(SANITIZED)AFRICA'S ROLE IN WORLD IRON ORE TRADE

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• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700010070-2
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• Original Classification: C
• Document Page Count: 16
• Document Creation Date: December 22, 2016
• Document Release Date: February 1, 2010
• Sequence Number: 70
• Publication Date: July 1, 1971
• Content Type: IM

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Confidential
,1LIG.
DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
Africa's Role In World Iron Ore Trade
Confidential
ER IM 71-118
July 19 71
Copy No 38
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WARNING
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Its transmission or revelation of its contents to or re-
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GROUP I
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
July 1971
INTELLIGENCE MEMORANDUM
AFRICA'S ROLE IN WORLD IRON ORE TRADE
Introduction
1. Abundant high-grade iron ore supplies and improved production
methods and transport systems are making Africa increasingly important
to world iron and steel industries. Iron ore output increased from about
4 million tons II in iron content in 1950 to more than 35 million tons
in 1969, and programs for further expansion, mainly. Sub-Saharan Africa,
are designed to double the 1969 figure by 1980. Because of Africa's
industrial backwardness, virtually all mines are developed by foreign interests
exclusively for export. Income from the exports, however, is highly
significant, often accounting for a large part of the producing country's
national income. This memorandum examines Africa's development of iron
mining and export since World War II and assesses its place in the world
iron ore market.
Discussion
The World Iron Ore Market
2. Since World War II, Africa has become an increasingly important
source of iron ore. Although the continent has long been known to possess
large reserves of iron ore, the deposits were mostly undeveloped; steel
producing nations relied on local sources or those relatively close by.
However, the tremendous growth of steel production after World War II
soon outstripped local iron ore supplies and forced the major producers
to look overseas, particularly among the less developed countries. Although
much of the continent's estimated 20 billion tons of reserves J is located
1. Unless otherwise indicated, tonnages in this memorandum are in terms
of iron content and are given in metric tons.
2. World resources, of iron ore are estimated at 125 billion tons, with
an additional potend,::l reserve of 265 billion tons.
11N-.,te: This memorandum was prepared by the Office of Economic Research
and coordinated within the Directorate of Intelligence.
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inland and is relatively inaccessible, a number of countries, notably Liberia,
Sierra Leone, South Africa, and Swaziland, do have large deposits of
high-grade ore not far from seaports. Except for South Africa, these
countries mine ore exclusively for export.
3. While world iron ore demand has increased steadily since World
War II, it grew most rapidly in the 1960s, when consumption increased,
by about one-third, reaching more than 360 million tons in 1969. Although
growth may slow somewhat, ore production is expected to exceed the level
of one-half billion tons by 1980. Reflecting the increasing dependence of
steel producing nations on foreign ore supplies and the emergence of major
steel producers lacking domestic ores, such as Japan, the share of world
iron ore production entering world trade increased from 25% in the 1950s
to 33% in the 1960s; in the 1970s the share is expected to increase to
40%.
4''. Except for the USSR and Eastern Europe, the share of world
production of all the traditional major ir',n ore producing areas declined
during the 1960s, as Australia and Africa grew in importance. Australian
output rose from 3 million tons in 1960 to 20 million tons in 1969, and
its share of the world total increased from 1.2% to 5.2%. Africa's growth
was from 2 million tons to about 35 million tons, and its share of world
output more than doubled to reach 9.1%. The share of other producers
in world production either increased modestly or declined. The changing
contribution of iron ore producers, by continental group between 1960
and 1969 was as given in the accompanying tabulation.
Million
Metric
Tons
Percent
of
World Total
Million
Metric
Tons
Percent
of
World Total
Western Europe
51
20.7
70
18.2
USSR and Eastern Europe
65
26.4
105
27.2
Asia
32
13.1
45
11.7
North America
59
23.8
70
18.2
South America
27
11.1
40
10.4
Africa
9
3.7
35
9.1
Australia
3
1.2
20
5.2
5. The continued rapid development of high-grade iron ore resources
in Africa, South America, and Australia, combined with some decline in
ore production in steel producing nations, is inevitable. In Africa, expansion
will occur primarily in Sub-Saharan areas, as enormous untapped inland
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deposits are developed in response to increased demand and the decline
of traditional sources. North Africa is expected to fall in relative importance
because its readily available deposits are near exhaustion. In 1968, only
about 8% of African iron ore exports came from Algeria, Tunisia, and
Morocco, the principal North African producers, in marked contrast to the
52% in 1960.
6. Despite growing world reliance on deposits located great distances
from the major consumers, delivered iron ore prices have declined more
or less steadily for more than a decade. Delivered prices in Europe in 1971
are 40% to 50% lower than in 1957, owing in part to the lower ocean
shipping costs brought about by the development of large ore carriers and
in part to shipping economies realized from the increased iron content of
the ores. The increasing use of higher grade ores by the world steel producers
became sharply evident during the last decade when the growth rate of
mine output in terms of iron content rose to 6.3% annually, while the
growth rate for gross tonnage of ore remained virtually unchanged.
