Will Gerald Metals' issues in Sierra Leone be the last straw for creditors?

by Linus Booker

It is said that the most valuable commodity in Sierra Leone is diamonds. But in my experience, one commodity is priceless: trust. Contracts move, governments are ousted and money changes hands all the time, but the one thing you cannot buy in Sierra Leone is trust.

I’ve been based in Geneva from most of this year, but have been on a project in Freetown for the last 10 weeks. The talk of the town is all about how the creditors attached to one of the biggest foreign-owned mining investors here may be about to discover the value of trust the hard way. But if this blows up, knowing where to place the blame may raise as many questions about creative accounting as it does about management.

First, some context: there is a vast iron ore mine in the east of Sierra Leone that has the potential for 40 years of mining. The Marampa mine was first developed by London Mining, the erstwhile giant of African mining, before being snapped up and developed by one of Frank Timis’s companies when London Mining went bust. After the iron-ore price crashed in 2014, things went very quiet at Marampa before ownership quietly transferred to company called ‘SL Mining’ owned by Connecticut-based Gerald Metals. The iron ore price has since recovered, but production is yet to resume at Marampa. What’s more, lingering concerns over how Gerald secured the Marampa licence in the first place has meant that scrutiny on the ground is mounting by the day.

Since mid-November there have been concerns voiced in the local newspapers in Sierra Leone about Gerald Metals. Articles have variously claimed that Gerald Metals is under serious pressure from the government over its dismal performance, or claimed that Gerald Metals is about to lose its mining licence. Wednesday's news from Freetown tells us Gerald Metals has some support of the government, but for many observers this too will raise more questions than it answers.

Since Gerald Metals first acquired the licence at Marampa, rumours of foul-play have surrounded the company. Their near-overnight acquisition of the mine in March this year did not go unnoticed by newspapers here in Sierra Leone, with the kindest criticism being raised over inexperience of the new management. Given the problems restarting production at Marampa, it does seem fair to ask what faith should be placed in Gerald’s CEO, Craig Dean, who trained as a forensic accountant at Deloitte, not in metals trading, not even in mining.

For creditors, keeping an eye on the Deloitte connection may be sensible. Deloitte currently represents Gerald Metals. The accountancy firm has enough trouble on the African continent already, and by all accounts, the scandal surrounding the Steinhoff empire is yet to run its full course. Newspapers are already suggesting that an investigation into Deloitte’s compliance with international audit standards is around the corner.

And those checks may come sooner rather than later. Why? Well, according to reports online, Gerald’s credit lines for Marampa are up for review.[1] Banks like BNP Paribas, Credit Suisse, Deutsche Bank and Credit Agricole will be weighing the merits of renewing the $225m float currently attached to Marampa. Presumably in response to mismanagement of Marampa, the creditors have already decreased their exposure following an initial float of $300m for Gerald in 2014. So, any news of accounting irregularities, added to the fact that production at Marampa remains dormant, could spell real trouble for Gerald’s credit lines. With BNP Paribas still smarting from the $8.9 billion fine it received for its ties with Cuba, Iran and Sudan, this is no time for their compliance teams to risk another scandal on the books.

So, Gerald may have been given a stay of execution from the Government of Sierra Leone, but it remains to be seen if their creditors will be so merciful.

[1] http://www.tfreview.com/news/deals/gerald-group-us300m-rcf-oversubscribed

Linus Booker is principal consultant with Chavenage Mining Consultants, an independent practice he established in 2005. Previously a contractor with a number of blue-chip extractive firms, Linus has worked in Zambia, Russia and Sierra Leone, and is currently based between London and Zurich. He is married with three children.




Tweet with hash tag #miningfeeds or @miningfeeds and your tweets will be displayed across this site.

If you would like to receive our free newsletter via email, simply enter your email address below & click subscribe.

© 2017 MiningFeeds.com. All rights reserved.
(This site is formed from a merger of Mining Nerds and Highgrade Review.)