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FEATURE: Sierra Leone iron ore exits global market as opaque policy sparks mine halts

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FEATURE: Sierra Leone iron ore exits global market as opaque policy sparks mine halts

Highlights

Exports previously reached 20 mil mt/year

License confiscation halts key mines

Mining policy recognizes uncertainties over land rights

London — Sierra Leone's iron ore mines remain at a standstill, with no early restart foreseen, after foreign miners' rights were confiscated, traders and producers said in the week started Nov. 15. Land tenure rights, for which no legal framework has been defined in the country's latest mining code, may be the central issue.

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Traders told S&P Global Platts they had not seen Sierra Leone iron ore in the market for a long time. Exports of 20 million mt/year in 2014 sank to less than 1 million mt in 2018, according to industry consultant Roskill. Three shipments of 65% Fe concentrate, totaling 172,000 mt, followed in mid-2019 from the Marampa mine, operated by SL Mining, a subsidiary of UK-based trader Gerald Group, before exports were prohibited.

Exports started to dry up from Tonkolili, a major mine operated at the time by China's Shandong Iron & Steel, late in 2018, coinciding with publication of the country's latest Mineral Policy.

According to producer, analyst and press reports, Shandong's mine rights were later sold by the government to another Chinese operator, China Kingho. Investments are needed for a second phase investment at Tonkolili as the first stage product is largely sold out. The second phase, at the planning stage, aims to process the site's original 30% Fe content into a 65%-68% concentrate.

Reports said Kingho has so far not produced anything at the mine and local opposition has also led to Kingho's license being blocked.

"Everything has been stopped. Iron ore from Sierra Leone is becoming increasingly less relevant to the international market," said Erik Sardain, principal consultant, steel alloys, with Roskill. "It's too much struggle for producers who have invested time and effort and find they have no way of dealing with the Sierra Leone government."

The country's mining sector was several years ago disrupted by civil war and Ebola. Recently, unrest flared because local people want mining to go ahead as this may be their only source of revenues, Sardain said in an interview.

Sierra Leone has confiscated rights to both the Tonkolili and Marampa mines, according to previous company and local reports. While SL Mining has since won rulings in its favor, including from The International Commercial Arbitrations Court's emergency arbitration tribunal, authorizing it to resume exports from Marampa and have its license reinstated, the government did not allow this, and even temporarily detained several SL Mining executives earlier this year. Before Shandong, Tonkolili was operated by African Minerals. Marampa was previously operated by London Mining.

Resource nationalism

Resource nationalism has dogged development of West Africa's rich iron ore deposits, although a Chinese-backed consortium last year announced a project to develop part of Guinea's major Simandou deposit. However, Sierra Leone until last year was not considered to be at the highest level of risk from resource nationalism, according to Roger Emmott, a partner with the UK-based MetalExpertWitness, a litigation-related advisory support business.

"Sudden resource nationalism risks alienating investors that can help to get the country on its feet. In this case that would appear to include alienating China, with its track record of investment in Africa," Emmott said. "There is no doubt that Sierra Leone is a source of high quality iron ore deposits. In my view, these are likely to need expertise and capital from outside the country to develop effectively."

Sierra Leone is failing to benefit from currently high iron ore prices, even though its November 2018 Minerals Policy stated that minerals wealth has been designated as a "primary driving force of economic growth ... to be invested in creating a conducive environment for private sector growth."

Prices skyrocketed in 2019 on mine closures after the Brumadinho tailings dam disaster in Brazil, reaching a six-year high of $130/mt in August, as Chinese steelmakers upped demand on an infrastructure-led drive to recover from the pandemic.

Freetown-based National Minerals Agency declined to comment and referred to the Ministry of Mines and Mineral Resources website, which displays the 2018 Minerals Policy. This points to a lack of legal clarity over land tenure. A source close to Gerald Group told Platts earlier this year it did not consider the company's failure to reach an accord with the Sierra Leone government to be a royalties issue as reported by some sources, as all royalties requested had been paid. "We don't know what they want," the source had said.

No compensation policy

"There is general lack of understanding in the country of the legal differences between surface land rights and mineral rights," states the Policy. "Clear legislation vests mineral ownership in the State but in practice, the determination of ownership of land surface rights is largely based on historic customs and cultural laws that are complex to understand and often uncertain. Compensation provisions have not been developed to provide consistent and timely payment for land access and use related to minerals development activities."

Gerald Group still has iron ore stocks of about 750,000 mt ready to ship from Marampa but has been unable to gain access to these or effectively restart the 6 million mt/year mine. Sources said Shandong Iron & Steel has simply quit Tonkolili, even after investing a reported $3 billion in mine infrastructure. Shandong did not provide any formal statement.