Sierra Leone’s abundant natural resources were once used to fund a bloody civil war. Now, twelve years after peace was restored in the country, the government is banking on the same resources to transform Sierra Leone into a middle income nation.
Since 2008, the government has been busy thrashing out reforms to its minerals sector in a bid to create an enticing legislative framework for new companies and investors. This includes stamping out corruption, which was once said to be systematic in nearly all sectors of the country. While problems still exist – the country was suspended from the Extractive Industries Transparency Initiative (EITI) in 2013, but then reinstated – improvement has been noticeable.
Last year government revenue from mining exceeded expectations by reaching $102m and the government is keen to attract further foreign investment to the sector to exploit minerals such as rutile, diamonds, bauzite, gold, iron ore and platinum.
Legislative landscape – are new reforms enough?
Economically speaking, Sierra Leone is advancing; in 2012 its economy grew by 21%. This is due, in part, to the string of mining reforms which successfully enticed foreign mining firms back to the country. These include UK-based London Mining, which has been operating its iron ore Marampa mine since 2011, and African Minerals, which has been operating the Tonkolili iron ore project, that includes two large scale mining licences, since 2011.
In all, there are five large-scale mining projects underway – one diamond, one rutile and one bauxite making up the rest – with several other mines currently in the pipeline.
Minister of the Ministry of Mines & Minerals Resources, Mr Alhaji Minkailu Mansary, outlined the reforms at the West African Mining Summit earlier in the year. They include environment and social regulation, operational regulations for better working conditions and updating the 2009 Mines and Minerals Act.
Most notably, in 2012 a National Minerals Agency (NMA) was established to be responsible for the day-to-day implementation of the Mines and Minerals Act and related regulation.
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A World Bank and International Monetary Fund supported agency, the NMA is currently reviewing its Core Minerals Policy to align it with the African Mining Vision, according to director general of the agency Sahr Wonday, who says that plans are underway to review the 2009 Mines and Minerals Act to bring it up to date with present realities and recent developments in the minerals sector.
The reforms certainly show a commitment to improving the country’s mining industry which has been noted by investors. “The revision of the mining and minerals act in 2009 was seen as a positive step for the country by bringing into line with its neighbours,” says vice president of Investments at Altus Capital Ltd, Carl Noack. The success of companies such as London Mining and African Minerals has highlighted Sierra Leone’s investability, Noack adds, although he also points out they were initially slow at ramping up and building significant infrastructure.
However, both companies managed to advance their assets during a buoyant period for the mining sector. London Mining in particular reported that in July it had increased its quarterly production by 21% at its Marampa mine in Sierra Leone.
“That said, continued and further weakness in iron ore prices will only have downside implications to the value of assets and the ability for them to be expanded,” Noack predicts. Investor appetite is generally weak due to the current bear market, he notes.
As well as a bearish market, investment appetite has been further soured by license disputes between the Ministry of Mines and long-term investors such as London listed Stellar Diamonds plc; Noack says there is no doubt these have “negatively impacted on the international perception of security of tenure in the country”.
However, appetite for diamonds remains strong and “in line with the demand / supply dynamic in that sector,” he adds.
In terms of new projects coming online, progress is being made but it’s slow. Wonday says China Kingho have secured four large-scale mining licences for iron ore, Cape Lambert have applied for an iron ore mine licence and companies Nimini and Amara have applied for large-scale licences for gold, but these projects are currently being stalled by the fall in gold price.
Social impacts – transparency, Ebola and human rights
Sierra Leone may have been reinstated as a fully compliant member of the EITI but corruption and transparency still remain an issue from both a social and investor perspective.
“As highlighted in the 2012 election, there remains a perception that deals have been done which have not directly benefited local communities.
“Improving the transparency in the implementation of regulations, for exploration and mining companies is critical,” Noack says.
Mining conduct in the country has also been criticised by human rights groups.
In February, Human Rights Watch (HRW) released a report detailing alleged human rights abuses linked to African Minerals’s Tonkolili mine. HRW says African Minerals forcibly relocated hundreds of families from verdant slopes to a flat, arid area where they could not farm and they therefore lost their income. According to the group, a bloody crackdown followed to quell a protest by workers who went on strike after being barred from forming a union of their own choosing.
