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These are the words that an independent director at African Minerals, the region’s largest iron ore miner, used earlier this month to describe the situation facing his company and others.
The miner, which produces low-grade iron ore from its greenfield Tonkolili project in Sierra Leone, has been hit hard by low iron ore prices, which tumbled on Tuesday September 3 to their lowest level since the autumn of 2009, at just over $86 per tonne for benchmark 62% Fe material.
Index prices for 58% Fe material, a specification much closer to Tonkolili’s product, have fallen even further, dropping to $69.78 per tonne on September 3, down from levels well above $100 per tonne at the beginning of the year.
African Minerals is one of a clutch of new iron ore miners in West Africa struggling to continue operating amid the twin tornadoes of tumbling iron ore values and the outbreak of ebola ravaging the region.
All started production within the past four years, and most are struggling to secure the finance necessary to continue to operate at these low iron ore price levels amid the health and logistics implications of the outbreak.
Rising death toll
Ebola has claimed more than 1,500 lives since the first case in the current outbreak was reported in Guinea earlier this year, according to figures published by the World Health Organization (WHO) at the end of August.
Sources in Liberia speaking to Steel First said that the actual total could be much higher, with many deaths going unreported as the disease spreads beyond West Africa.
The WHO has also admitted that the magnitude of the outbreak had been underestimated due to the disease being prevalent in rural and remote areas, as well as the existence of an “invisible caseload” of patients who, for a variety of reasons, had not been detected by the surveillance systems that had been put in place.
In Liberia’s capital city Monrovia, used as a base by mining companies operating in the iron-rich Nimba region which straddles the borders with Guinea and Cote D’Ivoire, fear and mistrust have hampered medical efforts to contain the spread of the virus.
Last month, patients fled from a quarantined ebola clinic in Monrovia, and the government of Liberia, the country worst affected by the outbreak, has come under criticism for its attempts to deal with the situation.
Medical teams attempting to contain and treat patients in some locations have been met with hostility, with affected communities often shunning the efforts of health workers in the belief that they were spreading the disease.
In recent weeks, the disease has spread beyond Guinea, Liberia and Monrovia to Nigeria, with cases now being reported in Senegal as well.
An outbreak of a different strain of the virus has also been reported in the Democratic Republic of Congo, prompting South Africa and Botswana to restrict traffic across their borders.
Trucks transporting cobalt and copper were blocked by Botswana due to the ebola outbreak last week.
Mining sector death
Among the mining community in West Africa, one worker is confirmed to have died from the disease.
In August, steel major ArcelorMittal lost a contractor working on its Yekepa iron ore project in Nimba county to the virus. He has been named as Patrick Sawyer, ArcelorMittal Liberia’s public health manager and an official of the Economic Community of West African States.
Sawyer started working for the company in April 2014 and fell ill after contracting the disease from a family member.
He informed his employers on July 9 that a family member had died of the disease, and was then referred by the company to Liberia’s ministry of health for daily monitoring.
ArcelorMittal said that it had requested that Sawyer not return to work until he had safely passed through a 28-day observation period, seven days longer than the 21-day period recommended by Liberia’s government.
But Sawyer flew to Nigeria when ill with the disease and died in a Lagos hospital on July 24.
He has been named by the Nigerian government as the “index” case for the disease in the country, with all other primary cases of ebola in Nigeria having had contact with him. Since his death, a further five people have died of the disease in Nigeria.
ArcelorMittal told Steel First that it had restricted the movements of its people in the areas at highest risk of the disease, as well as making additional sanitation supplies and equipment available to the communities where its employees live.
No other confirmed or suspected cases have been reported among the steelmaker’s workforce.
Effects on output
Mining companies operating in Sierra Leone, Liberia and Guinea, the countries worst affected by ebola, have been eager to stress that their day-to-day operations have not been affected by the disease outbreak.
The region’s largest producing iron ore miners – ArcelorMittal, London Mining and African Minerals – have highlighted the measures they have taken to ensure the safety of their workforces.
