OUR APPROACH : Commercial & Financial Delivery Plan
Introduction
LIO has the capability and experience to understand and work with Liberian parties in government and the private sector – and to connect them with the lenders and investors in the main financial centres relevant to minerals development around the globe. Investment in mineral developments - a highly specialised area – requires trust and understanding which can only be built up over a long period.
LIO’s key directors have a long association both with Liberia and the London investment community and are thus in a good position to make these connections.
The development of the Western Iron Ore Cluster will not be straightforward as the proposed concession includes old and largely worked out old mines, degraded infrastructure, mixed up with a large low grade ore body and uncertain other potential assets that might emerge after some well managed exploration. As such, the financing of the development will need to be iterative (matching a staged development plan), innovative (as it is not clear what will emerge over time), and flexible (as it not easy to predict when emerging matters will arise). Being small and a purpose made firm, LIO is well placed on all these fronts, in a way that would not be possible for an international conglomerate nor for a large listed eentity.
Preliminary Financing
In the very early stages after award of the concession to LIO, finance will be raised by the placing of private equity in LIO. This will be sourced principally from sources that have already committed in LIO. This financing will be kept to a minimum but is necessary as LIO moves through the very early stages of its development, the key terms of the concession are settled with the relevant government agencies, and the basic planning of the first stages is put in place on the basis of a better understanding of detail.
Financing of Initial Operations
Once the basic planning is complete, the path forward on the Initial Production is clear, and the outline of the development and approvals activities are clear, LIO will raise additional finance by floating LIO, probably on AIM in London (on most appropriate global exchange of the XXXXXX)
Marketing of Initial Production
LIO will move early on establishing the options available for the sale of Bomi ore - probably in Europe. While LIO’s marketing specialists have an extensive experience in the Australian and international context, they are also very well connected with the European market – especially at the small end – which will be very well suited to LIO’s proposed Initial Production.
Financing of Full Scale Operations
The Full Scale Operations are likely to be large in scale and, because it will involve the processing of taconite ores, the capital investments are likely to be high - although LIO will examine this aspect very carefully in the development planning. So, it will be essential, in order to achieve the financial efficiency necessary to secure the investor returns required, to use both debt and equity in the financing - “project financing”. Straight equity returns are extremely unlikely to be attractive, and, while a large conglomerate might be able to access corporate debt, such an action is likely to be too dilutive to its return on equity to be attractive.
While in the minerals industry the process of project financing is well proven and often used, it still requires a high level of moral support from host governments (to lower the sovereign risk), from the local communities (to lower the social risk), and from the proponent (to lower the development and operational risks). So, it is important to this process that all the parties communicate effectively and well, and that the directors and managers of the proponent have experience in this field. Several of LIO’s directors have such experience.
Marketing of Full Scale Production
The marketing of the full scale production will be progressed in close collaboration with the development of the ore processing options. This will require - and receive - a careful study of the markets well into the future, and a thorough understanding of the processing options available.
LIO will attempt to position itself as a “swing” producer so as to take maximum advantage of its flexibility, independence and size. In order to do this it will be necessary then to develop the ore beneficiation and processing in such a way as to adhere to the intrinsic demands of the ore while at the same time positioning LIO favourably in the market. In order to position itself well in the market, LIO may need to form affiliations or associations with steel producers or others. Being small and independent this should be readily achieved, if necessary.
LIO will also be cognizant in developing its processing route and market connections, of the need to secure debt and equity finance for the substantial capital expenditure that will be necessary. To do this LIO will maintain its close contact with lenders and investors – especially in London.