This is the third in our series of ‘Snapshot’ articles, designed to provide a rapid view of socio-political risks facing resource projects based on the LicenseSecure framework. In this article we look at African Minerals’ flagship iron-ore project in Tonkolili, Sierra Leone (please note that African Minerals is not a client of Critical Resource).
Explanation: From Rio Tinto in Guinea to ArcelorMittal in Liberia, West Africa’s mining industry is attracting major attention and investment. Amidst the excitement, African Minerals’ (AML) flagship Tonkolili project in Sierra Leone has stood out: at an estimated 10.5 bn tonnes it is said to be the biggest iron ore discovery in 20 years, and the project has attracted a potential $1.5 bn in investments from Chinese interests. In response, AML’s share price has skyrocketed, increasing around 17 fold in 2009 and remaining high since. But does AML’s current valuation build in the socio-political challenges that may lie ahead?
For the time being the project appears secure in this respect. It has strong current support in Sierra Leone, including from the country’s president. AML has also committed to a range of community development programs. But also important is how stakeholder attitudes evolve over time (a LicenseSecure rating builds in an evaluation of such future issues). Part of the challenge for AML here will be the same as for other resource projects in poor, post conflict, developing countries: keeping up with (likely unquenchable) local demands for benefits, ensuring the project avoids fuelling a potential ‘resource-curse’, and navigating future political instabilities.
There may also be growing political pressures on AML over time to renegotiate the terms of its original deal with the government. Complaints have recently surfaced from NGOs that the deal fiscally short-changes Sierra Leone – a charge strongly denied by AML. Whether such talk is fair or not, the experience of other projects in the region suggests it will not disappear – and could be seized upon by competitors seeking to muscle in on AML’s license. Both Rio Tinto in Guinea and ArcelorMittal in Liberia have encountered related (costly) problems in their projects.
Background on LicenseSecure: The LicenseSecure™ framework assesses the health of the ‘socio-political license to operate’ for resource projects. A decision tool for resource firms and their financiers, it aims to support far-sighted, responsible management of sustainability and stakeholder issues around these often critical investments. LicenseSecure has been developed by Critical Resource over a number of years, based on an analysis of 60+ projects which have suffered challenges to the license to operate (for example where the host government has toughened fiscal terms or communities have impeded operations). The model assesses a project’s socio-political context and the quality of its management of these issues across six key categories, drawing on some 150 indicators. It is supported by an extensive database of projects which allows benchmarking and rapid assimilation of lessons from parallel projects.
* NB this brief provisional analysis is based on desktop research and does not constitute a formal LicenseSecure rating.