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Factors in the Western Cluster Deposits Award to Elenilto Minerals and Mining Limited: A Rebuttal
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Factors in the Western Cluster Deposits Award to Elenilto Minerals and Mining Limited: A Rebuttal

(May 26, 2011) By: Samuel P. Jackson

Introduction & Background


The Western Cluster deposits are comprised of the former National Iron Ore Company (NIOC), the Bea Mountains and the Liberia Mining Company (LMC). Iron ore mining activities actually began in the Western Cluster area in the early 1950s specifically at the LMC at Bomi Hills, Bomi County and later in the early 1960s at the NIOC at Kongo (Mano River), Grand Cape Mount County.

In the government’s efforts to revitalize economic activities, it set out to attract investments in the Western Cluster Deposits.  The government decided to tender the deposits by sending out a request for proposals (RFP) from qualified concessionaires.   The first bid round ended in controversy in 2007, due to award of the deposits to a South African company, Delta Mining, which was clearly not qualified, when due diligence was conducted on the winner.

After wrangling, the award to Delta Mining was cancelled and a new bid ordered by the government of Liberia. 

Bidding Process


On December 1, 2008, the government of Liberia sent out a request for proposals (RFP).

The RFP stated the following

a. Must be an experienced local or international mining company and will be required to invest in the rehabilitation of existing facilities and further development in the concession area on the basis of conceptual designs to be prepared through a feasibility study. It will also be required to mine and manage the concession for a minimum period of 25 years with the option of renewal for additional agreed periods;

b. Must have verifiable technical and managerial competence to undertake the required mining operations, previous successful investment and management of similar operations for at least five years of continuous iron ore mining and beneficiation of more than five million tons/annum of iron ore (bold and italics courtesy of the writer) ; and

c. Must have proof of requisite financial resources to undertake the rational development of the concession and to modernize existing infrastructure and facilities. If in a consortium, the members of the

Consortium must be bound to assume joint and several liabilities for the concessionaire’s obligations under the concession agreement or in the alternative that a member(s) of the consortium has consented to bear the risk of the other(s).

Several international companies submitted proposals.   Elenilto was among three companies shortlisted by the Inter-Ministerial Technical Committee (IMTC) which is headed by the Minister of Lands, Mines and Energy.  The following companies were shortlisted:

1. Sociedade de Fomento Industrial Private Limited, an Indian Company with more than fifty years of iron ore mining experience;

2. Capital Steel Holdings Limited, which is related to Shougang Corporation, the global Chinese conglomerate with 46 subsidiaries and is listed on the Hong Kong Stock Exchange. The  company has tens of billions of dollars of assets with mining operations in China, Australia and Peru; and

3. Elenilto Minerals and Mining Limited formed only in 2008. It claimed to be an “affiliate” of Engelinvest, the venture sponsor, principally owned by real estate developer, Jacob Engel with no mining experience.  This is a red flag, which indicates the murkiness of the affiliate relationship. 

Upon closer examination of the vetting process, it was discovered that no due diligence was conducted on any of the prospective bidders.   In fact, the Ministry of Lands, Mines and Energy (MLME) simply asked the short listed companies to present review of information by international auditing companies.  Thus the bidders paid international companies to submit review of documents.  The international auditing firms put disclaimers in their reviews stating the information provided should not be relied upon to make a decision on the award. The MLME made no other attempt to corroborate information in the review process.   This is surprising since award of the Western Cluster Deposits have the potential to impact the lives of hundreds of thousands of Liberian in the depressed Western corner of the country! 

The information from the international firms was then submitted to a local consulting firm by the MLME to be put into context in a matrix.   A review of the information was completed by Devin Corporation, a Liberian firm.  During the review, it was noted that Elenilto could not and did not provide any financial statements during the due diligence.   Engelinvest, the affiliate of Elenilto provided unaudited financial statements of less than five years. According to Deloitte Consulting, Engelinvest itself had been formed only two years prior to 2009.    Five years of financial history was required for participation in the bid process. 

