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SL Mining Breaks Silence
SL Mining issues clarifications to correct misinformation in some press reports relating to its current Operational Status and Mining License Agreement (“MLA”)
August11, 2019 - Lunsar, Sierra Leone and London, UK: SL Mining Limited (“SL Mining” or the “Company”), a wholly owned subsidiary of Gerald Group,seeks to addressrecent inaccurate and misleading reports circulating in the press. The Q&As below are intended to providean accurate and factual update of the Company’s current status and operations.
Question 1: Was SL Mining in full compliance with its legal and other obligations, such as those noted in SL Mining’s Large-Scale License Agreement (“MLA”), the Minesand Minerals Act, 2009 (“Act”), and the Extractive Industries Revenue Act, 2018(“ERIA”) passed by the Maada Bio Administration?
Press reports also relate to alleged non-compliance, and more importantly, that SL Mining evaded specific requests made formally by the National Minerals Agency (“NMA”),which led to the temporary suspension of all activities of SLMining on 3 July 2019.
Answer1: SL Mining has been 100% compliant with the Act, ERIA, and all its obligationsunderthe MLA. At no time was there ever a request of information received fromany governmental agency, including the NMA, that SL Mining did not respond tofully,and provide all requested information and documents in a timely manner.
Question 2:We understood that the Minister of Mines and Natural Resources (MoM) invoked section 52 of the Act, which is a temporary suspension, due to SL Mining’s non-compliance, is that correct?
Answer 2: Yes, thesuspension was served without any warning whatsoeverandwiththe imminent negative impact on operations,the Company sought immediate legal advice from both Sierra Leonean and international legal counsel. The Company’slegal advisers have confirmed that Section 52 of the Act, is for emergencies only, and, if not suspended, would lead to danger to life, property or the environment and/or where failure to comply with the provisions of the Act, would lead to danger to life, property or the environment or some similar mishap and that any such suspension would need to be undertaken on an emergency basis to prevent the aforementioned danger.
Based onSL Mining’s understanding of the Act, the invocation under Section 52 was not warranted or necessary.
Further,Section 53 of the Act deals with compliance or non-emergency related events, and as provided in the Act, a suspension under this Section cannot be invoked without giving the Company time to remedy the alleged non-compliance, andaffordingit at least 30 days to remedy the situation.
SL Mining has and will always comply with all laws,andcooperate with all requests, investigations, and other requirements of the MoMin accordance with thelaws.
Question 3: We understand that the NMA was not aware of the following items, and this is the main reason why the MoM, himself, served the original suspension notice on 3 July 2019;
3a - What was the destination of the iron ore?
3b – Who or what counterparty was the iron ore sold to?
3c - What is the sales value of the shipments? In the last few days, an article stated that the value of the goods sold was US$23 million and that the Government only collects US$800,000 from the said shipments.
3d - When were the royalties due and why were they not paid in a timely manner?
3e - Was an advanced pricing agreement in place prior to the suspension?
Answer3:Royalties are due only 45 days after the end of the month of shipment and information is actually required a month before the payment date.
SL Mining notes that the original notice of Temporary Suspension generally statedthatthe Companyhad “Contravened provisions of this Act and specific conditions of your Mineral and Mining Lease Agreement” and there were no specific reasons provided for suspension; the only aspect of the suspension notice that the Company understood was that the suspension was temporary in nature and would lapse in 21 days, unless it was lifted or further extended in writing.
Thiscausedsurpriseand concernamongSL Mining management, employees and other stakeholders.
It was 14 daysafterthe Temporary Suspension, on 17 July 2019,whentheMinistry issued a letter requesting furtherdetails of certaincompliance related matters.SL Mining has already confirmed that ithas been cooperating with all requests immediately;the Company has responded in full, and managementis always available to address any issues, requests, or other items the Ministry or NMA seeks.
SL Mining categorically states that comments about SL Mining selling three shipments of iron ore to its affiliated companyand not to third parties arefalseand that only with the support of its affiliated company it was able to achieve the highest Free on Board (FOB) price possible in the market.
Questions as noted above
Q3a– What was the destination of the iron ore?
A: All three cargoes of Iron Ore were sold to Chinese steel mills and therefore destined to Chinaand therelated sales contracts were provided in time to the NMA.
Q3b–Who or what counterparty was the iron ore sold to?
A: Ultimately the final buyers are Chinese steel mills. SL Mining’s sister companyhelpedto market the material from all three shipments (totaling approximately 170,000tonnes) in order to achieve the best possible price for the iron ore andprovided the financing, freight and marketing services for SL Mining under a documented marketing fee arrangement. This agreement was also provided in a timely manner to the NMA.
Q3c- What is the sales value of the shipments?In the last few days,an article stated that the value of the goods sold was US$23 million and that the Government only collects US$800,000 from the said shipments.
