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.”
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