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Cliffs Natural Resources (NYSE: CLF) and London Mining (LSE: LOND) have become the latest casualties of falling iron ore prices, with Cliffs declaring a US$6 billion non-cash impairment charge in the third quarter on its iron ore and coal assets, and London Mining placed into administration.
London Mining says it will try to work with its administrator, PwC, to maintain its Marampa iron ore mine in Sierra Leone as a going concern, while Cliffs is working with its banking group to get an amendment that will eliminate the debt-to-capitalization covenant of 45% currently present in its revolving credit facility, as the non-cash impairment charge will increase the debt-to-capitalization ratio over that threshold.
Iron ore prices have fallen to five-year lows and are down about 40% so far this year at about US$80 per tonne. When London Mining’s Marampa iron ore mine in Sierra Leone entered production in December 2011, iron ore was selling for about US$140 per tonne, well above today’s levels.
It’s not the first time Marampa, which was operated between 1933 and 1975 by the Sierra Leone Development Company and William Baird, has suffered from depressed prices. The mine was closed for a period of time in the 1960s due to low prices for the metal.
Weak market economics, outdated processing technology and civil war then prevented the redevelopment of the mine for over 30 years until London Mining entered the picture and acquired the mining licence in 2006.
In an Oct. 17 research note to clients, analysts at Investec Securities in London called it “a sad day for the U.K.-listed mining sector” and warned that other iron ore operators in Africa remain at risk.
“London Mining had developed an impressive little operation in a remote part of the world, but one that ultimately could not withstand global forces,” the securities firm wrote. “Other African iron-ore operators could face a similar fate while those not in production, ironically, have the best chance to plod on, for a while at least.”
Graeme Hossie, London Mining’s chief executive officer, said in prepared remarks that Marampa “retains excellent fundamentals” and that the company hopes “to find the appropriate financial support” for the mine “to continue operating over the longer term.”
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