Even more astonishing, the MLME did not conduct any further due diligence.  It simply used information provided by the prospective concessionaires that were not corroborated by international auditing companies.  Deloitte Consulting reviewed the documents presented to them by Elenilto and indicated clearly that they could not corroborate information provided.  They clearly stated that the information provided was useless since due to time limitations they had not conducted standard auditing procedures.  

Nevertheless, the review by Deloitte Consulting indicates that Jacob Engel, the principal owner of Engelinvest claimed title to several green field mining projects, which were in no state of development.  It also stated that Mr. Engel’s 70 million dollars cash deposits allegedly from banks could not be verified. It received confirmations but did not conduct other tests to authenticate the confirmation.    Even if the deposits were verified, it would take substantially more than 70 million dollars to even minimally conduct scoping studies, pre-feasibility and a bankable feasibility study on the Western Cluster before production.  There is no evidence that Mr. Jacob Engel had begun to develop any mining properties listed in the due diligence, from Tanzania to Vietnam.    Elenilto did not produce any valuation of mineral assets, subsequently listed on its web page that is confirmed according to the Joint Ore Reserves Committee (JORC) standards.  This is the internationally accepted methodology to determine the value of ore assets.   

Yet, Elenilto was chosen as the winner of the Western Cluster Award by the IMTC and submitted its recommendations to the Inter-Ministerial Concession Commission, chaired by the Chairman of the National Investment Commission. Negotiations are nearing the end that will result into a mineral development agreement (MDA) between the government of Liberia and Elenilto.   Since the bid award, controversies have been swirling.  Political parties, civil society organizations including student groups, professional mining engineers, geologists and economists have expressed outrage at the award.  The UN Report of December 2010 makes veiled references to Elenilto and talks boldly about the lack of transparency in the award of mineral projects.    Astonishingly, the government continues to plod ahead to sign a Mineral Development Agreement with Elenilto.  It was only recently that the Liberia Anti Corruption Commission was requested by civil society groups to investigate circumstances of the award.

The award of the Western Cluster Iron Ore Deposits to Elenilto Minerals and Mining Corporation Limited (Elenilto) appears to contravene all elements of economic probity.  It is the view of many experts within the mining industry that some Liberian officials may have been manipulated or bought to sacrifice national interests.  The award to Elenilto also seems to contravene the government’s vaunted policy to economically empower Liberian citizens in natural resource development, as the role currently being played by Elenilto as an intermediary for investment flow can be accomplished by a Liberian consortium with minimum efforts. 

Elenilto has no technical history in the mining and beneficiation of iron ore; neither does it have any provenance in the industry.  This is the case of a novice company taking chances.  It is alleged by critics of the award that key Liberian government officials, including officials of the Ministry of Lands, Mines and Energy, legislators and others visited Jacob Engel, the primary sponsor of Elenilto in Israel multiple times before, during and after the bid process.  Mr. Engel is now reportedly tied to several key present and former government officials.  

Elenilto was formed in 2008, after one of its officials Mr. Amir Nagammy came to Liberia to engage in the scrap iron business.  He is still currently listed as owner of the scrap company, M & N in Haifa.  The address of the scrap company is Shifra Street 10, Haifa, Israel.   This was the primary business venture for Mr. Nagammy’s entry into Liberia.    His business partners were Mr. Mohammed Kanneh and Augustine Jarrett, two Liberian citizens.  It is clear that the first line of business was not the development of Liberia’s iron ore industry.  They merely stumbled on the Western Cluster Iron ore bid process and may have gotten a wealthy venture capitalist, Mr. Jacob Engel to fund their bid operations. 

