Just as we were contemplating a correction to commodity prices and downturn in Chinese demand, along comes another large deal to suggest that China's long-term appetite for iron ore remains as ravenous as ever. Bellzone Mining only floated on the Alternative Investment Market (Aim) last month but has just agreed a deal in principle with Hong Kong-based China International Fund (CIF) to finance the infrastructure required for Bellzone's substantial Kalia iron ore project.

The 100 per cent-owned Kalia project in Guinea in West Africa is targeting production of 50m tonnes per year and has already defined a resource of 2.4bn tonnes, out of a total resource on the licence that could reach 13bn tonnes. That elevates the scale to global significance, particularly given iron ore's status as one of the most important commodities for infrastructure development.

Under the "binding memorandum of understanding", CIF - which has pledged $7bn (£5bn) to Guinea and is also investing in Angola - will fund the entire infrastructure required for the Kalia project, including a 286km rail system, port and power development. The bill for the infrastructure is estimated at $3bn, so securing a funding commitment from CIF significantly de-risks and enhances Bellzone's prospects. Bellzone will enjoy perpetual priority access to the infrastructure and CIF will have rights to purchase all of the iron ore production from Kalia at market price.

Bellzone's deal follows that agreed earlier this year between African Minerals and China Railway Materials (CRM). African Minerals is developing a 10.5bn tonne iron ore project at Tonkolili in Sierra Leone in which CRM is investing £168m to acquire a 12.5 per cent interest. The deal includes a 20-year sales agreement for a minimum 10m tonnes per year of iron ore and CRM has an option to extend the agreement for a further five years.

Sourced from www.investorschronicle.co.uk