However, with major air carriers including British Airways and Air France halting or restricting flights to the affected region, and land borders being closed, getting in and out of the area is becoming increasingly difficult.
While miners insist that existing operations have not been affected by the ebola crisis, expansion and development plans at many of the region’s biggest mines have been delayed or revised in light of the outbreak.
ArcelorMittal contractors declared force majeure on its $1.5 billion expansion plan at its Yekepa mine in Liberia’s Nimba county in August, weeks after the death of Sawyer, as contractors working on the project started moving people out of the country because of their ebola fears.
The company is still assessing the consequences of the contractors' decision on the project schedule.
The halting of the expansion project, intended to increase iron ore shipments from the project to 15 million tpy by the end of 2015, has not had any effect on shipments or mining at Yekepa’s first-phase mine, ArcelorMittal said.
The company confirmed that Yekepa’s 5 million-tonne first-phase operation was continuing to mine and ship out iron ore “as normal” on September 3.
In Sierra Leone, 16 cases of ebola have been confirmed in the Tonkolili district, where African Minerals’ mine of the same name is located, according to the country’s health ministry.
Another Sierra Leonean iron ore miner, London Mining, has had to modify its expansion plans and review cost guidance since the start of the outbreak.
A production ramp-up at its Marampa project is expected to take longer than planned, and the miner has also increased its expected unit cost per tonne for iron ore from the project, to take into account higher expenses arising from travel restrictions.
Single-mine operators such as African Minerals and London Mining are in particular danger from the costs of the disease outbreak and dramatic falls in index iron ore prices.
Already under considerable pressure from mining majors – able to weather the price storm thanks to their bottom-of-the-cost-curve production outlay – these smaller operators could face devastating consequences from delays to expansion plans which would help lower their costs.
Effect on investment
The ebola outbreak will lead to “sharply” lower growth in Guinea, Liberia and Sierra Leone, International Monetary Fund (IMF) spokesman Gerry Rice said at a press briefing last week in Washington, USA.
“Ebola is having an acute macroeconomic and social effect on three already fragile countries in West Africa,” he said.
Increased food poverty and security among vulnerable groups are among the social consequences of the crisis, with expectations that significant financing will be needed to redress the damage done to the economies most severely affected.
Alongside agriculture, mining is one of the region’s biggest industries, with major companies such as ArcelorMittal often the single biggest investor in a country’s economy.
Rio Tinto, which is developing half of the Simandou iron ore project in Guinea – a potentially game-changing deposit which could guarantee Guinea significant revenues in royalties and taxes once it starts production – has placed restrictions on travel.
Guinea’s government has delayed an investment forum scheduled for later this month in London because of the crisis.
Citing “considerable new health challenges” faced by the country in the past two days, the forum, designed to boost trade and investment links between Guinea and the UK, has been delayed until November at the earliest.
Despite it being the first country hit by the outbreak, sources in Guinea said that the country had managed to keep the epidemic more or less under control since it broke out earlier this year.
Tensions remain high, however. In the last week of August, a riot broke out in Guinea’s south-eastern city of Nzerekore after the market was sprayed with disinfectant in a bid to curb the spread of the virus.
Nzerekore, Guinea’s second-largest city and located in the heart of the country’s iron ore belt, is at the epicentre of the outbreak.
Protesters – who believed ebola to have been imported – attacked Unicef vehicles, leaving around 60 people wounded, according to press reports.
With both public health and security in West Africa coming under increasing pressure from the consequences of the disease outbreak, large investors such as miners will be looked to for support.
WHO has said that the response to the outbreak must be “dramatically scaled up”, noting that nearly 40% of the total number of cases reported had occurred in the last three weeks of August.
Miners have contributed funds to the WHO’s campaign against the disease, and are working with governments and charities to fight the disease in their areas of operation.
But the further spread of ebola can only compound the operational and cost difficulties the mine operators currently face.
West African iron ore miners are facing a “perfect storm” of tumbling iron ore prices and the deadliest outbreak of the ebola virus yet seen.