Lessons from a Sierra Leonean mining dispute

Commodity price movements, evolving interests and stakeholder engagement are shaping outcomes in the mining sector. Three ministers led a government delegation on a tour of Gerald Group’s iron ore mine in northwest Lunsar this month. The gesture marked a positive turnaround in the investor’s relations with the government after a two-year dispute in which the government threatened to seize the mine. Both parties settled out of arbitration last May and the government received a 10% stake in a newly formed Marampa Mines as part of a fresh agreement (See: Joint venture proposed to end mining dispute in Sierra Leone). A boom in iron ore prices strongly motivated both sides to negotiate a settlement. Extracting itself from a volatile political situation also helped the investor to repair its relationship with the government, and an improved ratification process has now improved the risk outlook for this specific project.

Significance – Path to fresh start

Port Loko is a political base for the main opposition All People’s Congress (APC), and locals there had been aggrieved about the government’s shutdown of the Marampa mine because of its economic significance.

Gerald’s licenses had already been revoked when it was caught in the middle of civil unrest in 2020 that began with a deadly riot in the capital Freetown and spread to the Port Loko district where the Marampa mine is situated.  

The government accused Gerald of inciting the resulting violence and the company was not able to sufficiently distance itself from the events after its employees were implicated. This development further antagonised the government and protracted the mining dispute. A source in the ruling Sierra Leone People’s Party (SLPP) described the company’s conduct to us as ‘a lack of understanding of the local political dynamic’. Disentangling itself from that political situation was a crucial step in the dispute resolution.

However, the roots of the dispute go back to three years to the flawed process by which parliament originally ratified the mining lease agreement between the government and the investor in December 2017. The SLPP was in the opposition at the time and the then-ruling APC managed to get the deal ratified at the last minute ‘through the backdoor’ in the view of a current MP with relevant experience. The SLPP took charge of the presidency and parliament after elections held the next year – and Gerald began facing the gradual erosion of its ownership rights. Now, a new mining lease agreement that parliament ratified last December has reset the investment terms and resolved differences between the SLPP and APC over how government should extract revenue from the investment.

Finally, a price boom has given Gerald and the government additional incentives to end arbitration and return to the negotiation table. The company’s two-year-old stockpile of iron ore that the government had blocked from being exported had suddenly appreciated in value following a sharp rise in international iron ore prices. The profits allowed the company to pay the government a one-off fee of USD20 million to smooth a settlement.

Outlook – Regulatory certainty

We envisaged last May that the Marampa Mines deal will become a template for forming future deals and negotiating revenue in the extractives sector. The progress made so far supports this forecast. Even so, enduring weaknesses in Sierra Leone’s dispute resolution systems and underlying parliamentary process for reviewing legislation and contracts remain a source of risk. Both underline the need for adequate project-specific due diligence by operators, investors and other stakeholders. Concluding proposed amendments to the Mines and Minerals Act 2009 through an inclusive process would ease regulatory uncertainty on that note. However, this is not currently a political priority with general elections coming in 2023.

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*Photo credit. Ivan Bandura

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