* Finance Ministry more cautious than company estimate
* Revenues depend on project timing, ore prices
By Simon Akam
FREETOWN, May 4 (Reuters) - British miner African Minerals AMIq.L has told Sierra Leone the country can expect $1 billion in revenues from its iron project by 2015, but the government is sticking with lower forecasts for now, documents show.
African Minerals bills its Tonkolili site as the world’s largest deposit of magnetite, with 12.8 billion tonnes of the ore, and said last month initial production in the West African country was due to start later this year. [ID:nLDE73B0K9]
Phase I is expected to gradually ramp up to annual output of 12 million tonnes of ore. Phase II is due to boost production to 23 million tonnes though its timing is dependent on financing arrangements which have yet to be put in place.
“Subject to variables such as iron ore pricing and the timing of the company’s development of Phases I and II, payments to the government could total $1 billion over the next few years,” African Minerals told Reuters in an April 29 email. It said Phase II could begin 30 months after finance is in place.
Key iron ore indices, based on spot Chinese deals and which global miners use in setting contract prices, rose on Tuesday. Metal Bulletin’s 62 percent index .IO62-CNO=MB gained 28 cents to $181.73 a tonne, the highest since April 12.
Documents provided to Reuters by the Finance Ministry gave a more detailed breakdown of African Minerals’ prediction of revenues, which would represent a huge boost to an impoverished country still recovering from a 1991-2002 civil war.
Sourced to African Minerals’ model, the documents predict a government take over 2011-15 of $1.52 billion, of which 69 percent is income tax and 18 percent royalty.
“I can only say they provide serious opportunities for accelerating the country’s growth and development,” Finance Minister Samura Kamara told Reuters in an interview.
However, speaking on condition of anonymity, a finance ministry official said even though the government had not completed its own modelling yet, it was looking at annual revenue of just $50 million in the early years.
African Minerals has not commented on the apparent divergence between its forecasts and the state‘s.
Sierra Leonean President Ernest Bai Koroma told Reuters in March the West African country was looking to improve contracts with African Minerals and others, although the company said last month that no talks had been held on the issue.
IMF mission chief for Sierra Leone, Jan Mikkelsen, said the government take depended on factors including what fraction of African Minerals’ profits are ploughed back into infrastructure development and therefore tax-deductible.
Mikkelsen said an IMF model based on African Minerals data suggested annual revenues to Sierra Leone of $300-500 million within the next three to four years.
“These are huge projects, and potentially they can have very significant impacts on economic growth and economic activity in Sierra Leone,” he said, adding that revenues could add up to 8-10 percent of national output by 2014-15.
Sierra Leone currently has GDP around $2 billion.
Neither the African Minerals deal, ratified in August last year, nor another smaller lease agreed by fellow British firm London Mining LON.L, conform to a new mining act.
However both companies argue their fiscal arrangements and other opt-outs are justified by the challenges and risks of investing in a post-conflict country.
Editing by Mark John, John Stonestreet