African Minerals in Sierra Leone
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SO M O African Minerals in Sierra Leone How a controversial iron ore company went bankrupt and what that means for local communities Tim Steinweg & Indra Römgens April 2015 African Minerals in Sierra Leone Colophon African Minerals in Sierra Leone How a controversial iron ore company went bankrupt and what that means for local communities First edition April 2015 Second updated edition June 2015 Authors: Tim Steinweg & Indra Römgens Cover layout: Frans Schupp Cover photo: Visualisation of the iron ore price ISBN: 978-94-6207-059-2 This publication is made possible with financial assistance from The Dutch Ministry of Foreign Affairs. Its content is the sole responsibility of SOMO and can in no way be taken to reflect the views of The Dutch Ministry of Foreign Affairs. Published by: Stichting Onderzoek Multinationale Ondernemingen (SOMO) Centre for Research on Multinational Corporations Sarphatistraat 30 1018 GL Amsterdam The Netherlands Tel: + 31 (20) 6391291 Fax: + 31 (20) 6391321 E-mail: [email protected] Website: www.somo.nl This document is licensed under the Creative Commons Attribution- NonCommercial-NoDerivateWorks 4.0 License. The Centre for Research on Multinational Corporations (SOMO) is an independent, not-for-profit research and network organisation working on social, ecological and economic issues related to sustainable development. Since 1973, the organisation has been investigating multinational corporations and the consequences of their activities for people and the environment around the world. Contents Executive summary ........................................................................................................ 4 1. Introduction ........................................................................................................ 7 1.1. Aim of the report, and its target groups ............................................................... 7 1.2. Methodology and limitations ................................................................................ 8 1.3. Structure of this report ......................................................................................... 9 2. Sierra Leone: context ........................................................................................ 10 2.1. Sierra Leone as a post-conflict country ............................................................... 10 2.1.1. History of the conflict ........................................................................................... 10 2.1.2. Economic development ....................................................................................... 11 2.1.3. Sierra Leone’s tax regime .................................................................................... 13 2.2. Iron ore mining in Sierra Leone ........................................................................... 13 3. African Minerals: the story ............................................................................... 16 3.1. History and activities ............................................................................................ 16 3.2. Corporate structure and ownership ..................................................................... 17 3.2.1. Corporate structure .............................................................................................. 17 3.2.2. Ownership ............................................................................................................ 17 3.2.3. Frank Timis .......................................................................................................... 18 3.2.4. Corporate governance ......................................................................................... 19 3.3. Finances .............................................................................................................. 20 3.3.1. Capital structure .................................................................................................. 20 3.3.2. Production cost structure ..................................................................................... 21 3.3.3. Penalty charges ................................................................................................... 22 3.4. Customers and suppliers ..................................................................................... 23 3.5. Business strategy ................................................................................................ 23 3.5.1. Competitive environment ..................................................................................... 23 3.5.2. Competitive positioning ....................................................................................... 24 3.6. Administration ...................................................................................................... 25 4. Human rights impacts ....................................................................................... 26 4.1. Relocation and access to water .......................................................................... 26 4.1.1. Relocation ............................................................................................................ 26 4.1.2. Access to water ................................................................................................... 27 4.2. Labour issues ...................................................................................................... 27 4.3. Tax ....................................................................................................................... 28 4.4. Potential impacts of mine closure ........................................................................ 29 5. Conclusions and recommendations ............................................................... 31 5.1. Conclusions ......................................................................................................... 31 5.2. Recommendations ............................................................................................... 32 3 African Minerals in Sierra Leone Executive summary Introduction This research report focuses on the mining company African Minerals and its Tonkolili mine in Sierra Leone. African Minerals has recently filed for administration and has faced accusations of grave human rights abuses. This report is part of a series of case studies on iron ore mining companies and the adverse impact their mining activities have on workers, local communities and the environment. In this series, the adverse impacts are linked to specific corporate strategies and the global iron ore market. As such, this report provides insight into the rationale of iron ore mining companies and their business strategies and the ways in which these affect local communities. It also provides relevant insight for governments, the international community and local stakeholders on the role of multinationals in conflict-affected areas. Context History of conflict Democracy in Sierra Leone is reconstructed after a brutal civil war that lasted from 1991–2002, killing over 70,000 people and displacing about half of the population. The country’s mineral resources played a major role in the civil war – in the onset as well as its duration. During the war, both the rebel army – the Revolutionary United Front (RUF) – as well as the government used resource wealth for their own ends. Both parties sold so-called booty futures – “the right to exploit mineral resources that the seller has not yet captured” – to foreign actors, in order to finance their military activities. Sierra Leone’s economy With a GDP per capita of US$1,400 (2013) Sierra Leone is one of the poorest countries in the world. In 2013, 52.9% of the population lived below the poverty line. However, until the outbreak of Ebola in August 2014, the country was also experiencing one of the fastest growing GDP rates in the world (13.3% in 2013). The country possesses a substantial amount of mineral, agricultural and other natural resources, but cultivation of these resources has been limited as a result of the civil war. As China’s economic growth drove demand for iron ore, West Africa was seen as the new frontier for iron ore mining. Sierra Leone’s recent economic growth has been spurred by mining of iron ore and oil exploration, spiking GDP growth at 15.2% in 2012 (compared to an average growth of 4.6% between 2008–2011). Iron ore production started in 2011 by small, high-risk foreign mining companies with no prior experience in this sector. When global iron ore prices started to drop in 2013, these smaller companies faced serious financial difficulties and two of the three iron ore mining companies in Sierra Leone have since filed for bankruptcy. Foreign investment The exploitation of natural resources in Sierra Leone requires foreign investment. However, activities of multinational companies can have negative impacts. The regulatory framework in which the multinationals operate is characterised by weak governmental oversight and dwindling confidence in the government’s ability to protect rights. Moreover, the country loses over US$40 million a year in corporate income tax because of incentives given to companies to attract investment. A country whose tax revenues are estimated to be 10.9% of GDP (a low figure, even compared to low- and middle-income countries in sub-Saharan Africa, where average tax revenues as percentage of GDP are 14.4%) cannot afford such losses. African Minerals African Minerals is an iron ore exploration, development and mining company whose sharelisting in the UK has been suspended