Tonkolili iron ore project in Sierra Leone has been put on care and maintenance following the reduction of iron ore pricing and the problems surrounding Ebola.
Cash flow issues prevent the 75% owner of the project, African Minerals Limited (AML) from continuing production despite the operation being impressive this year (in the third quarter of 2015, the operating performance was 4.4 Mt at an average direct cash cost of $36/t).
In the absence of sufficient working capital AML has commenced a temporary controlled shut down of its operations. Without a significant injection of working capital, AML is unable to initiate the cost reduction strategies which would return the operations to cash flow positive status even at recent low iron ore prices.
“Initiating a temporary shutdown of operations towards care and maintenance in Sierra Leone, while extremely regrettable, is a necessity given the company’s financial status and uncertainty over the timing of the release of the restricted funds. While management is convinced Tonkolili remains a world-class, low operating cost asset, the absence of sufficient working capital has prevented the company from implementing the cost cutting strategies required to return the project back to a cash flow positive status even in the current depressed iron ore price environment,” says Alan Watling, CEO of African Minerals.
Operations have been put on care and maintenance until such time as US$102 million restricted cash is released and/or, AML secures additional short term funding.
AML requires authorization from its other main shareholder, Shandong Iron and Steel Group (SISG), to release these funds. Continued disagreements between the two parties means that there is no certainty of the funds being released.
The receipt of funds from shipments in recent weeks, including from SISG, provides the operating companies with sufficient funds to meet critical payments necessary to maintain the security, safety, and, to the extent necessary, evacuation of staff and contractors in Sierra Leone, and to maintain salary payments in the short term. This plan allows for the continued safeguarding of the company’s assets and will allow for a rapid ramp up and resumption of operations when a financial solution is achieved.
AML commenced a process to sell down a partial interest in its stake in the Tonkolili mine and is talking to several groups who have expressed strong interest. Discussions are being progressed as quickly as possible, though there is no certainty a transaction will be forthcoming.
“Following my visit to Sierra Leone last week I wish to thank the Government of Sierra Leone and all our local suppliers and communities in which we operate for their continued support and understanding of the situation. We are very grateful that the Government has pledged its assistance to help secure the safety and security of our people and assets in these difficult times. We have allocated all available funds to these critical activities and to keeping the operating assets in a condition that operations can be quickly restarted, which is of fundamental interest to all stakeholders. As part of this, local staff will continue to be employed on normal wages and will be allocated to care and maintenance activities,” says Frank Timis, Executive Chairman of African Minerals.