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Truck carrying iron ore from Marampa mine in Sierra Leone.
Iron ore producer London Mining’s (LON:LOND) shares sank again Wednesday as the firm updated investors on its ongoing financing crisis, saying the stock now have “little or no value.”
The company was trading down 96% to lows of 0.12 pence after the statement, before recovering in morning trade to change hands at 0.7 pence, or 77% down. After today, London Mining has virtually lost 100% of its value since the start of the year.
Source: MoneyAM
The Sierra Leone-focused, owner of the Marampa mine, said its lenders remained supportive of the talks with potential investors, but were not expected to provide short-term funding. That cash injection would come from a new partner, if one can be found.
“Under the structures currently proposed, the board believes that there will be little or no value remaining in the equity of the company and the other listed securities of the group,” the miner said.
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.
BHP Billiton, one of those companies increasing its Australian output, acknowledged this week that some projects would be casualties of the lower price for iron ore.
Adding to the company’s issues is the Ebola outbreak in western Africa, which the company said in August was affecting both its supply chain and the expected 2014 output from Marampa.
Image courtesy of London Mining.
Comments
Larry Southwick
The fat lady is warming up
When one reviews London Mining’s cost structure, including the impact of slow ramp up and incomplete optimization of mine and mill plant, costs and inefficiencies for barge and ocean vessel loading, big guys driving ore prices down, impact of Ebola, and delayed ore pricing, the resulting knot is truly of a Gordian nature.
Interest has been reported from Indian steel companies (i.e., JSW), and given that
country’s efforts to expand ore sourcing, a buy out may be the best scenario to
preserve the Marampa project. With stock selling at shin plaster prices, and over $280 million in debt, it will take either bankruptcy or determined negotiations to even develop the basis for a deal.
Added to the sunk-in costs is the intensive effort London Mining has identified to
optimize both mining/milling operations and ore transport. Without those changes, and elimination of the delayed ore pricing (which backward integration by a steel company would accomplish), even an iron-maker buying the company to supply its own use would be looking at considerable expenses to resolve this conundrum.
Now, obviously the cutting of costs by the major producers (Big Four: Rio, BHP,
Vale, Fortescue) is intended to lessen the competition. So LM seems poised to be on the receiving end of those attentions. But were they part of an iron and steel making company, the transfer price between divisions could be set to eliminate that cost factor. After all, the Big Four cover “only” 50% of world ore supply needs, so the “right” new owner could flit through that gap.
Unfortunately, over and above all the economic and operational headaches, it seems unlikely anything will be done to maintain production until the Ebola crisis is resolved. Just reading LM’s press releases, those disruptions seem under control. However, in reviewing details of the Ebola factor described in their 1H 2014 report, there appear to be many and interconnected components to it’s
potential impact on costs and operations. To the point such that it does to the company what the proverbial straw does to a camel.
Larry M. Southwick
Cincinnati, OH