Sub-Saharan Production
7. Almost all Sub-Saharan African iron ore comes from seven
countries: Liberia, South Africa, Mauritania, Angola, Sierra Leone,
Swaz:lland, and Rhodesia. Liberia is the leader by far; its 1969 production
of 15 million tons was more than 2.5 times that of either South Africa
or Mauritania (see Figure 1). Angola, with 3.2 million tons, ranked fourth
among the seven, and Sierra Leone and Swaziland were fifth and sixth,
with production levels of about 1.4 million tons each. Rhodesia, the smallest
proJucer, recorded about 600,000 tons in 1969. In addition, Sudan is a
mirror and erratic producer, and Guinea, which previously produced about
400,000 tons annually, stopped production after 1967.
8. Although all seven countries increased production during the
1960x, their relative importance changed significantly (see Figure 2). Liberia
retained its dominant position with a growth rate that approached that
of Mauritania, Angola, and Swaziland, the three whose output expanded
rapidly in the 1960s ais new mines were opened. Liberia's rapid growth
was due to opening three new mines in addition to expanding the very
large one already producing. The relative importance of both South Africa
and Sierra Leone declined as output grew rather slowly. Much of South
Africa's production is determined by domestic needs, and Sierra Leone has
only one mine, which operated at about capacity. Rhodesia's output also
increased as the result of opening a new mining area in 1961, but production
remained well below the output of the other six. (For comparative rates
of growth of iron ore production in Sub-Saharan countries and the world,
see Figure 3.)
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African Iron Ore Production
in Terms ofIron Content,1969
African Iron Ore Production
by Percent
'Angola 4%
Rhodesia 2%
Egypt 1%
Tunisia 1%
Morocco 1%
Algeria 5%
Sierra Leone 4%
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Relative Growth in Production of Iron Ore
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North African Production
9. In contrast to the vigorous and fast growing mining area in
Sub-Saharan Africa, the iron ore industries of Algeria, Tunisia, Morocco,
and Egypt have shown little growth. Since no significant new iron ore
ventures are contemplated in these states in the near future, production
increases will come mainly from expanding existing facilities. North African
proved reserves, roughly 270 million tons, have an average iron content
of 55%; production at present is below capacity and under increasing
competition from producers of higher grade ore. In 1969, North African
production was as given in the accompanying tabulation.
Million
Metric
Tons
Algeria
1.6
Tunisia
0.5
Morocco
0.4
Egypt
0 2 .
Total
2.7
African Iron Ore Trade
10. African ores are highly competitive on the world market, and,
as a consequence, the continent's share of world iron ore exports rose from
about 13% in 1960 to more than 23% in 1969. The iron content of reserves
is extremely high by world standards, averaging 64% compared with the
US average of 58% and the Soviet average of 55%. This high iron content
reduces both steel production and transport costs. In 1970 the delivered
price of African ores, in terms of iron content, was actually cheaper than
that of ores mined in some of the major steel producing nations despite
the long ocean haul.
11. All major iron mining countries in Sub-Saharan Africa, except
Rhodesia and South Africa (the only countries with domestic steel
industries), export V. "ir entire production. Many mines are captive or
semi-captive - that is, they are owned in whole or in part by foreign steel
companies and sell all or a substantial part of iii: it output to their owners.
However, several African governments, such as Liberia's, have used public
money tr, develop some of their iron ore resources as an export industry.
12. Sub-Saharan 4frican iron ore is exported mainly to Western
Europe and, to a Iesse's extent, to the United States and Japan (see the
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map, Figure 4). Liberia, the world's third largest exporter, has long-term
contracts with Italy, Belgium, France, West Germany, the United States,
the United Kingdom, Japan, and other countries. Mauritania, the world's
tenth ranking exporter, ships ore mainly to the West European owners
(France, the United Kingdom, Italy, and West Germany) of its Fort Gouraud
mine (Kedia d'Idjil), and the remainder to Belgium and Japan. Sierra Leone,
Africa's oldest iron ore exporter, sells primarily to the United Kingdom,
with most of the remainder going to the Netherlands, West Germany, and
Italy. In 1968 the Japanese contracted to buy about 740,000 tons of Sierra
Leone ore annually until the end of 1974, with a possible extension to
1979. Exports from Guinea had a very limited market because the chrome
content of these ores made them costly to process,; the ores were used
for special purposes in the United Kingdom, Austria, and Eastern Europe,
but the mine is no longer operating. Rhodesia produces mainly for domestic
consumption, and South Africa expo:ts about one-quarter of its output
to Japan. Angola, since its recent increase in output, ships about 3.2 million
tons of iron ore to West Germany, Japan, the United Kingdom, and France.
All of Swaziland's production goes to Japan under a 10-year contract
(1964-73), totaling 15 million tons. A deposit of nearly 150 million
additional tons of ore, poorer in grade than the 61%-64% ore now being
mined, will be developed if the contract is extended, as r,ow seems probable.
TLe values of Sub-Saharan African iron ore exports for 1969 were as given
in the accompanying tabulation.
