London Mining virtually worthless

Beleaguered Sierra Leone based iron ore mining company, London mining, issued a damning RNS this morning sending its shares down over 80% to 0.6p. The killer line was that “the Board believes that there will be little or no value remaining in the equity of the Company and the other listed securities of the Group”. The shares were trading as high as 413p in 2011 and even 142p in late 2013. The RIP sign looks to be hoisted over this company very soon!

With iron ore prices at multi year lows and with an Ebola outbreak to contend with in Sierra Leone the company was facing some significant problems. The company now needs an emergency investor or it is faces administration and a fire sale of its assets. Recently London announced it was considering terminating its contract with Glencore, after the firms entered a dispute over an offtake agreement. In June it was forced to move all non-essential staff out of Sierra Leone.

The company’s only operating mine, Marampa in Sierra Leone, has struggled to make money with the iron ore price around $80 a tonne, down 40% year to date. As the low cost giants like Vale, BHP Billiton and Rio Tinto have flooded the market with iron ore in the face of weak demand from Chinese steel producers, the likes of London Mining have faced an uphill battle.

The Ebola virus outbreak in Sierra Leone and other African countries has also made mining more difficult from an operational perspective and has clearly made potential investors pause for breath. If an investor fails to materialise than it is likely that London Mining’s banks will pull the plug. The company’s debts total $310 million (£191 million) with a consortium of banks. Talks are taking place with trade finance bank Afreximbank, which has agreed a $30 million two-year financing facility, but this is not expected to be available in the time required given the difficult financial situation.

This failure shows how tough it is for small mining companies right now.

The RNS read

“Further to the announcement made on 29 September 2014, detailed discussions are ongoing with potential strategic investors, London Mining Plc (the “Company”) and the Company’s bank lender group. Under the structures currently proposed, the Board believes that there will be little or no value remaining in the equity of the Company and the other listed securities of the Group. While the lenders of the Company remain supportive of the process, they are not expected to provide any further short term funding which would be provided by a strategic investor if the discussions are successful. There can be no certainty at this time on the likelihood or timing of such an investment. 

With the iron ore price at its lowest level since 2009, the Marampa operations have been put under considerable financial strain.  In addition, the outbreak of Ebola in Sierra Leone has introduced significant challenges both to the strategic investor process that the Company began in May, and to the ongoing operational performance of the business, where our team in Sierra Leone continue to show exemplary commitment in such adverse circumstances.  The capital that is needed from such an investor is significant and the proposals currently contemplate funding of the life of mine expansion and a cash injection into Marampa to allow the mine to continue operating.”

Contrarian Investor UK

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