It Is Better To Be With The Devil You Know Than The Angel You Have Not Seen – The Case Of AML Part I

Joel C. Brooks*

ArcelorMittal Liberia Launches International Training And Development Program – News Public Trust

Recently ArcelorMittal, the world’s leading steel company currently operating in Liberia and the Liberian Government signed an amendment to the Mineral Development Agreement (‘MDA’) which paves the way for the expansion of the Company’s mining and logistics operations in the country.

With the MDA amendment coming into effect, the ArcelorMittal Liberia will significantly ramp up production of premium iron ore, generating significant new jobs and wider economic benefits for Liberia, this expansion project will encompasses processing, rail and port facilities.

It is indeed expected to be one of the largest mining projects in West Africa. The capital required to finalise the project is expected to be approximately $0.8 billion, as it is effectively a brownfield expansion.

The expansion project includes the construction of a new concentration plant and the substantial expansion of mining operations, with the first concentrate expected in late 2023, ramping up to 15 million tonnes per annum (‘mtpa’). Under the agreement the company will have reservation for expansion for at least up to 30mt. Other users may be allowed to invest for additional rail capacity.

As the largest foreign investor in Liberia, ArcelorMittal Liberia has invested over $1.7 billion in the country over the past 15 years, while more than 2000 jobs are expected to be created during the construction phase, with Liberians envisaged to fill the majority of the roles created.

ArcelorMittal operates a Vocational Training Centre and provides two-year residential certificate training in mechanical and electrical trades.

As part of the expansion, ArcelorMittal Liberia has also launched a training and development program for high potential Liberian employees who will gain on the job experience and knowledge in ArcelorMittal Mining operations globally.

The employees will receive advanced training in the fields of mining production and operation optimisation, plant maintenance, planning and execution, plant electrical operation systems, and electrical maintenance. Other training areas include plant fitting and heavy-duty mobile equipment maintenance, as well as mine production and operations.

The investment in advanced skills training demonstrates ArcelorMittal Liberia’s commitment to providing employment and professional development opportunities to Liberians. In addition, it is envisaged that the expansion will further boost the growth of small and medium sized businesses in Liberia which offer a range of services to ArcelorMittal Liberia.

The Liberian leader, President George Manneh Weah Commenting on the agreement, said: “We are delighted to have reached this important agreement with ArcelorMittal Liberia, our long-term partner in the development of the mining sector in Liberia. This agreement demonstrates to the world that Liberia welcomes foreign direct investment and is a key emerging destination for capital. It further supports the Government’s ’Pro Poor’ agenda, which is underpinned by the importance of creating jobs to lift Liberian citizens out of poverty. The further investment by ArcelorMittal in Liberia bears testament to the company’s confidence in the future of this country. We are confident that our constructive working relationship will go from strength to strength.”

Since 2005, AML has been one of the largest taxpayers in Liberia with payments to the Government exceeding $350 million to date. When ArcelorMittal entered Liberia in 2005, the country had no electricity other than private generator.

Prior to the arrival of AML to Liberia, this country was torn apart by two civil wars between 1989 and 2003, leaving the country socially and economically devastated, as most international companies had fled the country and Liberians were left with disintegrated infrastructure and without employment, when political stability was restored to the nation in 2003.

The new Liberian government, led by President Ellen Johnson-Sirleaf, was intent on reviving industry in the country and provided opportunities for prosperity to the Liberian people. However, since the beginning it was clear that Liberia would need large businesses to demonstrate belief in the viability of investment in the country in order to promote future economic growth.

ArcelorMittal was the first large business to show such belief in the country when in 2005 she signed the Mineral Development Agreement with the Liberian government, enabling us to initiate our iron ore mining project in the country. In 2006, ArcelorMittal was the first and single largest private investor in the country since the civil wars, its commitment to Liberia led the way in demonstrating the viability of prosperous business in Liberia. Since then other companies, large and small, have followed our lead, providing more job opportunities and economic stability throughout the country.

ArcelorMittal Liberia operations go far beyond mining iron ore. As part of its operations, significant progress has been made in rebuilding Liberia’s roads, rail and housing infrastructure. A 243 km railway from Yekepa, Nimba County, to the Port of Buchanan, Grand Bassa County, has been rehabilitated and port and material-handling facilities at the Port of Buchanan upgraded.

