Commodity | Trafigura Profit Boosted by Angola Buying Dormant Iron Ore Mine

LAGOS, Nigeria, Capital Markets in Africa: Trafigura Group Pte’s first-half profit was boosted through a deal where the Angolan government paid millions of dollars for a dormant iron ore project, allowing the trading house to avoid a 50 percent drop in net income.

The transaction, reported in a note in its earnings report earlier this month, enabled the Singapore-based trading house to book a one-time gain of almost $265 million in the six months to March 31.

Angola, currently negotiating a loan from the International Monetary Fund after oil prices crashed, will gain full ownership of the AEMR mine project. Trafigura, which has long-standing business relationships in Africa’s largest oil-producing country, worked on the iron ore project briefly between 2011 and 2012, before putting it on stand-by in 2013 and taking a large impairment on it last year.

The iron ore project, idled for much of a 27-year Angolan civil war that ended in 2002, remains shuttered.

The gain from the iron-ore deal prevented a steeper decline in Trafigura’s fiscal first-half net income, which fell 10 percent to $602 million from the same period in 2015.

Reversing Impairment
By divesting the asset, Trafigura, which trades more than 4 million barrels of oil and refined fuel a day, booked a $21 million gain and reversed a $243.6 million impairment it took last year on the project.

Trafigura declined to comment beyond its earnings. The Angolan government hasn’t yet responded to phone calls and e-mails seeking comment.

The yield of Trafigura’s bonds due in April 2020 has fallen to 6.33 percent, down from a record of nearly 11.4 percent at the end of September.

Under the terms of the deal, Angola will pay through a bond-like security $409 million over four years from January to DT Group, a 50-50 venture between Trafigura and Cochan, an Angolan investment company.

Cochan is “ultimately owned” by Leopoldino Fragoso do Nascimento, according to a bond prospectus issued by Puma Energy, a Trafigura subsidiary. Known locally as Dino, do Nascimento was a general in the revolutionary movement that won the civil war and still rules the country today.

Investment Compensated
The trading house said the payment will compensate DT Group for the investment it made in AEMR.

AEMR was 60 percent owned by DT Group and 40 percent by the Angolan government though its state-owned mining company Ferrangol, Trafigura said. DT Group funded all the investment in the AEMR project in the Kassinga and Kassala Kitungo areas of Angola, the trading house said.

Cochan is also a minority a shareholder in Puma Energy, which sells fuel across Africa, as is Sonangol, Angola’s state oil company.

Source: Bloomberg Business News