There has also been staunch criticism that money from mining and the subsequent growing economy is not feeding back into communities. Mining areas such as Kono, where a diamond mine is located, still has poor infrastructure and sanitation, limited transport links and no electricity grid.
In regard to the relocation of communities to make way for mines, Wonday says it is one of the ‘downsides of mining’ but that the government has a resettlement policy which the agency is currently developing to hopefully become an act in parliament. He adds that it will say people cannot be relocated unless it is done in accordance with World Bank guidelines
“The main thing I believe that has been lacking in the past is an oversight body to make sure that companies adhere to these laws and regulations,” Wonday says, “because in Sierra Leone, generally speaking, the problem is not having the right laws or regulation, the problem has always been implementation to make sure that these companies do what they are supposed to do and that is what we are here for,” he adds.
Another blow to the people of Sierra Leone is the recent Ebola outbreak, which has killed 600 people in three different countries. In June, London Mining evacuated all but essential staff from its Marampa mine. Output, however, was unaffected, according to the company.
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So far, the outbreak hasn’t affected mineral production in the country but one company has stopped exploration, a concern for potential investors.
Infrastructure, workforce and transport
Sierra Leone has poor infrastructure. Most companies mining in Sierra Leone can expect to take on significant infrastructure projects; African minerals built a 200km railway and London Mining built a 40km road.
Wonday says, “Infrastructure is a challenge, and we are responding by expanding the port facilities, constructing new roads, increasing power generation and building a new international airport on the mainland.”
“The country has no worse infrastructure than many competing nations and this element is constantly improving,” Noack adds.
Sierra Leone also faces challenges in terms of skilled workers. The decade-long civil war brought education to a standstill. According to the United Nations Development Bank, an estimated 800,000 youth (population of the country is about 5.979 million according to 2012 data) between the ages of 15 and 35 are actively searching for employment.
The Mines and Minerals Act requires mining companies to give job preference to qualified Sierra Leoneans for employment and also to provide training where skills are lacking. Currently there are 6,890 local skilled and unskilled workers in the five operating mines and 826 skilled expatriates, according to NMA’s figures from April 2014.
Wonday says that the agency is working with mining companies to try and overcome a skills shortage in the country. In terms of creating further opportunities from the mining industry, Wonday says the government want to move towards beneficiation
“The long-term plan generally is to move towards beneficiation of all minerals extracted from Sierra Leone, and clearly opportunities exist for cutting and polishing of diamonds,” he says. “Conversion of gold into jewellery is also part of our long-term plans.”
He adds that, as part of the discussions to lease out the Port Loko bauxite deposits, favourable consideration will be given to investors conducting local beneficiation as part of their proposal.
“Of course we are aware of the huge power requirement, but as I have already explained we are improving power generation,” he says.
The Ministry of Mines and Mineral Resources has also held several discussions with the Chinese government to set up a Sierra Leone Diamond Bourse. This will be a diamond trading facility that will provide a variety of diamond industry specific services and networks to support and facilitate the buying and selling of diamonds in the country, as well as promoting the development of a secondary diamond market.
A long road ahead – work, work and more work
Sierra Leone’s mining industry is far from problem free. But it isn’t necessarily behind any of its African neighbours, either. However, what’s clear is there is ample work to do with limited resources.
On top of the issues already highlighted, the agency is also trying to regulate artisanal diamond miners which Wonday admits “we don’t have a very good handle on”. The agency is trying to collect tax from the artisanal miners, as well as track their diamonds and encourage them to start co-operatives for more environmentally friendly mining.
Wonday says that for them to do their very expansive job they need the capacity. The agency currently consists of 80 people but hopes to expand to around 200. “We really require budget certainty in order to work effectively,” he says.
The road ahead for Sierra Leone may be long and problematic but with such an abundance and variety of minerals, with more possibly to be found – there are large areas of the country still unexplored – the rewards would certainly help the government reach its goal of being a middle income country by 2035. But it must make sure it’s earth-born riches do not become a resource curse, as some believe they have already become.
“Going forward, it will be the country’s ability to distinguish itself in the region that will determine its success,” says Noack.
“As with all emerging economies, increasing education provision and alleviating poverty, along with increasing inward investment, are the keys to success.”