Sierra Leone Telegraph: 6 February 2021:
Following the publication yesterday of allegations made in parliament this week by the opposition APC party parliamentary leader – Chernor M. Bah, accusing the Bio-led government of secretly permitting the Chinese mining company – Kingho Mining Company Ltd to ship millions of dollars worth of iron ore from the shores of Sierra Leone without parlaiment’s approval, the ministry of mines and mineral resources has responded in a presss statement.
Justifying its decision to allow the shipment to go ahead, the ministry of mines says that:
“The ownership of the iron ore stockpiled at the Pepel Port rests with the State and under the authority of the Minister of Mines and Mineral Resources. Hence, the Minister of Mines and Mineral resources urgently put modalities in place through the Cabinet to legally, morally and ethically authorize Kingho Investment Company Ltd to export (on a one-off commercial basis as agreed in the One-Off APA) the Iron Ore Stockpile at the Pepel Port on behalf of the State.
“An Advance Pricing Agreement, which is a requirement (when selling to.an affiliated company) in the Mines and Minerals Act 2009 and Extractive Industries Revenue Act 2018 (as enacted into law by Parliament), does not (and had never been) have to go to Parliament. An Advance Pricing Agreement is an executive, operational and regulatory instrument developed and implemented by the Regulatory Agency (NMA ) and the MMMR in consultation with Ministry of Finance/NRA; not by Parliament.”
This is the full statement published by the mimnistry of mines:
“Kingho Mining Company Ltd was granted a Large-Scale Mining Licence by the GOSL on 8 January 2020. On 21 December 2020, Kingho Investment Company Limited (the parent Company for Kingho Mining Company Ltd and Kingho Railway and Port Company Ltd), submitted an Expression of Interest (EOI) to export the iron ore mineral product stockpiled (Iron Ore Stockpile) situated at Pepel Port site on behalf of the GoSL on commercial basis.
The EOI, as submitted by Kingho Investment Company Limited (KICL), covers the Iron Ore Stockpile at the Pepel Port site only. The EOI also drew the attention of the GoSL to the fact that the Iron Ore Stockpile is being stored on a pad that will be used by Kingho Mining Company Ltd (KMCL) for stockpiling its iron ore transported from the Tonkolili Mine Site that will be in production in January/February 2021.
Furthermore, KICL indicated that considering the volume of Iron Ore stockpile and the space it occupies, agreeing to export the Iron Ore Stockpile now will create sufficient space for its incoming iron ore from the Tonkolili Mine Site.
The GoSL, on 8 January 2021, concluded the GOSL-Kingho Rail and Port Lease Agreement (Lease Agreement) with Kingho Railway and Port Company Limited to operate the Tonkolili-Pepel Railway and Pepel Port facilities.
Also, the two subsidiary companies of Kingho Investment Company Limited (i.e., Kingho Mining Company Ltd and Kingho Railway and Port Company Ltd) are at an advanced stage of the mobilization and site preparation to commence operations at the Tonkolili Mine site and Pepel Port.
These recent developments put Kingho Investment Company Ltd in a better position to have the right of first refusal to export (on a one-off commercial basis) the Iron Ore Stockpile at the Pepel Port on behalf of the State.
Having thoroughly assessed the situation both locally (i.e., nature of the iron ore product, current state of preparedness and acquisition of right to operate the Railway and Pepel Port by Kingho Rail and Port Company Ltd) and internationally (i.e., current global price of iron ore), the GOSL asked KICL to tentatively make marketing arrangements and secure a third-party buyer for the Iron Ore Stockpile.
In January 2021, the NMA conducted a detailed assessment and verification exercise (including volumetric drone survey) at the Pepel Port to ascertain the tonnage (quantity) and quality of the iron ore already stockpiled at the site and also collected representative samples of the iron ore stockpiles for laboratory analysis to ascertain the product quality, including moisture content and Transportable Moisture Limit (TML).
The iron ore product from the Tonkolili Mine Site historically fetches a considerably lower price in comparison to the benchmark prices of iron ore products with a similar iron (Fe) content. Benchmark prices only cover a certain range of product specifications – iron ore in particular is known to display an extremely large range in product specifications depending on, for example, their geological properties, the geography and climate of the area it is mined in.
Accordingly, even though the iron ore product from the Tonkolili Mine Site has a 57-58% Fe content (and thus falls into the bracket covered by the Platts’/TSI’s 58% Fe iron ore spot price index), it became evident that this product was always valued significantly lower than the benchmark product due to its inferior specifications.
Not only does this product display a much higher alumina (Al2O3) content than commonly preferred (6-7% instead of the 1.5% prescribed by the benchmark), it also has extremely high levels of moisture (15% instead of the maximum of 9% prescribed by the benchmark).
Moreover, this product is also marred by a large loss of ignition (LoI) and general efficiency losses in handling of the product due to the high clay content and the chemical properties of the ore. All these properties combined cause this Iron Ore Stockpile to be of significantly inferior quality in comparison to other companies’ products with a comparable iron (Fe) content.
The MMMR and the NMA in collaboration with the relevant MDAs estimated a fair price on the stockpiled iron ore mineral product as it leaves the Pepel Port. However, it is important to note that sales of iron products seldom take place at this point (i.e., as the iron ore product leaves the Pepel Port), so the method chosen was determined by a trade-off between the ease of administration and the desire to provide an economically efficient and equitable system.
In this specific case, the valuation points included published price (including deductions, given the specifications of the iron ore product in question) and Free on Board (FOB) – deduct freight costs, insurance, any legal costs, quality adjustments and marketing fees, etc.
The APA determines in advance the terms and conditions of the one-off commercial transaction/sale of the Iron Ore Stockpile and ensures price transparency and predictability, based on publicly published iron ore price indices.
As part of the One-Off APA negotiations process, the NMA, MMMR and MOF/NRA ensured that Kingho Investment Company Ltd committed to providing certain critical information in relation to the sale of the Iron Ore Stockpile at the Pepel Port.
The documents included: Provisional invoice; Freight invoice from carrier; Draft survey report; Sales contract with third-party; Copy of certified laboratory report for shipment samples taken; Customs certificate at the port of delivery (e.g., Qingdao); Final invoice; Supporting documents that can explain all differences between the Platts Iron Ore price and the quoted “base price” (e.g., size of the particles and penalty for it, moisture penalty, TiO2 penalty, LOI penalty, etc.); and an Excel file tracking shipment and status/availability of the requested documents, as well as provisional, revised and final invoices.
The ownership of the iron ore stockpiled at the Pepel Port rests with the State and under the authority of the Minister of Mines and Mineral Resources. Hence, the Minister of Mines and Mineral resources urgently put modalities in place through the Cabinet to legally, morally and ethically authorize Kingho Investment Company Ltd to export (on a one-off commercial basis as agreed in the One-Off APA) the Iron Ore Stockpile at the Pepel Port on behalf of the State.
An Advance Pricing Agreement, which is a requirement (when selling to.an affiliated company) in the Mines and Minerals Act 2009 and Extractive Industries Revenue Act 2018 (as enacted into law by Parliament), does not (and had never been) have to go to Parliament. An Advance Pricing Agreement is an executive, operational and regulatory instrument developed and implemented by the Regulatory Agency (NMA ) and the MMMR in consultation with Ministry of Finance/NRA; not by Parliament. (End of Statement).
Is this the end of this political row, or will the opposition parliamentarians come up with further revelations about this Chinese iron ore shipment deal?