29 de septiembre de 2014 / 17:23 / en 3 años

Smacked by Ebola, low prices, West Africa iron mining faces reshape

* Iron ore prices down 40 percent this year

* Ebola pushes up costs, disrupts logistics

* Some miners struggle to refinance loans, need cash

By Silvia Antonioli and Karen Rebelo

LONDON/BANGALORE, Sept 29 (Reuters) - Plunging prices and the spread of Ebola are reshaping the iron ore mining sector in West Africa where some companies risk sinking if they cannot find new partners, lenders or owners.

West African iron ore miners already are in a critical situation due to a 40 percent plummet in prices this year which is making most mines unprofitable and projects hard to finance.

Costs are also rising, partly due to measures to fend off the Ebola epidemic that has so far killed about 3,000 people in the region. The virus is also making it difficult to move workers and goods and threatens to disrupt logistics.

Shares of companies such as Sierra Leone-focused African Minerals and London Mining have plummeted by 89 and 91 percent respectively, versus a 4 percent fall of the UK-listed mining sector this year.

“It’s pretty devastating. The perception of West African mining has completely changed. At the moment we don’t see any upside,” said Ed Bowie, director of Altus Capital, a fund focused on medium and small mining companies.

Altus has exited its investments in West Africa iron ore in the last two months due to concerns about Ebola and low prices.

West African miners are higher-cost producers at roughly $75-85 per tonne delivered to China, compared with big three Brazil’s Vale, Australia’s Rio Tinto and BHP Billiton with costs of about $45-55.

The West African producers’ ore tends to sell at a discount compared with the majors’ and the benchmark 62 percent iron price, because of lower quality. But their development made sense when iron ore prices were as high as $195 in 2011.

They were welcomed by iron ore buyers when the boom started in 2009. Some buyers invested in their projects, keen to dilute the big three’s pricing power.

But with prices now below $80, some of the West African miners are struggling to refinance loans and are in serious need of a partner to inject cash.

“All of those companies have been looking for strategic investors for their projects,” Investec analyst Hunter Hillcoat said. “Whether these investors do so in a friendly or in an unfriendly manner in a more pressurized situation will depend on the predator and on the company’s situation.”


GRAPHIC-Miners in Ebola-hit areas

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African Minerals, which produced about 13 million tonnes of iron ore last year, is under pressure to refinance a $250 million loan. It agreed last month with Shandong Iron and Steel Group, its partner on its sole project Tonkolili, to immediately access funds that had been earmarked for the project’s ramp-up.

Expansion is vital for the company as it would allow it to reach higher quality ore for which it could get better prices. The miner outlined last week a rescue plan that includes price renegotiation with clients, aiming to make Tonkolili cash-flow positive.

Industry sources said Shandong could soon up its stake in Tonkolili, taking advantage of the situation.

London Mining is also trying to replace an expensive loan and is looking for a strategic partner to inject cash. It said it expects Ebola-related disruptions to the supply chain will likely reduce its output and delay expansion.

On Monday it warned it did not have enough cash to operate its only mine and said it was in talks about a potential strategic investment, but any funding would involve significant equity dilution.

Bellzone, with three projects in Guinea, suspended its shares last week as money dried up after it failed to agree with a Chinese partner on a vital loan.

“It’s a very difficult pricing environment. If you’re in production like London Mining and African Minerals, you may have a chance to renegotiate contracts and pull costs down to keep going but it makes funding expansions much harder,” said Canaccord analyst Peter Mallin-Jones.

“If you’re not in production, like Bellzone, and looking for financing to keep activities going as your treasury is running low then you’re in a very, very difficult place.”

With iron ore prices expected to stay weak as Chinese demand for steel slows while the big three pump extra supply into the market, the pool of potential partners or buyers has shrunk.

Large iron ore miners are in conservation mode after investors demanded more returns and less unruly expansion, especially in riskier countries.

There might be some interest, however, from iron ore-hungry Indian or Chinese steel producers or investors on the lookout for a bargain, sources said.

“There could be an argument for someone to buy these companies, but I don’t see that being a BHP, or a Rio,” said SP Angel analysts Carole Ferguson. “It could be a steel company, like ArcelorMittal or (India‘s) Jindal Steel, because they could buy these projects on the basis that they believe that there is potential for developing a steel industry in Africa.”

ArcelorMittal, the world’s largest steelmaker, already has iron ore mines in West Africa. Like rival steelmaker Severstal, which has a project in Liberia, it can count on a stronger balance sheet and assets elsewhere.

“If you are not in production and you haven’t even got capital raised, I think you just can scrap it off the list for this cycle,” a banking source said. “Only a few guys will be able to jump over the moat before the drawbridge comes up.” (Additional reporting by Anjuli Davies and David Lewis; Editing by Susan Thomas)

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