Since the start of construction operations in 2006, the company has invested $500 million in roads, schools, hospitals, and training; $7 million in resettlement programs and initiated an extensive program to improve the livelihoods of those affected by the company’s operations. In addition, the company has reopened schools in Yekepa, which provide education to children of company employees and residents of surrounding communities.

For the benefit of people who really don’t the professional and humanitarian services of AML, GNN has taken a serious look at this steel giant key messages relating to the many promises to the people of Liberia.

Key messages

Being fully committed to investing and growing its iron ore business in Liberia, the company management team is committed to completing Phase 2 that was interrupted in 2014 due to Ebola; with the plans of commissioning the new 15 mtpa concentrator in late 2023 ramping up to full capacity in early 2025.  The company has plans to expand further to 30 mtpa and studies for this Phase 3 expansion will also begin in 2022. Being the largest global steel producer consumes more iron ore at its steel plants than its current global production of  about 55 mtpa, making it a net iron ore buyer. Steel quality and environmental concerns ensure a focus on high Fe grades and low impurities like the quality product being planned in this Phase 2 Concentrator.

It  was the only iron ore producer that remained operating in West Africa in 2015 following the worldwide crash in commodity prices. As a dependable international partner for Liberia during Ebola, it followed the WHO guidance requesting companies to remain operating so that the country is not dealt with an economic calamity on top of the health crises it was undergoing.  AML did so only because it had the support of the parent company, which pumped in funds to the local unit to keep payroll and operations sustained in spite of heavy losses in 2015 thru 2017.  The company was accumulating losses each month even though production was ongoing primarily to ensure that layoffs were minimized.

ArcelorMittal has been engaged with GoL on the need for an amendment since August 2016 with the Sirleaf Administration, demonstrating its partnership with Liberia to keep operations afloat and offering win-win solutions such as utilizing the HFO plants it had procured in 2014 to supply badly needed electricity in country.  Current negotiations began in earnest on Sept 17, 2020 and the company was engaged in 54 meetings with GoL, IMCC and its international advisors over the 53 weeks it took to conclude by Sept 10, 2021. 50 of these meetings were on Infrastructure sharing as requested by GoL.

 What are the benefits for Liberia that is included in the recent Amendment signed with GoL?

AML will invest $800 million to complete the Phase 2 expansion it began in 2014 opening the door for supply opportunities for local and international companies.

Extends mine life by over 30 years and triples capacity of mine, rail and port with a Phase 3 potential for 30 mtpa.

More than 2000 jobs will be created during the construction phase and the vast majority of these roles will of course be for Liberian citizens. Once up and running, an additional 1000 jobs for Liberian citizens will be generated.

Additional MDA language so that GoL and other mining companies in the region may utilize infrastructure by investing in its expansion for their own needs.

Enables the company to bring in additional capital without diluting GoL ownership.  Debt to Equity relaxed from 3:1 to 4:1.

Increases CSDF contribution to $3.5 million annually and ensures that 20% of these funds will benefit communities surrounding the mine, rail and port.

At today’s prices represents over $150mpa in royalties, taxes and other contributions – greatly reducing dependence on donors.

Puts Liberia “on the map” with international mining industry / FDI (possibly largest mining project in Africa in 2021). The world is watching Liberia and Weah Administration.

  1. AML performance over the past 16 years

AML has been a good corporate citizen of Liberia and has fully complied with all the terms of its current MDA.

AML reopened the mining industry in Liberia in 2011 after it was dormant for two decades.  Its presence attracted other mining companies and provided a confidence booster for other investors.

AML has also been a founding member of LEITI and its significant payments to GoL are well documented in their reports since 2007/2008.  This information is available to all for verification on the LEITI website.

AML has fulfilled all its payments and obligations that are in the current MDA.  It is and has been current on all dues to the County Social Development Funds including after 2014 and up to date as of 2021.  President Sirleaf offered a 50 % deferment of these payments for a few years in her 2015 State of the Nation address to all concessionaires in order to keep them from abandoning Liberia.   AML availed of that 50% deferment in 2016 to 2019 and has now paid back much of these deferred amounts in 2020 and 2021.