A: In accordance with the Act, MLA and the EIRA, the value of the material shipped is calculated based on the market price of its FOB value, at the point of export from Sierra Leone, which is estimated at approximately US$11 million, and not US$23 million, as reported.The media report is factually incorrect andimplies that that SL Mining’s MLA is unfair and not in the interests of the SL Mining’s stakeholders andthe people of Sierra Leone and is misleading.
SL Mining is proud of its performance and details of SL Mining’s first half 2019 operationalhighlights are published on www.slmining.com. This information has also been provided in a timely manner to the NMA.
The EIRA passed by the Maada Bio Administration in 2018 states that royalties due to the GoSL should be 3% of the FOB value. SL Mining’s MLAclearly states that SL Mining pay the recommended amount as noted in the EIRA of 3%in royalties.
In addition to 3% in royalties, SL Mining pays an additional 0.5% in royalties to the Community Development Fund (CDF). SL Mining has also committed to a higher CDF percentage, whichafter 8 years reaches1.0%, over and abovethe royalty requirement in the Act and in the EIRA passed by this Administration.
Therefore, SL Mining is actually paying more thanthe royalties enacted in the current EIRA passed in 2018, and based on international standards.
It is also important to note that there are many other direct and indirect taxes that SL Mining pays. SL Mining estimates that it pays, between taxes and other charges, about US$1.3 millionto the GoSL and the community duringeach month of operations and exports.
Q3d: When were the royalties due and why were they not paid timely?
A: Royalties are due only 45 days after the end of the month of shipment. As SL Mining began shipping in June 2019, the first royalty payment is not due until 15 August 2019. In other words, there is NO royalty amounts due until that date. SL Mining intends to comply with all its obligations.
Q3e: Was an advanced pricing agreement in place prior to the suspension?
A: No, an advanced pricing agreement is only required if the sales are to affiliate parties as documented in the MLA. There is no requirement to pre-advise the Ministry of Mines or the NMAthe names of customers to whom we sell, and the NMA had not asked for such disclosure. SL Mining has confirmed that the initial sales were to third parties and not affiliated parties.
Question 4: There are certain rumors stating that the NMA has received an advice from the Attorney General’s (AG) Office relating to a series of information pertaining to corrupt practices involving SL Mining. Can the Company please comment on this?
Answer 4: SL Mining can confirm that neither the Company nor any of its officers have ever been involved in any corrupt practices. SL Mining, as part of Gerald Group, has policies and procedures in place to comply with all local and international laws and standards across all areas of operations andwill cooperate with any investigations. Any allegations or rumoursare unequivocally false and misleading.
Question 5: How has this suspension and export ban impacted SL Mining?
Answer 5: The suspension has had multiple negative impacts for the project, and hence the Company has been involving management at all levels to try and solve any perceived issues raised by the NMA. Specially the impacts are:
1) Monetary andpermanent loss of revenues of more than US$10 million, so far. This has direct impacts on GoSL revenues, the Sierra Leone economy, exchange rates, and so on.
2) Morale and job insecurity asemployees and contractors are frightened of losing their jobs once again,given the uncertainty as to when full operations may resume (currently there are >1,700jobs).
3) Given the unexpected temporary suspension, followed by the continued ban on exports, people have lost or are losing confidence in the future.
4) Short term expansion plan to 3 Mtpa is under re-evaluation and the long-term expansion plan to 6 Mtpa is on hold given the current ban on shipments.
Question 6: How has this suspension and export ban impacted the GoSL revenue?
Answer 6: The suspension is depriving the GoSL ofmaterial revenues, as the suspension precludes royalties and corporate taxes. The suspension also obliges SL Mining to incur losses and therefore less income to pay taxes to the GoSL.
Question 7: We understand there are comments that the temporary suspension expired after 21 days and that the ban on exports should not materially impact the project. Is this true?
Answer 7: This comment is not true and there are multiple reasons why the project will need to be shut down if the export ban continues, however the three main reasons are as follows:
1. Since 2017, SL Mining has invested significantly in the mine’s future and if the company is not allowed to export, it cannot sell its material, and without sales, salaries and otheroperating costs cannot be paid.
2. Without a strict timeline as to when the shipment ban will be lifted and what is required to lift the ban, the Company is no longer in control of its business plan, and therefore cannot continue to deploy working capital without forecasts on revenues or even offer the product to any buyer.
3. Storage capacity is limited, and SL Mininghasalready stockpiled over 500,000tonnes of concentrate. Managing a stockpile of this size has increased re-handling cost, caused by a high level of contamination of the product and increased safety risk. The impact on cost and lost revenue is reducing the funding available for expansion.
Question 8: We understand that the MLA of SL Mining is not a “good deal” for the people of Sierra Leone, that it was ratified on the last day of parliament the 6 December 2017 and therefore it cannot be a proper agreement.
