SIERRA LEONE: "BIGGEST IRON MINE IN AFRICA"

C O N F I D E N T I A L SECTION 01 OF 03 FREETOWN 000056

SIPDIS

E.O. 12958: DECL: 02/03/2020
TAGS: ECON EMIN PREL SL
SUBJECT: SIERRA LEONE: "BIGGEST IRON MINE IN AFRICA"

Classified By: DCM Glenn Fedzer for reason 1.4 (B)


1. (U) Summary: President Koroma formally commissioned what
he called "the biggest iron ore mine in Africa" January 22 in
the hills east of the newly-finished Bumbuna dam. African
Minerals Ltd. claims it will be able to rebuild the iron-ore
port at Pepel and the railway from Lunsar, build a new
railway to Lunsar from the north, and begin exporting iron
ore by 2013, with projected annual export of 43 million tons
annually. More realistically, a competing company, London
Mining, says it hopes to start shipping 1.5 million tons from
the mine at Lunsar, unused since 1976, working up to at least
5 million per year. The new mining law is a step forward,
although the increased levy on precious stones may stimulate
greater diamond smuggling. End Summary


2. (U) President Koroma on January 22 convened much of the
cabinet at a ceremony near the village of Ferengbeya (in the
Sula Mountains east of the newly-completed Bumbuna dam) to
commission formally the operations of African Minerals Ltd.
for the mining of the multi-billion-ton (note: billion, not
million) iron-ore deposits located there. At the ceremony,
the chairman of African Minerals, a British-based Romanian
named Frank Timis (once convicted in Australia for possession
of heroin with intent to supply),claimed that his company
would be exporting iron crust by the end of 2010, and iron
ore by 2013, entailing rebuilding the port at Pepel (across
the bay from Freetown),rebuilding the railway to Pepel from
the old iron mine at Lunsar, and building a new railway from
the new mine to Lunsar, with a projected annual export of 43
million tons of iron ore annually. According to press
accounts, one source of funding for this ambitious
infrastructure is China, whose China Railway Materials
Commercial Corporation has reportedly bought a 12.5 percent
stake in African Minerals. (Note: The Chinese Foreign
Minister visited Sierra Leone January 13-14 and announced
construction of an array of new projects in Sierra Leone.)


3. (U) Oluniyi Robbin-Coker, an economic advisor to Koroma,
told Ambassador Cheshes January 27 that African Minerals'
activities were, "of course, speculation." He noted that the
company's share value in London had jumped twenty-fold over
the year 2009 (from 20 pence to 405 pence),although the
company had no track record for taking a large mine to full
production. He admired Frank Timis as courageous and clever
at marketing. Everything African Minerals had done in Sierra
Leone to date was based on an exploration (versus mining)
contract. Robbin-Coker said that there was a widespread
perception, "to which there is some reality," that Sierra
Leone's mineral assets were in the hands of exploration
companies. He anticipated that Timis, having raised large
sums of money and made a vast profit on the stock market in
2009, would now "cash out" in favor of a "reliable mining
company." In fact, Robbin-Coker said that he was actively
looking for a top-notch company to buy out Timis and asked if
DCM knew of any interested American "big boys."


4. (C) Lansana Fadika, Sierra Leonean investor in African
Minerals, claimed January 27 that the Chinese had put 120
million into the railroad-port-road project, but he otherwise
deflected substantive questions. On 3 February, Chinese
diplomats expressed concern over the legitimacy of African
Minerals and said that no contract had yet been signed. The
diplomats added that Chinese companies had limited experience
in Africa, and frequently made mistakes that needed official
intervention and guidance.


5. (SBU) David Keili, Sierra Leonean Managing Director for
London Mining Ltd., gave an overview January 29 of his
company's activities at the old iron-ore mine near Lunsar and
a more-sorrow-than-anger assessment of his competitor African
Minerals. Keili reviewed the sad history of Lunsar/Marampa:
The British company Delco had operated the mine, which opened
in 1930 and was strategic in World War II, but Delco was
closed down "from one week to the next" in the mid-1970's on
orders of President Siaka Stevens. The company's extensive
infrastructure, including the railway from Lunsar and the
port at Pepel, were abandoned. London Mining had a contract
with the government of Tejan Kabbah to begin mining but fell
afoul of the new government elected in 2007, eventually
losing rights to the railway and Pepel.