AML has also complied with its targets for Liberians in Senior Management (66% vs 50% target); Professional & Technical Management (88% vs 90% target); 100% in Skilled & Unskilled positions.

AML has rehabilitated 243 Km of a dysfunctional railway and increased the Buchanan port to accept Panamax size vessels at a cost of $500 million, which included payments to Odebrecht.

The Ebola epidemic and subsequent crash in commodity prices created a severe strain on AML operations beginning 2015.  The company tried extensively to discuss with the Government from 2015 onwards for support as it had to tighten its costs to keep operating in Liberia,

AML has incurred losses in Liberia for all but 3 years of its 16 years in country.  The recent iron ore price surge has enabled the company to eke out some profits in the past 2 years, but not enough to significantly payback any of the $1.5 billion investment to date.  AML expects iron ore prices to settle back down later this year as world supply and demand gets back in balance.

  1. Specific clarifications from previous comments on SpoonTV

Even though ArcelorMittal as a global entity currently has annual revenues of $63 billion, its net profits are approximately $3 to 4 billion annually here in 2020/2021.  This amount is reinvested in capital projects and the Liberia project gets a lions share of the 19 other country units that compete for these funds.

The company was on target to achieve 18 million tons of ROM in 2016 as per the MDA.  AML has had limited success in its discussions with GoL since 2016 to make up these production losses in future years.  The current Amendment finally provides that new plan.

AML’s 1st Amendment was ratified in May 2007.  More than a year later in September 2008, GoL who was having budget issues to procure vehicles requested the mining companies to contribute to the country’s welfare, which the company obliged with 100 pickup trucks using its global purchasing leverage.  This was never a quid pro quo for ratification which had occurred 18 months prior.

The CSDF funds were very effective in the early years as they were benefitting all three counties.  Good examples are the Grand Bassa Community College, etc.  Its only around 2010 with the passage of the County Budget Bill, were there issues with the funds not reaching the counties.  AML continued to pay its obligations via the LRA.

AML does not receive any tax credits associated with expenditures it incurred in rehabilitating rail and port infrastructure.

  1. Background and other details

ArcelorMittal (AM) is one of the world’s largest steel makers and operates a vertically integrated model with iron ore and coking coal. Whilst AM mining globally produces c55mtpa of high grade iron ore, AM Group remains a net buyer of iron ore. AM Mining procured the rights to redevelop the post civil war abandoned LAMCO iron ore property in Liberia comprising mining areas adjacent to Guinea, a disused rail line and port facility in Buchanan.

ArcelorMittal signed agreement with Government of Liberia in 2006 and has rehabilitated an abandoned railway, port and mines to put Liberia back on the iron ore producers map in 2011. The company also demonstrated unwavering commitment and support to Liberia in 2014 by remaining the only operational iron ore producer in the region following closures by all others due to Ebola and declining iron ore prices.

AM Liberia has been producing up to c5mtpa of direct shipping iron ore since 2011. ArcelorMittal has so far invested over US$ 1.7 billion, initially for the railway, port, mine and town infrastructure as part of Phase 1 DSO in 2011 (US$750 million) and later for the now suspended Phase 2 concentrator project (US$950 million). The Phase 2 project was commenced in 2013 but due to the Ebola outbreak from 2014 to c2016 was suspended, with the vast majority of civil work and procurement completed.

In addition to the fiscal benefits accrued by the Government of Liberia from royalties, employment and income taxes, etc., ArcelorMittal contributes to development in Liberia through many economic multipliers.  The company currently has about 2500 employees and over 1000 contractors on site.  Revenues to the Government are about $30 to $40 million annually.

As a long term ‘partner’ in Liberia, AM Liberia has committed to fund a regional road c.70km between Ganta and Yekepa in north east of Liberia. Total commitment US$40m. Construction in progress and estimated completion in 2023.

With the level of commitment being expressed and put forward, this writer want to call on  the Liberian government to be more mindful in awarding additional concessionary obligation to any would be investors under the canopy of bringing on board another group to compete with the AML in similar sector, It is better to be with the devil you know than the angel you have not seen.

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