allAfrica.com: Liberia: Western Cluster Analysis Eposes Delta (Page 1 of 1)

An in-depth investigation has revealed that recent efforts by the Government of Liberia, through the Inter Ministerial Technical Committee to award a $1.5 billion dollar iron ore mining contract to a junior South African company is void of any sound economic, financial, and technical analysis.

In fact, almost all local and foreign analysts in the iron ore mining industry, though not prepared to be quoted, have questioned the manner in which Delta was selected as the process raises more eyebrows.

Some experts are wondering exactly how the President's economic advisers, and the entire cabinet could have failed to spot some of the glaring inadequacies and shortcomings in the Delta bid as baffling to most observers.

During the initial stages of the bid at the Expressions of Interest (EOI) stage, the Ministry of Lands, Mines and Energy had required that companies submitting bids must have an annual turnover of at least 1.3 billion US dollars. Delta Mining was selected over second place Sino Steel, the Chinese steel giant and third place Tata Steel, an even bigger Indian Company.

It has been gathered that Delta Mining does not have an annual turnover even approaching two million dollars according to most analysts. The company is not a publicly listed company and therefore its financial statements are privately guarded. The analysts are correct in their statement because Delta sought to bring strategic partners to the table, including Cape Lambert Iron Ore Company, an Australian firm, and the Industrial Development Corporation (IDC) of South Africa.

A careful look at the IMTC fact sheets on top three bidders leaves one confused as to how the companies were ranked. Information from these fact sheets, originally confidential but now widely circulated in the industry and among journalists show the following about the companies in key areas.

But credible reports say that Cape Lambert had losses of three million Australian dollars in their last fiscal period, and the value of their exploration properties are listed at only company's income statement. As for IDC being a strategic partner of Delta, that is still farfetched as IDC is only a development bank, and must like the Overseas Private Investment Corporation (OPIC) that does project financing either by granting loans or as equity participants. The IDC will finance or buy into a project only after a full blown feasibility has been completed. Therefore, for Delta to list IDC as a strategic partner when no such arrangement has been finalized bordered on fraud and deception. In fact, analysts noted that the IDC documents within the bid document had the Republic of Guinea printed on the front cover of the company's profile.

Delta is apparently scheming to leverage Liberian iron ore by securing a contract and then constructing a business and financing model to attract needed capital. This is usually a hit or miss proposition.

According to our investigation, if the global economy experiences a major recession as is being projected and the demand for steel from China and India falters, the price of iron ore would plummet, making the previously viable Western Cluster Iron Deposits most likely a marginal project or not profitable at all. This could hinder the iron ore industry for at least 10 years, since the cycle for steel is 50 years and Liberia is in the middle of that growth curve. Therefore, experts say Liberia should be seeking strategic partners with the ready capital to spend on revitalizing the industry instead of depending upon a small exploration company that will take years to raise the necessary capital.

The IMTC has made remarks indicating that the size of Delta should not prevent it from winning the US$1.5million dollar project, because size does not matter. The committee members are mixing up green field mining projects, where small exploration companies take the risks and develop the projects up to a point and then are bought by larger firms with deep pockets. The Western Cluster Deposits are largely previously developed properties. Two of the deposits are not green fields, since they were previously explored by major companies and once had proper infrastructure to support mining activities there.

The Inter Ministerial Technical Committee ranked the companies according to criteria that are not normally used in international tenders. It rated technical and financial capability at 10 percent while giving 65 percent to quality of written proposals. One expert questioned the proposal of Delta as compared to Mittal, Sino Steel, and Tata and wondered whether this should be the basis for granting the South African company a $1.5billion dollar project that has strategic national interest. To this, the experts said a big no.

According to our investigation, on page 59 of the Delta development proposal, the company promised to invest in year one the amount of US$1.248 billion which is equivalent to 78% of Delta's total investment package for the Western Cluster. But the experts say one does not need to be a student of economics or mining to know that investing US$1.248billion in one year in a mining project is a near impossibility and that Delta needs to explain how she is going to spend the US$1.248 billion since she envisages one and a half year for the feasibility study.

Technically, the Delta Proposal is very questionable and while the IMTC missed this is puzzling. In that proposal, Delta promises to implement the following in less than nine months: It said it would build a processing and palletizing plant at the Freeport of Monrovia; rebuild transport routes and refurbish railways and ports; construct mining infrastructures and site constructions and complete resources delineation.

The promise to complete all of the above within nine months is almost impossible. The experts said the key to commence any mining project is the feasibility study schedule and that if the feasibility study would be completed in one and a half year, they wondered as on what basis Delta would start to build a processing plant and start mining. They said this is not possible if one should consider the manufacturer of a gyratory crusher almost two years to deliver a crusher. They questioned how Delta can explain that it will complete the construction of processing plants within nine months

Meanwhile, experts are urging the IMTC to address a Cabinet gathering and answer some stiff questions as how its conclusion was arrived at. The experts said serious questions need to be answered as the credibility of the Government is at stake.

But, all things being equal, most experts feel comfortable that the due diligence process being sponsored by the United States Government through USAID and reportedly to be undertaken by the reputable firm of Deloitte and Touché will lay this matter comfortably to rest.

Since Delta was selected, there have been numerous concerns about its capacity to deliver. Even the media in South Africa where it is based has raised qualms about its selection. Our investigation continues.

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