London Mining gets the iron ore out of Sierra Leone

The world’s latest iron ore mine comes out of a former key producer that is looking to get back on the mining track.

London Mining (LOND-L) has begun producing high-specification iron ore at its Marampa project in Sierra Leone, and expects to ship 20,000 to 30,000 tonnes of ore by the month’s end.

The mine opening marks a milestone for both the company and the country, which is proving itself as a source of high-specification iron ore once again.

Sierra Leone’s government said it expects iron ore mining to be a key contributor to its gross domestic product by next year. Marampa’s reopening represents the second mine opening in just two months, as African Minerals (AMI-L) shipped its first iron ore out of its Tonkolili mine last month.

Sierra Leone’s mineral potential is well-known, but war and corruption has long stifled the foreign direct investment the country needs to encourage and foster profitable, large-scale projects.

Marampa was once a contributor to the national government’s coffers. The mine was operated by the Sierra Leone Development Company and William Baird from 1933 to 1975, when it was shuttered owing to low iron prices.

In its most recent incarnation, the mine is scheduled to ramp-up to 160,000 tonnes of iron ore production per month over the first half of next year, and produce 1.8 million tonnes for the entire year.

From there, the first phase of development calls for a 4-million-tonne increase by 2013. The total capital costs for phase one are estimated at US$234 million.

The longer-term plan is to boost production to 16 million tonnes of high-specification iron ore per year.

To expand the facility to handle such a larger output, London Mining will have to cut more offtake deals with steelmakers and metal traders – with Glencore (glen-l) likely chief among them.

The company is in talks with Glencore, amongst others, to complete offtake deals that would finance the initial expansion to 4 million tonnes per year.

Glencore has already made a pre-payment for December shipment as per the two companies’ existing offtake agreement. That deal calls for Glencore to pay $60 a tonne in advance for the iron ore, with the total capped at $27 million. Any iron ore purchased after that mark will be bought at spot prices.

Iron ore prices have been recovering from their heavy sell off in September and October. The metal’s price dropped as much as 32% in the year’s closing months, but has recently recovered and was hovering around the US$133.46 tonne mark at presstime.

Marampa has an indicated resource of 566 million tonnes grading 31.5% iron, and inferred resources of 404 million tonnes grading 30.8% iron.

London Mining has the competitive edge of producing high-quality iron ore that is sought-after in advanced production facilities, such as in Europe.

The company has two other iron ore mines in Saudi Arabia and Greenland.