Renewed Controversies in the Western Cluster


Just this year (2011), the Cabinet requested Elenilto to bring a technical partner to the table in order to “fix” what a major breach of the award process was: failure to meet the requirements in the bid document.    If Elenilto did not qualify to participate in the bid  as indicated by its lack of capacity to meet the minimum qualifications in the bid mentioned above, why should the Government of Liberia now require the company to bring a strategic partner after the bid closed and an award has been made?   Not only does this lack transparency, but it makes mockery of the process.

Even more disturbing is the rumor among industry insiders that Elenilto is “auctioning” a portion of its interest in the Western Cluster to the tune of $150 (one hundred and fifty) million dollars. Talks have been held with Tata Corporation and others including Verdanta Resources, a London Stock Exchange company of Indian origins.  From all indications, Verdanta Resources has already or is about to ink a deal with Elenilto.  The Times of India reports that due to the technical and financial deficiencies of Elenilto, Sesa Goa Verdanta was concluding direct talks with the government of Liberia to acquire mining rights in the Western Cluster with Elenilto as the intermediary party.  The intermediation benefits of such a deal could amount in the hundreds of millions in cash and equity in the Western Cluster for Elenilto, who previously did not minimally qualify to participate in the bidding process, let alone win. 

How can the company sell portion of Liberian natural resource assets it does not own?  What rights have been conferred upon Elenilto to sell its shares in the Western Cluster?  Typically in mineral exploration and development, a company has to spend tens of millions and sometimes hundreds of millions to prove reserves before it can even attract a strategic partner.  The Western Cluster Deposits consist of both brown and green fields.  Reserves have been proved in NIOC and Bomi Hills.  Bea Mountain is a green field that could possibly hold at least one billion tons.  Putu Mountain had less geological potential than Bea Mountain, but recently Severstal announced that it had discovered 2.4 billion tons of iron ore in its mining property.    As a result, Bea Mountain could have substantially more ore than Putu, and it would mean the Western Cluster Iron ore project could be worth considerably more than the 2.5 billion dollar investment required.   The manifest indications would show that a scrap company could overnight become a mining company in Liberia and win a coveted mineral asset, convert same to cash and still keep a significant portion.  The information would continue to outrage Liberians and our international partners and could potentially have far reaching negative consequences including political fallouts. 


Political Fallout


The political fallout from the Government’s insistence on signing a mineral development agreement with Elenilto could be considerable. The 2011 elections will be a time of intense magnification of the soft underbelly of this government: corruption.  The Government will be continuously attacked by its adversaries on the Elenilto issue.  Already, the Western Cluster Iron ore Deposits have been the subject of many questions posed to the President recently by students.  The election will be decided in the country’s urban centers, where there is more awareness and issues will play an important part.  A young educated urban youth with access to radio and the Internet will be turned off by the incessant report of corruption. Already, some radio stations including the popular Truth FM 96.1 have called for cancellation of the award with editorials.  Some newspapers have called the award corrupt. 

The case of Elenilto “selling” of a natural resource it does not own will alienate members of Liberian business support organizations who believe that the government is not prioritizing the empowerment of Liberian businesses especially with the knowledge that no indigenous allocation was considered in the Western Cluster, mineral development or hydrocarbon awards. 

While it seems expedient in the short term to “window dress” Elenilto to make it fulfill requirements in the bid document in order to speed up developments in the Western Cluster, which could bring some political advantage in Bomi, Cape Mount and Gbarpolu, three counties with small voting populations, already mostly loyal to the president, the downside could be the incessant outcry which has already begun and use of the issue by the president’s adversaries to her detriment.      

Some opponents of the Elenilto award have gone on record to indicate that they might consider court action to stop the implementation of the MDA.  That could prove nasty and further open the administration to more criticisms. 

