Chinese steel firm Shandong Iron and Steel Group plans to invest $700m iron ore processing plant at its Tonkolili mine in Sierra Leone. Shandong currently exports all of the ore it produces at its mine to the Port of Qingdao in China in an unprocessed state.
The investment, which was discussed by Sierra Leone’s President Ernest Bai Koroma during a visit to China last week, would represent the biggest industrial investment in the country’s history and provide a long-term boost to the national economy. Such a huge commitment seemed unlikely at the start of this year when iron ore demand was still in the doldrums.
However, prices have risen 89% so far this year, reaching a high of $82.4 a tonne on the 7 December and interest in African iron ore has begun to pick up recently. The government of Sierra Leone is keen to see the construction of the plant sanctioned before the recovery speeds up. It appealed to Shandong to consider the venture earlier this year.
A delegation from the China Iron and Steel Association visited the country in November and members of the Association have since spoken optimistically about the scheme’s potential. The Association’s vice president, Hou Jun, said last week that capital investment of $700m will be required, with all production still likely to be shipped to China. Freetown responded that it will begin drawing up potential incentives to ensure the project’s development, however, it was unclear whether the workers required would come from China or sourced locally.
The project adds to the narrative of African states seeking to process more of the mining commodities that they produce. It has long been argued that the continent needs to capture more of the value-added benefits of its raw materials, from agricultural produce to iron ore and bauxite. Guinea already processes a lot of its bauxite, but Liberia still ships all of its iron ore in a raw form. The completion of a processing plant in Sierra Leone would increase pressure on ArcelorMittal to take the same step in neighbouring Liberia.
Shandong Iron and Steel Group has only been involved in Sierra Leone for four years. It bought a 25% stake in Tonkolili from the UK’s African Minerals Ltd (AML) in 2012 but AML was badly hit by falling iron ore prices, so Shandong bought the remaining equity for just $170m. It currently exports all production as direct shipped iron ore (DSO), which means that it is unprocessed aside from some primary crushing, screening and blending at the mine.
Progress on Tonkolili has been slower than originally hoped, mainly because of low prices but also because the Ebola crisis hit the Mano River states very hard in 2013-14. It was feared that the employment of local and foreign migrant workers at the mine and associated rail and port infrastructure would aid the spread of the disease, so work was suspended. London Mining, which operated the Marampa mine, went into administration in October 2014, blaming low prices, high costs and Ebola.
In the long term, it is hoped that Tonkolili will produce to up 35m tonnes a year, but this will require the expansion of ore handling facilities at the Port of Pepel, as well as at the mine itself. It is already the biggest source of government revenue and will completely dominate the national economy if developed as planned.
The World Bank and IMF are currently holding talks with government officials to discuss how best to sustain the economy while iron ore prices continue to recover. There is, of course, no certainty that ore prices will regain their former levels. As in many other African states, the IMF has recommended a reduction in fuel subsidies as the best way to cut expenditure.
By Neil Ford