NewsWest AfricaA stutter start for iron miners in Sierra Leone


Posted on Thursday, 12 September 2013 16:37

A stutter start for iron miners in Sierra Leone

By Gemma Ware in Freetown

Estimates vary, but African Minerals says it will contribute 12.5% of GDP in 2013/Photo©African MineralsAfrican Mineral Ltd. gravely missed its predictions for output in 2012, but the country's large miners are gearing up for expansion as smaller ones are told to use or lose their licences.


As Sierra Leone plans to unleash a new wave of regulators and tax inspectors on mining companies, large-scale iron ore miners are starting to ramp up production and are facing hard work ahead to raise finance for expansion.

Sahr Wonday, director general of the newly created regulator, the National Minerals Agency (NMA), says the government is still unsure exactly how much it earns from the mining sector.

The numbers he has seen so far put the sector's contribution to government revenue at just $76m in 2012.

The discrepancy is due to the fact that people don't keep their receipts, the documentation processes are not among the strongest

"It's not a clear-cut figure because the revenue is collected by different agencies," he says.

The sector is traditionally led by gold, diamonds and bauxite mining, but two iron-ore projects run by United Kingdom-based African Minerals Ltd. (AML) and London Mining have come on stream in the past two years.

Corporate tax breaks mean they are yet to start paying much other than 3 percent royalty rates.

Tax on high profits

The government is putting the finishing touches to the new Extractive Industries Revenue Bill that would consolidate the fiscal regimes for the resource sector.

The bill will also bring in a resource rent tax for "very profitable projects" in both the mining and the petroleum sector, according to finance minister Kaifala Marah.

The government is also creating a minerals taxation unit in the National Revenue Authority.

Iron-ore prices were at $111/tn in early June, down from around $170/tn two years ago, with analysts predicting they will hover around $120 this year due to unpredictable demand from China.

At the West African Mining Investment Summit in early June in London, a series of investors in mining projects warned of the difficulty iron-ore and gold projects are likely to face raising finance as the market falls out of love with resource stocks.

Without naming specific projects, Tom Holl, fund manager for natural resources at BlackRock, said costs "are significantly higher" than those set out in feasibility studies back in 2009 or 2010.

In this environment, both Wonday and mines minister Minkailu Mansaray have sought to allay alarm about the renegotiation of contracts.

"The existence of the NMA doesn't automatically trigger renegotiation of mine agreements. That's not we are here for," says Wonday.

London Mining finalised a lengthy renegotiation of its contract last March, replacing a fixed rate of 6% income tax for 10 years with an increasing scale that will reach 30% by the 11th year of operation.

However, AML, founded by the colourful Romanian-Australian businessman Frank Timis, has not had its contract renegotiated after it was ratified in 2011.

But there is a provision for the contract to be reviewed if there is a significant change affecting the economic balance of the agreement.

"It's time to start discussions because that obviously takes time," says Stephan Weber, AML's chief operating officer.

He says the company is in "very open and frank discussions" with government on the issue.

AML is having a better 2013 than 2012, when it missed a target to produce 20m tn, only managing 5.1m tn and causing a huge recalibration of questionable government and International Monetary Fund projections on the 2012 economic growth rate – which shot down from 52% to 15.2%, according to the Bank of Sierra Leone.

Weber says AML is on track to produce 15-18m tn this year and export between 13-15m tn.

Tonkolili takes off

Having just finished the first phase of its Tonkolili project, a railway to a rehabilitated port at Pepel with capacity to export 20m tn, AML is talking to banks about the second phase in 2014.

AML scrapped its original plan to build another port at Tagrin in favour of increasing the capacity at Pepel to 35m tn for an estimated cost of around $2bn.

The company already has $485m of that in the bank as a result of clinching a long- awaited $1.5bn deal last year with China's Shandong Iron and Steel.

Shandong has an off-take agreement for 10m tn of ore per year, as well as a 25% shareholding in the Tonkolili project companies.

Production has steadily increased at London Mining throughout the year at its Marampa mine, projected to be 3.3- 3.6m tn this year, up from 1.5m tn in 2012.

Meanwhile, Australia-based Cape Lambert Resources is trying to find an investor willing to take an equity stake in its neighbouring Marampa project, which is yet to go into production.

It has a 'heads of agreement' with AML to use its railway and Pepel port.

There are 180 companies with exploration licences covering more than 70% of the country, but some are doing little in the way of exploration.

Wonday says the NMA plans to free up areas for "serious investors" by the end of this year.

Lost receipts

In February, the Extractive Industries Transparency Initiative (EITI) suspended Sierra Leone for failure to comply with its reporting conditions.

Its 2010 EITI report, published in December 2012, found that while extractive companies paid government $8.3bn, only $7.6bn of that was recorded to have arrived in government coffers.

"The discrepancy is due to the fact that people don't keep their receipts, the documentation processes are not among the strongest," says presidential chief of staff Richard Konteh.

He says Sierra Leone has already completed four 'remedial actions' demanded by the EITI before the suspension can be lifted, including reports from local councils and chiefdoms. He is confident the country will be back on track this year.

In May, the government suspended 11 mining companies for non-compliance with the EITI transparency process. ●

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