilleyman was actually at Fortescue when they entered Gabon for their Belinga iron ore project… so he will know Gabon relatively well, which is where GEN’s project is located.
Greg was also one of the 8 people to be mentioned in a recent AFR article we read last year that covered Africa’s emerging “iron ore boom”.
GEN’s project also got a mention and the article explains the bull case for African iron ore projects relative to the assets here in Australia.
It's a really good read for anyone interested in African iron ore - check out the full article here: What the world’s biggest mine means for Australia's iron ore empire
What’s next for GEN?
Updated Pre Feasibility Study (PFS)
GEN confirmed during the raise that the updated PFS would be prioritised. (source)
Prior to this, GEN put out an update where a partner had rerun some numbers and found out that the expected CAPEX for the project is now forecast to cost less than the prior 2022 feasibility study and was looking into other areas as a result, we covered this update here.
So we await to see the updated numbers and the outcome of this.
Project financing update (US$200M CAPEX financing)
We want to see GEN show a pathway to getting its project financed and into construction.
Late last year GEN signed a LOI with Sino-Hunan International Engineering and Development Co., Ltd (SHICO), so we await to see if this turns into something more binding (which was mentioned in the announcement they are working towards this soon).
Milestones
🔲 Confirm funding strategy
🔲 Secure debt financing
🔲 Secure equity financing
🔲 Secure binding offtake agreements
🔲 Secure prepayments for offtake or other strategic capital partners.
Convert offtake MoU’s into binding agreements
In the near term we are looking for GEN to make progress across its offtake MoUs and today there were extensions with these and the intention to have them binding by around mid year. (source)
With 4 non-binding MoUs for offtake already secured, we think GEN will be looking to make these offtakes binding and in doing so, firm up the financing picture.
We expect there would be some competitive tension around GEN’s premium product - and things could move quickly once any of these 4 MoUs are converted into a binding agreement.
Milestones
🔄 Binding offtake #1
🔄 Binding offtake #2
