The Cameroon-Congo-Gabon region is often likened to the Pilbara, given the significant expanse of iron ore mineralisation, including the potential for meaningful direct shipping ore (DSO) volumes.

It offers one of the few opportunities globally for a substantial iron ore production base outside of that controlled by the top three, yet it remains a long way from production.

We speculate whether the possible increased involvement of Glencore (GLEN LN) could be the start. * There are a multitude of hurdles facing development of the projects in the Cameroon - Republic of Congo (ROC) - Gabon region, although none are insurmountable, in our view.

The key issues include the almost complete lack of infrastructure and the vast amount of capital required to install it, the relatively small sizes of the companies involved, the high sovereign risks (exacerbated by multiple borders), demanding operating conditions, assorted ownerships and generally lower ore quality (relative to other product available on the seaborne market). * Each of the companies involved in the region lacks the critical mass in its own right to justify the capital risk involved in developing its respective asset.

However, there should be compelling support for development of the combined asset base.

What the region needs, in our view, is a champion in the mould of Andrew Forrest (founder of Fortescue Metals, FMG AU, Hold), or a major, who can bring together all players in the region, including the companies, governments, financiers (both private and quasi-government) and end-users. * Yesterday’s announcement that Sundance Resources (SDL AU, Not Rated) is reportedly in discussions with Glencore (GLEN LN, Not Rated) regarding selling its iron ore projects in Cameroon and ROC potentially has significant ramifications for the region.

SDL is in a trading halt and talks are reportedly taking place amid fears that China’s Hanlong Mining may not be able to complete the A$1.38bn takeover of SDL (SDL shares were halted at 21c, significantly below the 45c Hanlong offer price). * GLEN is already a shareholder and off-take partner in Core Mining (Pvt), which owns the Avima project in ROC, close to the SDL projects.

Consolidation of the assets could provide the critical mass to stimulate a development decision by GLEN, which could generate substantial (+50mtpa) DSO production and place GLEN firmly on the iron ore producer map. * This would also potentially have a positive read-through to companies with projects close to the proposed rail line from SDLs project to the coast, which is to allow third-party access.

It could then potentially have a negative read-through for the Zanaga (ZIOC LN, Buy) JV with Xstrata (XTA.LN, Not Rated) in southern ROC. * We bear in mind, however, that any action by GLEN would potentially contradict its recent statements that it was not interested in greenfield projects.
To access the full note please click here Analyst: Hunter Hillcoat
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