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 FREETOWN 00000056 002 OF 003 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. FREETOWN 00000056 003 OF 003 CHESHES