6. (SBU) Keili said that discord between the present
government and London Mining, which had come very close to
forcing London Mining out of the country altogether, had been
resolved in the course of 2009 and the company now felt
"relatively secure" in its mining contract, signed at last on
December 31, a day after President Koroma signed the new
mining law. This contract covers all of Delco's former
iron-ore holdings at Marampa (Lunsar). London Mining is

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building a new road from Port Loko to an offloading facility
to be built north of Freetown at Tawfaym on Port Loko Creek,
from which barges will be towed to a massive crane up the
coast, which will be able to fill the largest ore ships.


7. (SBU) Keili said that over its 50-year span Delco had
mined perhaps 60 million tons of iron ore at Marampa and had
projected, when it folded in 1976, that 89 million tons
remained. With modern drilling techniques and a somewhat
expanded area, London Mining now believed there might be 300
million tons to be mined. London Mining would start with the
"low-hanging fruit," the extensive tailings available at
Marampa (technological limits resulted in Delco setting aside
huge amounts of ore that can now be exploited). London
Mining hopes to begin shipping in January 2011, with 1.5
million tons to be exported in the first year, rising to
perhaps 5 million or even 8 million tons/year, with revenues
of at least $300 million per year (compared, for example, to
Sierra Leone's mining sector's entire earnings of $170
million in 2009).


8. (C) On the question of whether the loss of Pepel was a
major blow, Keili said London Mining's operating costs might
have been lower with Pepel, but Pepel was now in terrible
condition. He said that iron-ore reserves in Tonkolili were
indeed on the order of billions of tons, as Delco had known
many decades ago and as a reputable surveying company had
confirmed for African Minerals, but no mining company had
heretofore believed that the ore was of sufficiently pure
quality to be worth mining, on top of the huge infrastructure
costs. The idea that such infrastructure could be put in
place in a mere year or two was, Keili believed, not
credible. (Note: Post concurs with this assessment.) During
a road trip to Lunsar January 28, DCM observed the
dilapidated state of what had once been a vast mining
community (replete with a golf course and separate clubs for
senior, intermediate, and junior officials). The rail tracks
have been largely pulled up. An official from London Mines
who guided DCM through the ghost town said that the railcars,
railroad, and port at Pepel had -- amazingly -- remained in
useable condition until the previous two years, when African
Minerals had taken control of them; he said that the rails,
railcars, and port infrastructure had now all been
dismantled, cut up, and sold for scrap.


9. (U) Keili described the new mining code as a good law
which was perhaps still insufficiently detailed, but the
problem lay not with the quality of the law but in whether it
would be implemented. The law, he said, addressed the
serious problem of awarding exploration contracts over vast
areas for long periods of time. African Minerals, for
example, had an exploration contract which covered "virtually
half the area of Sierra Leone," and with the new law, if
applied, that would no longer be possible.


10. (U) The new law limits new exploration contracts to 250
sq.km. (about 10 miles by 10 miles) for a maximum of nine
years, with an escalating minimum expenditure requirement.
Mining contracts will now also be much more detailed and
restrictive, with a maximum area of 125 sq.km. and a
requirement for a community-development agreement. (Keili
noted that London Mining will pay one percent of gross
revenues into a community fund, versus the
previously-required 0.1 percent.) The new law keeps the
level of royalties for non-precious minerals at three
percent. (Keili said that the real benefit to Sierra Leone
is not the royalties but employment of and procurement from
Sierra Leoneans. DCM observed first-hand that London Mining
is both hiring and procuring on a significant scale at
Lunsar.)


11. (U) The new law increases the royalties from precious
minerals:

-- 15 percent for "special stone" (a new category for
precious stones valued at more than $500,000),
-- 6.5 percent for precious stones (up from 5 percent),
-- 5 percent for precious metals (up from 4 percent).

The diamond market remains depressed in Sierra Leone due to
global recession and hoarding among diamond merchants (who
prefer to hold on to diamonds until prices go back up).
According to official Sierra Leonean statistics, the value of
diamond exports decreased from 141.5 million dollars in 2007
to 99 million dollars in 2008 to 79 million dollars in 2009.
The increase in royalties for diamonds would appear to
increase merchants' motive to hoard and smuggle. It is
difficult to know what percentage of Sierra Leone diamonds
evade the legal system for mining and exporting, but it is
fair to conclude it is significant percentage.

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CHESHES