Answer 8: We are aware of these comments about how SL Mining’s MLA is ‘not a good deal’ as it was ratified on the last day of parliament in 2017. These comments are highly inaccurate and misleading. SL Mining was awarded a Large Scale License in March 2017, and went through a very rigorous process over 8 months with the NMA, various ministries, and the negotiation team appointed by the GoSL (which included representatives of every relevant agency of the government) as required, resulting in a MLAthat provides fiscal stability, that allows SL Mining to invest for the long-term.
For a more accurate and factual understanding, while SL Mining’s MLA wording was based on London Mining Company’s (LMC) MLA, in fact SL Mining has granted more concessions to the GoSLthan LMC did. It should be further noted that SL Mining benchmarked its MLA against both LMC and African Minerals MLAs and has concluded that its MLA is the least favourable for an investor in a mine. Most importantly, LMC and African Minerals, as well as the previousoperator of Marampa Mines all went into insolvency and/or liquidation as they were unable to produce economically. This was always a high concern to SL Mining as an MLA needs to have proper fiscal incentives to promote sustainable iron ore mining.
One of the ways to attract long term investors is to provide fiscal stability at levels that allow returns commensurate with the risk such investors take.Across the globe, fiscal incentives in MLAs are required in the mining sector, and especially in the iron ore industry where projects are very capital intensive, risks are high, and prices arevery volatile. Projects also have important socio-economiccommitments to local communities and the governments.
In 2017, and prior to the ratification of the MLA, a project financial forecast was built for and audited by the NMA to analyse the impact of SL Mining’s MLA on GoSL’s income from the project over the life of mine. The fiscal regime in the MLA through direct and indirect taxes, and all other relevant revenues were reflected in the financial forecast. The forecast concluded the following:
- Approximately 70% or US$1.45 billion of all cash flows go to the GoSL while approximately 30% or US$650 million go to the Shareholder of SL Mining.
- Project payback is approximately 10 years, which is an extraordinarily long period. This means that investors would need 10 years to recoup their initial investment, and only then would investors start earning a return.
All operators, (African Minerals, Shandong, London Mining, Timis Mining and Cape Lambert) in the in the local iron ore industry in recent history have failed without exception, including at Marampa.
Gerald Group and SL Mining have taken on the challenge to revive this industry, to negotiate in 2017 in a highly transparent way with the GoSL on an MLA that is less favourable to investors than all past operators, that directsapproximately 70% of project cashflow (US$1.45 billion) to the GoSL and requires 10 years for SL Mining to recoup a US$300 million investment and start earning a return. As such, Gerald Group and SL Mining believe that SL Mining’s MLA as ratified by the Parliament in December 2017, is favourable to the GoSL andSierra Leone as a country.
However, as communicated over the past year to the NMA and the Ministry, SL Mining is prepared to discuss its MLA in order to ensure that all parties fully understand the fiscal benefits and mutually agree new incentives that are fair and equitable for the future investments being taken. Gerald Group believes this to be appropriate if the GoSL would like SL Mining to expand its operations beyond Phase II, which is certainly possible in consideration of the shutdown of Tonkolili iron ore mine.
About SL Mining
Located in the Port Loko District, the northern province of Sierra Leone, SL Mining is engaged in the exploration, development and production of ‘Marampa Blue’, a high-grade iron ore concentrate with >65 percent Fe content. SL Mining was awarded a renewable Large-Scale Mining License granted under the Mines and Minerals Act, 2009 In March 2017 for a term of 25 years, emphasizing the strong support for the Marampa project locally, and reflecting its significant importance to the national economy. Together with Gerald Group’s international expertise in metals, finance, strategic investments and experienced management teams and employees, SL Mining aims to build a resilient and long-life iron ore mine in Sierra Leone and to expand operations by integrating mining, processing and rail and port logistics, alongside playing a responsible role in the economic and social stability of the Lunsar region.
About Gerald Group
Gerald Group is one of the world’s oldest and largest independent and employee-owned metal trading houses. Founded in 1962 in the United States, Gerald is headquartered in London. Led by Chairman and CEO Craig Dean, the Group has approximately US$10 billion in turnover. Gerald is a dedicated and trusted partner to leading miners and processors, industrial consumers and major financial institutions and has market presence in all regions of the world. The Group operates trading hubs in Shanghai, Stamford and Switzerland for the merchanting of non-ferrous, ferrous and precious metals, as well as related concentrates and raw materials. Gerald aims to contribute to world trade and economic development in a sustainable and responsible manner. The Group’s global footprint, conservative risk management culture, expert market intelligence, deeply experienced and innovative trading desks combined with logistics, storage and structured finance solutions, are complimented by strategic relationships, enhancing the business’ capability to provide customers access to a diverse and steady supply of resources.