The US$2.68 billion China Union plan to revitalise Liberia's Bong Mines has not taken off, almost a year after it was first signed. Initial concerns about the little-known Chinese mining company's ability to raise such sums now seem well founded (AAC Vol 2 No 4).

Seeing no progress on the ground, Liberian President Ellen Johnson-Sirleaf was one of a handful of African presidents to attend the ministerial Forum on China-Africa Cooperation in November. She talked with Chinese Premier Wen Jiabao and got him to promise that the China Development Bank would bankroll China Union.

China Union's Liberia Project Manager Liu Chun told Africa-Asia Confidential, 'I won't say we have signed an agreement, but it's very clear that they are going to back the deal.'

Analysts in Monrovia are left asking what sort of bid documents the Chinese company could have shown if it still does not have the financial means to begin the project or make the small signature bonus payments that it had promised.

Communication between the Chinese company and the Liberian authorities appears to be a problem. In many cases, China Union says one thing while the Liberians say another. A China Union spokesperson says that the signature bonus was 'not fully paid' due to 'reasons from both sides.' A Liberian Mines Ministry representative said that nothing had been paid by mid-December.

Monrovia says that there is no need to revise the terms of the contract, but China Union's Liu said in early December that 'I won't say that there are no problems, there might be some technical things we have to look into. There are some items of the agreement that we are now discussing with the Liberian government. Some of them need further confirmation, some may need further revision.'

Liberian Mines Minister Eugene Shannon told AAC that both sides expect the CDB financing to come through as early as January, saying that 'the Chinese government is to have 85% share ownership, although the deal is still to be under the control of China Union.' China Union, a group of companies that is powerful within Henan Province - comprised of the Henan Jianghai Group (conglomerate), Henan Jinda Industry (mining), Tianjin the Leader Group (logistics) and Gingko (Hong Kong) Investment Company (oil and gas) - has no other experience of international investments.

Signatures, but no bonuses

China Union has been slowed by a lack of experience in raising finance and organising logistics in Liberia and China. In the evaluation of the Bong Mines bidding round in December 2008, ministers gave the company the highest score in terms of industry knowledge, commercial viability and social conscience. The government then conducted due diligence, but somehow overlooked the fact that China Union did not have the funding necessary to develop the mine, build a power plant on the St. Paul River, improve the rail link between the mines and Monrovia and rehabilitate the Kakata-Heindi highway, as promised.

Elsewhere in Africa, iron ore projects have faltered as ore prices fell to about $80 per tonne this year. ArcelorMittal abandoned its project at Falémé, Senegal, at the middle of this year and the Liberian government has been kind to the same company, allowing it to delay the beginning of production, which had been expected in 2010. In Gabon, the China National Machinery and Equipment Import and Export Corporation is having similar difficulties in moving development of the Bélinga mine ahead.

From the signing of the Mineral Development Agreement on 19 January, China Union had 90 days to make a signature bonus payment of about $45 million. The contract was signed with representatives of the China-Africa Development Fund and the CDB in attendance, but financing has still not been forthcoming. The China Union has been keen to suggest in public that the project's delays have not been caused by the financial crisis or the company's inability to raise finance, denouncing such claims as 'rumours'. Meanwhile, Liberia's Mines Minister Shannon says that the reason for the delay was that China Union could not afford the $2.68 bn. price tag. While China Union officials play down the talk of financial problems, Chinese Ambassador Zhou Yuxiao confirmed that the company's operations had slowed down because of the global economic downturn. China Union also mentioned the possibility of allowing access to smaller investors, which suggests that even with the support of the CDB, China Union might have a shortfall to make up.

Officials at China Union said that they have not even been able to pay half of the required amount by early December. With the deal signed in January, fiscal planners had counted on the whole sum being made available this year so as to enable the country to expedite its post-conflict recovery. In May, Finance Minister Augustine Kpehe Ngafuan reported that there was a $11 mn. budget deficit, due in part to delays in receipt of revenues from mining and other sectors. Despite the 'transparency' that Richard Tolbert, Chairman of the National Investment Commission, praised China Union for when they won the contract earlier this year, details of sources and timings of financing for the deal remain opaque.

Having about a year to reflect on the terms of the deal, Finance Minister Ngafuan said in August that the Monrovia government has been too quick to try to attract international investors during the downturn. The result has been that the government has made concessions and then the investors have been waiting for the financial climate to improve, having negotiated several concessions that are not in the government's long-term interests. Ngafuan said that the Finance Ministry 'wants to ensure that we don't short-change the country because of the short-term goal that we see.' As an example, he pointed to the 3.5% mineral royalty guaranteed to China Union, while ArcelorMittal agreed to pay 4.5% in 2007.

These difficulties have meant that the progress on work at the mines has been negligible up to this point and is currently far behind expected schedule. In January, Liberian officials said that a pellet factory would be up and running by the middle of 2010; expectations have now been pushed back to mid-2011 and even this date is dependent on the successful implementation of more negotiations in January 2010, which are still in very early stages. The Liberian government hopes that work could begin in earnest in January, and China Union have said that preparations for infrastructure have already begun, including on-site inspections and the arrangement of contractors and feasibility studies. The Liberian government says that absolutely no progress has been made on the ground and that China Union cannot hire contractors and begin work until the signature bonus has been paid and a Class A mining licence is approved.

The size of the project means that China Union needs to get approval from several government agencies, including the National Development and Reform Commission, the Ministry of Commerce and the State Administration for Foreign Exchange. While they hope that all of this will be completed by the end of December, allowing work to go ahead in the new year, this is very much dependent on the expediency of a number of departments and the speed of dozens of rounds of discussions. The deal cannot go any further until China Union can demonstrate that it has the technical capability and financial support to develop the project.