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Truck carrying iron ore from Marampa mine in Sierra Leone.
Iron ore producer London Mining’s (LON:LOND) shares hit record lows on Monday as the firm warned it did not have sufficient cash to operate its only mine.
The company stock was down 54% to 11.25 pence at 2:35 pm GMT, hitting an all time low of 10 pence (a 59% loss) during morning trading. It has lost 90% of its value since the start of the year.
The announcement comes barely a week after the miner revealed it might end an iron ore supply contract with Glencore (LON:GLEN) over a pricing dispute.
The owner of the Marampa mine in Sierra Leone, however, said it was in talks with a potential strategic investor. If successful this would significantly dilute existing shareholders and require a new capital structure, but would take a number of weeks to implement.
The miner is just one of the most recent casualties in the iron ore market. Companies big and small are suffering from record low prices for iron ore in the face of oversupply and weak demand from key consumer China.
Adding to the company’s issues is the Ebola outbreak in western Africa, which London Mining said last month was starting to hit its supply chain and its expected output this year from Marampa.
The company has already trimmed its full-year iron ore production forecast, deferred a $175 million extension plan for the mine by two years and put off $20 million of non-essential capital expenditure because of weak prices.
London Mining acquired Marampa Mine in 2006.
Image courtesy of London Mining.
5 Comments
Gudz Baron
Iron ore price is really starting to bite – 62% Fe was at $77 yesterday. #howlowcanitgo
William Quam
If mining sector, especially in Africa, would develop a Socio-Economic Resource Development model they could withstand these cyclical market realities. These cycles are nothing new and the sector – from the big ones to the small – all refuse to come change how they operate in resource rich developing countries and they all fall like autumn leaves when the market changes.
dakarza
most probably the operations are not profitable at 70-80 usd/ton. They should implement RSD (Renegotiate debt, Sleep for later up-prices , Dilute current investors). They did not issue bonds last year or beginning of this year as the others to survive the downturn.
Itabirite
Hard to believe after the huge return they made on the sale of the Brazilian asset about 5 years ago.
Larry Southwick
The Rest of the Story
There is more to London Mining’s problems than could be covered here, for which see earlier articles in Mining.com. To some extent this was a problematic project from the beginning. The mine had been developed from 1933, but closed in 1975 (after production had reached 2.5 million metric tons per year, MMTY) due to low iron ore prices.
Civil war and weak market conditions kept it closed until 2006, when London Mining acquired it. The China-driven iron ore price boom boosted its economics and market appeal and accelerated its development.
But it is now being hammered by low iron ore prices (though still above projected
operating costs of $50 per tonne) and problems ramping up production. More importantly Sierra Leone is in the heart of the Ebola crisis, which is disrupting everything in the region. Especially communication between Marampa and the coast, and other services.
In London Mining’s case, they have also recently been hammered by government problems in Greenland, location of another of their iron ore projects (15 MMTY). It is being stopped since Marampa is not providing the cash to keep that project moving ahead.
For London Mining, they are in the heart of a “perfect storm”, technology problems, low operating rate, price drop, natural disaster, and skeptical financial
markets. All of which is undoing the euphoric days of expanding iron ore markets 6-8 years ago. Not having the technology and operational aspects well covered from the beginning put them at risk to later problems which were not under their control.
Larry