Cablegate: Israeli Company Wins Liberia's Largest Iron Ore Concession

VZCZCXRO4045
RR RUEHMA RUEHPA
DE RUEHMV #0256/01 0571013
ZNR UUUUU ZZH
R 261012Z FEB 10
FM AMEMBASSY MONROVIA
TO RUEHC/SECSTATE WASHDC 0085
INFO ECOWAS COLLECTIVE
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RHMFIUU/DEPT OF JUSTICE WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHBJ/AMEMBASSY BEIJING 0001
RUEHNE/AMEMBASSY NEW DELHI 0001
RUEHTV/AMEMBASSY TEL AVIV 0001

UNCLAS SECTION 01 OF 02 MONROVIA 000256

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: EMIN ECON LI
SUBJECT: ISRAELI COMPANY WINS LIBERIA'S LARGEST IRON ORE CONCESSION

REF: 08 MONROVIA 744

1. (U) SUMMARY: Elenilto Minerals & Mining has won the concession
to rehabilitate and develop the Western Cluster Iron Ore Deposits.
Elenilto, the first Israeli company to invest in post-war Liberia,
is expected to invest $2.4 billion to redevelop the mines and
install a rail network. While the Western Cluster is considered
one of the largest iron ore deposits in the world, Liberia failed
to attract the largest global steel companies, in part because of
the country's infrastructure limitations, and in part because an
early bidding process was canceled because of procedural errors.
END SUMMARY.

2. (U) President Sirleaf and her cabinet announced on January 28
that the Israeli-based Elenilto Minerals & Mining won the
concession to rehabilitate and develop the Western Cluster Iron Ore
Deposits. The GOL estimates the concession will generate $2.4
million in infrastructure investment, create 4,000 to 5,000 jobs,
and generate revenues from royalty payments, surface rentals,
license fees, corporate income taxes and import duties. The
Liberian government and the Israeli company will begin final
negotiations in March for a Mineral Development Agreement (MDA),
which the National Legislature also must ratify.

3. (U) The Western Cluster iron ore project consists of three
deposits, including two idle mines that span Bomi, Grand Cape Mount
and Gbarpolu Counties. The project covers the Mano River iron ore
deposit (the former National Iron Ore Company, closed in 1976); the
Bomi Hills iron ore deposits (the former Liberia Mining Company,
closed in 1985); and the Bea Mountain iron ore deposits, which are
virtually untouched. The project contains over 1.1 billion tons of
iron ore and is considered to be one of the largest remaining
deposits in the world.

4. (SBU) Deputy Minister for Lands and Mines E.C.B Jones, who also
chaired the technical Bid Evaluation Panel, told Econoff that
despite the concession's size, the bid attracted responses from
only a handful of midsized international companies. Jones said
that the tender failed to entice global steel giants because the
Western Cluster deposits contain two old mines with relatively low
grade ores. ArcelorMittal CEO Joe Matthews added that although
ArcelorMittal initially bid on the Western Cluster, it opted not to
participate in the second round of bidding because the timing
coincided with both a liquidity crunch and a global slump in iron
ore prices.

5. (U) Elenilto was declared a provisional winner following a
year-long due diligence conducted by international audit firms.
Other bidders were Sociedade de Formento (India), Capital Steel
Global Company (China), and Global Steel Holding Ltd (India).
Jones noted that Capital Steel, which is part of the Shougang
Corporation, was represented in the bidding process in Liberia by
Neil Bush, brother of former President George W. Bush.

6. (SBU) The bidding process began in February 2009 after the GOL,
citing procedural errors and a failure to conduct due diligence,
cancelled an earlier bid Delta Mining Consolidated of South Africa
won in 2008 (reftel). Subsequently, the President called for an
amendment to the Public Procurement and Concessions Act, which now
requires the GOL to conduct due diligence on all bidders, prior to
evaluation and awarding of contracts. Matthews added that while
the fraught bidding process was not the primary motivation behind
ArcelorMittal's decision not to renew its bid, it certainly was a
contributing factor.

7. (SBU) While the terms of the Elenilto deal remain undecided,
Jones said negotiations will begin with provisional sums that
include an upfront payment of $25 million, a commitment of $3
million to a community development fund, and an annual rental tax

MONROVIA 00000256 002 OF 002

equivalent to 21% of the company's profits after an as-yet
unspecified return on investment. The 25-year renewable license
will also require the Israelis to build 65 to 150 kilometers of
railway line from the Freeport of Monrovia, improve port
facilities, and invest in basic infrastructure such as schools,
hospitals, and roads. Jones noted that none of the expected
revenues will be included in the draft 2010-2011 budget.

8. (SBU) COMMENT: Given that this project is expected to provide
substantial revenue for government and create ample socio-economic
opportunities for Liberians, it is commendable that the GOL re-bid
the concessions in order to comply with procurement standards and
ensure the winning concessionaire could fulfill its financial and
operational requirements. Further, after China Union unexpectedly
delayed payment of a $47 million signing fee, precipitating deep
retrenchment in Liberia's modest cash-based budget, the GOL seems
to be adopting a welcome fiscal caution by discounting up-front
fees from its draft budget until it receives payment. It is
disappointing, however, that larger, more established international
companies were scared off because of the timing of the global
downturn and a lack of confidence in the process.
THOMAS-GREENFIELD

© Scoop Media