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China switches track in hunt for West African iron ore

* Small West African miners out of favour with Western investors

* Chinese mining companies moving away from full takeovers

* Chinese infrastructure firms now main investors into region

By Stephen Eisenhammer and Sonali Paul

LONDON/MELBOURNE, Nov 12 (Reuters) - When a Chinese official said his country wanted half its iron ore imports to come from firms with Chinese involvement in five to 10 years, investors bet West Africa would benefit.

Nearly three years on, many have been disappointed.

But executives and analysts say China, the world's largest consumer of iron ore, is tying up supply of the steel-making commodity in the region, as forecast - but through sales deals and associated infrastructure rather than acquisitions.

Iron ore explorers in the region are out of favour with traditional, Western investors. Firms like Bellzone, Sundance, and West African Minerals have seen shares fall about 70 percent this year, as, in some cases, operational issues added to price and confidence woes.

China has also been more cautious, smarting from multibillion dollar projects like CITIC Pacific's Sino Iron that have yet to ship ore and investments that soured.

The type of Chinese firms looking to invest in West African iron ore is changing, with much of the interest coming from railway and construction firms - whose role is critical in a region with little or no infrastructure - and import companies, rather than heavyweight mining state-owned enterprises (SOEs).

"The big SOEs entered the overseas market earlier. None of them have been successful. They have been left with a bad taste," Guocheng Pan, chief executive at iron ore miner China Hanking Holdings, told Reuters.

"Those (West African) projects will go ahead, it's just a matter of time," he added.

Chinese investors are also happier to look to the long term.

"One year, two years, five years means nothing to most Chinese firms," said Hunter Hillcoat, analyst at Investec. "They may still be very much heading towards building up capacity out of West Africa... but they'll do it in their own time."

West Africa has yet to meet expectations it could be the region's equivalent of Australia's Pilbara. But at stake are dozens of smaller mining projects in Cameroon, Republic of Congo, Gabon, Guinea, Liberia and Sierra Leone looking to produce at least 115 million tonnes a year of iron ore.

They are vying to help feed the construction boom in China which is expected to drive demand for iron ore imports to 1 billion tonnes by 2018, according to Australia's Bureau of Resources and Energy Economics.


Heads of smaller miners in West Africa say Chinese firms are still at the table as the country looks to ease its dependence on the three mega producers, Vale, Rio Tinto and BHP Billiton , but are not interested in taking over entire companies as in the past.

"From what we have seen the Chinese would very much like collaboration and to work in partnership," Haresh Kanabar, chairman of IMIC, which is buying Cameroon-focused miner Afferro , told Reuters.

IMIC has positioned itself as an investment company with strong Chinese contacts, looking to buy stakes in West African miners while securing infrastructure deals with Chinese firms.

"The appetite is there," Kanabar added.

Before even bidding for Afferro, IMIC sorted partnerships with a subsidiary of China Railway Group (CREC) to build the infrastructure and iron ore importer China Railway Materials (CRM) to arrange offtake from Afferro's Nkout mine.

This marks a shift from just a few years ago, when big national Chinese miners were taking equity stakes in West African projects. These have had mixed success.

National Aluminium company, Chalco , led a Chinese consortium which bought just under 45 percent of the Simandou iron ore deposit in Guinea from Rio Tinto in 2010. Yet, though it is one of the biggest untapped iron ore deposits in the world, Simandou is still years from production.

In 2012, Shandong Iron and Steel took a 25 percent stake in Sierra Leone-focused African Minerals for $1.5 billion, including a sales agreement. A slower than expected ramp-up has led to the miner paying a charge.

Sundance, whose Mbalam-Nabeba iron ore mine straddles Cameroon and the Republic of Congo, was expected to be next. But the takeover by China's Hanlong Group fell through this year, leaving Sundance to raise money though other means.

Sundance Chief Executive Giulio Casello told Reuters Chinese state-owned construction companies and other international construction firms were interested in the project, one of the biggest in the region, with all key approvals in hand.

He was confident a partnership would be sorted by early 2014 and would not have the same problems as the Hanlong deal.

"This is different. This is not a takeover," Casello said.

"This is about construction companies building port and rail, providing debt and us using the resource to pay that off."