Mittal wrapping up Africa? As the pace of Asian investment in African raw materials begins to pick up, India's Arcelor Mittal, the world's largest steel producer, has announced new investment in West African iron ore mining. What are the implications for Africa? Report by Neil Ford

African Business, March, 2008 by Neil Ford

Although headquartered in Luxembourg and headed by London-based Lakshmi Mittal, Arcelor Mittal is regarded as one of the new wave of Indian companies that are making a huge splash in their respective sectors in Africa.

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Investment in Liberia was already expected but has now been increased and the mining conglomerate has signed a deal to develop the El Agareb iron ore deposit in Mauritania.

In February 2007, Arcelor Mittal announced a $2.2bn investment in Senegalese iron ore and company representatives indicated that they hoped to develop a mining hub in West Africa.

International steel prices are high and show no signs of declining, while mining companies seem confident that demand for iron ore will remain strong in the long term.

Consumption in emerging Asian economies, such as India and China, has partly driven the boom but other developing and industrialised regions are also boosting demand.

The Indian company hopes to source a greater proportion of its global iron ore supplies from its own mines. At present, it is forced to rely on mining giants BHP Billiton, Rio Tin to and Vale to supply much of the iron ore that it uses in steel production.

However, it hopes to control about two-thirds of the ore it requires by 2010 as the result of investment in Africa, Latin America, Russia and elsewhere.

In January, Arcelor Mittal, which is now the world's biggest steel producer, revealed that it had signed a memorandum of understanding with Mauritania's Societe Nationale Industrielle et Miniere (SNIM) to jointly develop El Agareb.

Arcelor Mittal's chief financial officer, Aditya Mittal, commented: "Mauritania's strategic location in West Africa makes it an ideal choice for iron ore supplies to Arcelor Mittal's European steel mills. This large iron ore project would further strengthen our existing presence in the region and will create substantial employment opportunities for the people of Mauritania while accelerating growth in the Mauritanian economy." The company did not reveal the financial terms of the deal but indicated that a feasibility study will be required before the final investment decision can be taken. It also revealed that it would take an initial stake of 30% in the venture, with the option to increase this to 70% at a later stage.

Production at El Agareb is expected to reach 25m tons a year, which would effectively double SNIM's total production and provide a real boost to the Mauritanian economy.

The deposit, which is believed to contain in excess of 1bn tons of magnetite, has long been used by SNIM to supply Mittal, so the new investment is based on an established relationship. Perhaps Arcelor Mittal's best known area of interest in Africa is Liberia. The deal, which gave the company a virtual monopoly over Liberian iron ore, attracted widespread criticism from non-governmental organisations, such as Global Witness.

They claim Mittal will gain unacceptable freedom over working practices, be in a position to influence the Liberian government and provide the company with an ability to opt out of key environmental legislation.

However, the new Liberian government welcomes the firm's involvement and believes that the jobs created and infrastructure developed will form a major part of national economic reconstruction.

President Ellen Johnson-Sirleaf and Lakshmi Mittal held a joint press conference to announce that the company had decided to increase its investment from $lbn to $1.5bn.

Mittal commented: "There is a positive feeling about Liberia out there. We have to ensure that this project is successful because it will be a model for the future."

The government hopes that 20,000 direct and indirect jobs will be created by the venture. While on a tour of Arcelor Mittal's operations in Grand Bassa County at the end of January, Johnson-Sirleaf was informed that the company expects to ship its first iron ore as soon as April 2009.

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Rail and port upgrades

A $21m contract for engineering and project management on the project has already been awarded to Brazilian firm Odebrecht, while exports are expected to reach 15m tons a year by 2011.

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Apart from developing the Yekepa mines, the scheme requires the redevelopment of the port of Buchanan and also the 270km railway that runs from Yekepa to Buchanan; while providing additional power generating capacity and road rehabilitation.

The railway upgrade alone will cost $300m, but it remains to be seen whether the government or donors will provide some of the funding. As with the port of Monrovia, Buchanan requires rehabilitation after the country's long civil war. Some harbour basin redevelopment is expected, while new cargo handling equipment will also be required.

Exporting unprocessed mineral resources will not produce a healthy, balanced Liberian economy. Indeed, many could argue that the Mittal deal merely places the Mano River state in the same position as most other African countries in relying heavily on the sale of a handful of raw commodities.