The Economist on MAGMAG is mentioned in the latest Economist Intelligence Unit report on Congo, the business to business arm of The Economist mag.
A new potash mine struggles tofind financing
The long-awaited conclusion of adeal that would lead to the development of Congo's largest non-oil industrialproject, the Mengo potash mine outside Pointe-Noire in Kouilou region, has beendelayed, intensifying doubts about the credibility of the project. The project,which has been under development for over a decade by a listed Canadiancompany, MagIndustries, involves constructing a potash mine with output of600,000 tonnes/year (t/y)—eventually to be doubled to 1.2m t/y—as well as otherprojects, including a magnesium alloy plant and a gas-fuelled power station.Although the potash project is well advanced and has completed feasibility andengineering studies, off-take sale agreements with third parties, and all localregulatory approvals, the company's management has struggled, since 2009, tosecure the US$1.2bn in financing to develop it. In the latest setback, MagIndustries'agreement with a Chinese company, China National Complete Plant Import &Export Corporation (Complant), to provide 100% of the financing on concessionalterms, as well as construction and engineering services for the project, inreturn for a controlling interest, has been delayed.
Complant undertook to complete all duediligence work and reach a decision on a definitive project developmentagreement (PDA) by end-August 2010. However, as the deadline approached Complantstated that it was still seeking approval from its controlling shareholder, China'sState Development and Investment Commission. On August 30th MagIndustriesannounced that it would continue discussions with Complant, but would allow theexclusivity agreement with it to expire and consider other options for movingthe project forward. Doubts remain over what options MagIndustries actually hasother than seeking financing on commercial terms from investment banks, which,as MagIndustries is a small company with a small asset base, would be at a highrate of interest. The same thing happened with another potential partner in theMengo project, SinoHydro, a Chinese state-owned company (July 2009, Thedomestic economy): their deal collapsed in August 2009 after months of delay. Anagreement with Complant is still possible, but MagIndustries is being squeezedinto a weaker negotiating position over the terms under which Complant wouldtake a controlling interest.
MagIndustries' other potash interestsin Congo include the Makolo exploration licence, and the company announced on August12th that it had completed a scoping study for Makolo, which indicated aninferred resource of 1.7bn tonnes. The company acquired the Makolo licence—aswell as two other exploration licences, which are undergoing preliminaryassessment—through its purchase in 2009 of a local company, Potasses du Congo.The Makolo area includes the site of Potasses du Congo's mine at Holle, which producedonly between 1969 and 1977, when it was destroyed by flooding. MagIndustries'interest in these licences is to extend its potash reserves in Congo, bydeveloping new mines.