Building a Transparency Model in Mineral Development


The Government has an opportunity to avoid the seeming lack of transparency and economic probity in mineral awards.  The positive international image of the President, which has brought substantive benefits to the Liberian people, is being marred by the actions of some selfish individuals for short term gain.  Granting the Western Cluster to Elenilto could bring some immediate short term benefits to legislators in the counties, but it would undermine the transparency credentials of the Liberian President.  It would indicate that a small scrap company without any provenance in the iron ore industry can win competitively against well financed technical companies.  It would send a message that Liberian resources are for sale to the lowest bidder.  The UN Report of December 2010 is very strong in its condemnation of the mineral award process and suggests that awards are granted due to graft in the country.    

Other Considerations


Granting a mineral development agreement to Elenilto in an election year with controversies swirling is not good for transparency and is bad politics.  It seems expedient, but this government was voted to power to do what is right and not expedient in the short term.  The award to Elenilto would be a blot on the President’s personal sterling image.  It would signal to the international community that officials of the Liberian government are at sleep at the wheels. 

International capital markets are familiar with the deal.  Many in the capital markets who provide financing to the mining industry cannot understand how this deal will be structured.  The rumor that Elenilto would be bailing out with at least 150 million dollars is sending shock waves in major money centers.  Investment bankers don’t understand how a country would auction its mineral asset to an unknown company, which would then make a handsome profit by “flipping” the transaction.  That is what would occur if Elenilto brings in a strategic partner.  Even if the offer of cash is untrue, the mere fact that the company would even own a significant slice of equity in the Western Cluster after failing to meet minimum requirements in a bid process is unfathomable.

Summary and Conclusions:• 


The Inter-Ministerial Technical Committee (IMTC) did not verify any information provided by bidders during the Western Cluster award.

• Elenilto Minerals and Mining Limited was formed 23 days after the RFP was announced by the Liberian government on December 1, 2008.

• Elenilto Minerals and Mining Limited listed Engelinvest as an affiliate.  Engelinvest was formed in 2007 and could not itself be eligible for participation in the bid.

• Both Elenilto and its affiliate Engelinvest have not produced one ton of iron ore ever.  They do not meet the minimum standard of 5 years of mining 5 million tons of iron ore per annum.

• Elenilto and its affiliate do not have five year audited statements.

• Elenilto does not have the technical and financial ability to operate the Western Cluster without a technical or financial partner.

• It took nearly six months before Elenilto could present a guarantee of 25 million dollars to the government of Liberia.  Its first guarantee was disqualified as it came from a Russian bank, as opposed to coming from a prime money center bank. 

• The Government of Liberia disqualified IMC/DMT the technical partner presented by Elenilto during the bid process.

• IMC/DMT wrote a letter to Engelinvest stating its capability as a consultant not as a technical partner.  Any indications from Elenilto that IMC/DMT would be a technical partner is false and misleading.

• IMC/DMT was technically bankrupt on December 31, 2008, and thus it could not have been able to perform its role as a technical or financial partner.

Questions


1. What is the role of Elenilto in the Western Cluster?  Is it an agent of the Government of Liberia that is bringing a strategic partner to the table, or an intermediary that will be paid for its efforts?

2. How much money is Sesa Goa paying Elenilto for mining rights?  How can Elenilto negotiate mining rights it does not own to Sesa Goa?

3. What is the percentage relationship between Elenilto and Sesa Goa for mining rights to the Western Cluster?

4. Why is Elenilto even being considered as part of the transaction when it did not qualify to participate in the Western Cluster?

5. Who are the major players from the government of Liberia who are negotiating the Western Cluster deal?

6. Are there any pecuniary benefits that have flowed to government of Liberia officials for granting the award to Elenilto?

7. Will an examination of the finances of Elenilto indicate amounts paid to Liberian government officials?

8.  Can Elenilto show current strength through financial statements, including income statement, balance sheet and cash flows?

Editor’s Note: The views expressed in this article are those of the Author’s alone, not those of The Liberian Journal or its staff. Samuel Jackson can be reached at samuelpjackson@yahoo.com and at 2316512096.


 


 

 
 
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