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Sierra Leone - Mining

Sierra Leone’s mining sector accounts for nearly one-fifth of GDP and nearly all of exports. Despite impressive export-led growth, half of the population remains in poverty. The economy proved resilient in the face of two major exogenous shocks: the Ebola epidemic and collapse of iron ore prices and associated loss of production in 2014-2015.

Sierra Leone is rich in minerals and is one of the world's most important sources of large diamonds. The country also hosts gold, platinum, rutile, chrome, bauxite and iron. Major producers have included the Nord/Consolidated Rutile world-class rutile deposit, Alusuisse's bauxite operations and the famous Kono diamond fields worked for many years by Selection Trust at Yengema and Koidu.

Sierra Leone’s primary mineral resources are diamonds, rutile, bauxite, gold and iron ore. The mineral sector in Sierra Leone is made up of three sub-sectors: a) large-scale production of non-precious minerals – rutile and bauxite; b) large scale production of precious minerals – diamonds; and c) artisanal and small-scale production of precious minerals – mainly diamonds, and to a much lesser extent, gold.

The mining sector contributed around 20% of GDP and fiscal revenues equal to 8% of GDP until the closure of the bauxite and rutile operations in 1995. It continues to supply 90% of exports due to the thriving artisanal diamond component. Mining and quarrying employ about 14 percent of the total labour force.

The value of minerals exports reached more than $140 million in 2007, thereby returning, at least in nominal terms, to the previous peak achieved in 1991. With the prospect of new modern gold and diamond mines opening in the next 3-5 years, it was estimated that annual mineral export revenues could exceed $370 million.

The Marampa Mine, which was operated by London Mining plc of the United Kingdom, produced more than 1.5 Mt of high-quality iron ore sinter concentrate in 2012. Production was from the mining of highly-weathered primary ore and from tailings. The Marampa Mine had operated from 1935 to 1975 and then again from 1982 to 1985 but was closed in 1985 owing to a decrease in the global price of iron ore and an increase in operating costs. The mine remained closed until 2009 as a result of Sierra Leone’s civil war, and it was eventually reopened in 2011. Total mineral resources at Marampa, including tailings, were estimated to be 1.07 billion metric tons (Gt) at a grade of 31.2% iron.

The brownfield expansion of the Marampa Iron Ore Mine has the potential to generate important fiscal and non-fiscal benefits alike, such as increased revenue for the Government of Sierra Leone (GoSL) and important business development and employment opportunities for local businesses.

The Tonkolili Mine produced a total of 5.1 Mt of iron ore in 2012 and was expected to reach a processing plant run rate of 20 Mt/yr by 2013 from its current installed capacity of 10 Mt/yr. Tonkolili’s total resources were estimated to be 12.8 Gt. measured, indicated, and inferred resources, which included 126.6 Mt of direct-shipping hematite lump ore at an average grade of 59.1% iron, 11.5 Gt of magnetite at an average grade of 30.1% iron, and 1.1 Gt of saprolite at an average grade of 40% iron.

Prior to the civil war, Sierra Leone had established an active mining sector built upon significant exports of diamonds, rutile and bauxite. Although relatively modest by global standards, the sector was significant in terms of the country’s population and GDP. It underpinned much of the country’s formal economic activity, contributing 20% of GDP, as much as 15% of fiscal revenues, and accounting for over 90% of exports. Mining and quarrying provided a livelihood for over 250,000 people, and employed about 14% of the total direct and indirect labour force. Despite the sector operating at only a fraction of its potential, its contribution was significant enough to qualify Sierra Leone as a resource-rich country.

Sierra Leone slipped off the investment radar for most major mining companies well before the outbreak of hostilities in 1991. The effective nationalization of the diamond industry and increasing political instability relegated the country to, at best, a speculative exploration target. Although the established rutile and bauxite operations continued to play an important economic role, large-scale exploration activities effectively came to a stand-still more than 20 years ago. As the sector’s economic importance declined, so too did the capacity of key Government departments to regulate sector developments.

Recognising the need to establish an enabling environment for attracting new investment into mineral exploration and development, new mining policies were adopted in 1995 and 1998. The fact that these policies coincided with the forced closure of two foreign-owned mines meat, however, that their impacts were neglible. Without a return to peaceful times and greater political stability, credible international investors would not consider Sierra Leone as a potential exploration target.

The End of Hostilities

The end of hostilities marked the start of a strong economic recovery. Double-digit economic growth during 2001 and 2002 led to a significant period of economic expansion. Real GDP growth averaged nearly 8 per cent per annum for the period 2003 to 2006 and is forecast by the International Monetary Fund to continue at over 6 per cent per annum in the medium-term.

The mining sector has played an instrumental role in Sierra Leone’s nascent economic recovery. In four of the last five years, the rate of growth recorded in the mining sector has exceeded that in the remainder of the economy. The resurgence of the mining sector has been two-fold. First, the Government – with external support – has had considerable success in increasing the proportion of diamonds mined that pass through official channels. Official exports have increased to 582,000 carats in 2006, with 84 per cent of this amount being mined by artisanal and small-scale miners. The U.S. dollar value per carat has also increased significantly, suggesting that larger, more valuable diamonds are increasingly returning to official export channels.

Second, three mechanized mines have been reactivated. The country’s first Kimberlite diamond mine has been operating since 2004 and is progressively expanding production. Also, both of the rutile and bauxite deposits that were developed before the war are once again being mined. The rutile mine is on-track to return to pre-war production levels this year, and plans are in place to expand operations further. The mine’s owners have also acquired the rights to mine bauxite at Moyamba and successfully produced over 1 million tons in 2006.

In 2006, the estimated value of official mineral exports reached a record of US$176 million. This represented around 91 per cent of total export earnings. Faced with a large current account deficit, which creates reliance on foreign aid to fund Sierra Leone’s import needs, the rapid increase in mineral exports has provided a much-needed injection of foreign exchange.

As a result of the many channels through which revenue streams flow from the mining sector to Government, it is difficult to accurately determine the sector’s contribution to public revenues. It is clear though that it fell significantly as diamond smuggling increased and the formal mining sector collapsed. The World Bank estimates that having provided 8 per cent of Government revenues immediately prior to the civil war, the sector’s fiscal contribution plummeted to only 1 per cent of total Government revenues by the end of the hostilities. Despite the strong rebound of the mining sector in recent years, its contribution to public revenues remains weak, in part reflecting significant continued avoidance of official export channels. It is estimated that the sector contributed around 29 billion Leones to public revenue in 2006, which is equivalent to around 3.1 per cent of total public revenues.

The resumption of rutile and bauxite mining has re-established the two mines as two of the largest private sector employers in Sierra Leone. Prior to their closure these mines employed over 3,000 workers. The vast majority of income-earning opportunities generated by the mining sector, however, are in artisanal diamond mining. The World Bank has estimated that up to 40,000 people are directly engaged in mining for diamonds and that the associated population of immediate family dependents could include 100,000 to 200,000 people. If those people that are indirectly dependent on artisanal diamond mining through forward and backward linkages are included, the World Bank estimate reaches 200,000 to 400,000 people dependent upon artisanal mining for the greater part of their livelihood. This represents between 4 percent and 8 percent of the population.