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BlackRock World Mining manager Catherine Raw has had to defend a disastrous investment in Sierra Leone iron ore miner London Mining, which has cost the trust nearly $120m in writeoffs:
Raw said London Mining had been hit with a ‘confluence of events that happened incredibly quickly’. She pointed to the 40% fall in the iron ore price over the year, London Mining’s failure to ramp up operations quickly enough, and the spread of the Ebola virus, which hampered the company’s attempts to find an investor.
She said that while the BRWM team had factored in a possible slump in the iron ore price when examining the investment, it had not anticipated a shock like the Ebola outbreak.
Raw added that while they were aware when making the investment that London Mining may have needed to call on external funding, mining giant Glencore’s contract to buy iron ore from the company had appeared a likely source. However, it was a dispute between London Mining and Glencore over this contract that precipitated the company’s problems.
London Mining’s Marampa mine, which boasts a billion tonne resource, is about 120 km from Freetown, the capital of the West African nation.
The Marampa mine is a brownfields site formerly operated by the Sierra Leone Development Company (DELCO) and William Baird between 1933 and 1975.
Marampa reached a peak production of 2.5mtpa before low iron ore prices forced its closure.
Continuing weak market economics and civil war prevented redevelopment of the mine until the mining licence was acquired by London Mining in 2006.
London Mining acquired Marampa Mine in 2006.
Continue reading Raw: we won’t make London Mining mistakes again – Citywire Money.
4 Comments
Sore and Raw
BlackRock have had a terrible run – a fund manager to be avoided when it comes to mining investments I believe.
Larry Southwick
Another Perfect Storm
One feels they are reading Al Capp’s comic strip, Li’l Abner,and watching the character Btfsplk, who has a black cloud over his head. The black cloud of course symbolizes bad luck, and the character’s name is to represent a rude sound, a “raspberry”. As in how many raspberries does a situation warrant.
A perfect storm is a confluence of unfortunate events, such as is forming in Greenland, where another London Mining iron ore venture is located. Elections in Greenland next month will probably replace the Prime Minister, and the resulting turmoil is roiling the waters for miners, who face uncertain delays over opening mines and dealing with rising First Nation issues. And how much to bet on the long term chances in Greenland for continuation of warmer climate and ice free waters. The economic realities of Greenland’s independence has yet to register.
In Sierra Leon, as Ms Raw fully outlines, the economic realities are beginning to
register. Here we have a confluence of falling ore prices, delayed ramp up of production (requiring milling and shipping upgrades), and the Ebola crisis. Three raspberries! I would add one more – LM’s delayed ore pricing formula. Four raspberries.
It seems the straw that did to London Mining what straws are want to do also with camels, is the event in June where ore loading on a Glencore ship was delayed. Seemingly it was a minor matter, a dispute over contracted moisture
limits. However, ore prices are finalized after loading occurs, and any delays in a falling market doubly impacts resulting sales revenues. In this case, too, HY 2014 revenues were especially impacted since the shipment was delayed into the next HY period. One might also note a similar and equal delay (and fall) in expenses for Glencore.
It is hard to fault Blackrock too much for their investment. High risk (and return) investments swimming in shark infested waters will occasionally encounter a shark. The seeds of LM’s fall were imbedded in its DNA of plant design, shipping provisions (down the creek and onto the boats), pricing structure and, probably, a desire to cut or delay construction and operating costs and maximize immediate revenues. Maybe it was hoped that financials could be “boot strapped”
into more optimized operations.
Perhaps a keener project evaluation would have assigned higher risks to these factors, but given the red herrings of hoped for market growth, pricing stability or rise, and low cost operations, they might have been discounted anyway. There were “correction notices” visible by the end of 2013, when the chartering assumptions regarding risks could have been recalculated. The storm was brewing, but signs were mixed and prognostications could easily have remained (red) rose tinted.
As related by Ms Raw, the epicenter of LM’s Perfect Storm “blew in” on very short notice. LM’s future collapsed barely six weeks after issuance of its HY 2014 report. A year ago stock price was over 130 p, by April was 60p, and by mid June it was down to 30p. It stayed above that until the end of September. Now it is 5p (or less).
A buy out by JSW might save the project, but not the investors.
Rod
Darn! I should have invested my $$ in North American mining opportunities.
SeA
Anyone else think it odd that Ebola doesn’t hit African countries that don’t have gold, diamonds, ore, etc…..