MagIndustries completes deals with Chinese contractors for African project

In the last few days, MagIndustries (TSX: MAA) has finalized agreements with two Chinese contractors to build its 1.2 million-tonne-per year Mengo potash project in the Republic of Congo.

East China Engineering Science and Technology has officially signed on as the project’s general contractor in a deal involving a fixed component of US$497 million and a non-fixed component of US$24.5 million, while Changsha Huaxing Construction Supervision will supervise engineering work for US$5.7 million with a potential performance bonus of US$815,000.

In mid-June, Beijing-based East China Engineering Service organized the first shipment of construction materials for the project from the Chinese port of Shanghai to the Republic of Congo’s deep-water Atlantic port of Pointe Noire. The shipment included about 2,000 tonnes of steel re-bar, 1,000 tonnes of cement, forty trucks, twelve generators and a gravel crushing plant, as well as an excavator, land leveler, concrete mixer, pile driving machine, weighbridge and concrete pump.

Mengo’s production facility will be built about 20 km from Pointe Noire and according to the company’s website, the solution mining operation will run for about 28 years.

The Republic of Congo—not to be confused with the neighboring Democratic Republic of the Congo—lies in central Africa bordered by Gabon, Cameroon, the Central African Republic, the DRC, and the Angolan exclave of Cabinda. The Republic of Congo, also known as Congo-Brazzaville, was formerly part of the French colony of Equatorial Africa.

In a 2010 presentation at the BMO Capital Markets’ 2010 Agriculture Protein and Fertilizer Conference, Rich Morrow, the company’s director of investor relations and corporate development, noted that the project comes with a ten-year tax holiday and provides a 10% free-carried interest for the government.

“Once we’re at port and onboard ship, we’re looking at the shortest shipping distance from Pointe Noire to a target market, which for us obviously is Brazil, one of the world’s agricultural superpowers, a continuing growth market for potash, and a market that is unlikely to see significant domestic source for some many years and we think that we can retain a leadership advantage relative to supply to that port and that we could potentially be the lowest-cost, hence highest-margin landed product in the Brazilian market.”

But the company is also looking to provide agricultural grade potash fertilizers to world markets including African markets based primarily in South Africa as well as to Indian ports and Europe.

The facility is expected to start production in 2015 and the company expects it to be “among the the world’s lowest-cost producers due to its highly efficient solution mining technologies, access to local natural gas and its proximity to planned new port facilities and its principal markets.”

MagIndustries signed a 25-year potash investment agreement with the government of the Republic of Congo in late 2008.

The project has proven and probable reserves of 33.5 million tonnes of KCL.

“The geology is remarkably homogeneous ad continuous and extends through our whole mining licence area, indicating significant scalability with respect to size of operation and sustainability of mine life beyond the study 25-year period,” Morrow said in his 2010 presentation.