Million
US $
Liberia
126.0
Angola
44.0
Mauritania
62;7
Sierra Leone
11.9
South Africa
27.0
Swaziland
13.4
Total
284.9
13. All North. African countries except Egypt, which consumes all
of ;tc ;-)roduction in the I-Iulwan steel mill, export most of their mined
ore. Steel mills in Tunisia and Algeria use relatively small quantities, much
of, which is low grade and unsuitable for export. North Africa, however,
is seeking new outlets in the central and eastern Mediterranean where lower
shipping costs tend to offset the relatively low grade of the ores. Because
higher grade ores in many of the smaller mines are being depleted, North
African exports have been declining. Algeria exports mainly to countries
of the European Community, especially Italy, and annual shipments of
130,000 tons to Japan have been contracted recently. Most Tunisian exports
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go to Italy, with smaller shipments to Yugoslavia and Czechoslovakia.
Morocco exports mainly to Spain, West Germany, and the United Kingdom.
Role in African Economies
14. Africa's developing iron ore industries and their associated
infrastructure play an important role in many countries. In most, they
represent a large share of invested capital, national product, and export
earnings and are an important source of revenue to railroads and ports.
13-.cause capital-intensive techniques are generally used, the impact on
employment is relatively small. However, the mining companies usually pay
above-average wages and provide housing, schools, and free medical
attention. Iron mining royalties and tax payments provide significant
revenues to African governments, but particularly to Liberia, Mauritania,
Sierra Leone, Angola and Swaziland. Development of iron ore mining (see
Figures 5 and 6) has increased the fortunes of Liberia and Mauritania
markedly, while potential iron ore reserves may help economic development
in Gabon, Guinea, Ivory Coast, and Mozambique.
15. In Liberia, iron ore mining is the leading industry, accounting
for about 30% of gross domestic product and 70% of exports. Four
international companies, operating under concessions granted by the
government, dominate the industry. Principal control is held by US, West
German, and Swedish interests. Total investment in the industry from start
of operations in 1951 to the end of 1968 was $448 million, with the
accumulated cost of plant and equipment accounting for 94%, materials
and supplies 4%, and stocks 2%. Employment in the iron ore industry is
10,000, or about 9% of those regularly employed outside the subsistence
sector.
Mauritania
16. Iron ore mining in Mauritania accounts for more than one-third
of gross national product and nearly 90% of exports. The mining complex
is owned by MIFERMA (Iron Mining Company of Mauritania), an
international company with majority interest held by French, British,
Italian, and West German. steel companies, and 5% by the Mauritanian
government. MIFERMA pays taxes equal to 50% of its profits, amounting
in 1970 to $6.2 million, or about 21% of the general budget receipts. The
complex currently employs 4,250 workers, or about 25% of the wage earners
of the Mauritanian public and private sectors. Total investment from 1960
through 1969 was $201.6 million, including a $66 million loan granted
by the International Bank for Research and Development (IBRD) in 1960.
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ierra-Leone
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Sub-Saharan Flow of Iron Ore Exports, 1969 (Million Tons)
Swaziland
x- 1.5
South Africa
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Angola
17. Iron ore has become a resource almost as valuable as diamonds,
which long have been Angola's most important mineral. Iron ore exports
of $52 million in 1970 accounted for about 1017o. of total exports.
Production is from the Cassinga mines in southr ,, .`.ngi;-la'where investment,
amounting to more than $100 million, was first uHdertaken by private
Portuguese interests, but the Portuguese government subsequently assumed
85% of the equity. Much of the investment went into infrastructure:
construction of housing and services for 4,000 workers and their families
in a previously uninhabited area, improvement and extension of the railroad
to Mocamede?,, and expaitcion of the port facilities there.
Sierra Leone
18. Iron ore, Sierra Leone's second most important export after
diamonds, accounted for 11.4% of total exports in 1969. Mining has been
carried on since 1933 from deposits near Marampa by the British-owned
;nerra Leone Development Co., Ltd. (DELCO). Tax revenue is derived from
the mining company by the government through a general corporate income
tax .,` a flat 45% of net profits plus additional concession duties based
on t,... amount of net profit. DELCO completed a $25 million investment
program in 1964.
Swaziland
19. In Swaziland, iron ore accounts for about 65% of mineral exports
and 22% of total exports. The mine, at Ngwenya, close to the western
border, is operated by the Swaziland Iron Ore Development Company
(SIODC), which is controlled by the Anglo-American Corporation of South
Africa. SIODC is tinder contract to supply the ore produced -- about 15
million tons over a 10-year period -- to Japanese steel companies. SIODC
pays taxes to the Swaziland government at a rate of 27% to 37.5% of
income. In 1969, SIODC transferred to Swaziland a 20% equity participation
in the company. Swaziland will pay for this snare from future dividends.
Development Prospects
20. Africa's iron ore producers, particularly those in Sub-Saharan
Africa, have extensive programs for development, based largely-on fo,eign
private investment; by 1980, output is expected to surpass 70 million tons
annually. An international consortium consisting of.US, UK, West European,
and Japanese interests is considering investing $300 million to develop
deposits in the Wologisi Mountains, in the northwestern tip of Liberia near.
the Guinea and Sierra Leone borders. In Mauritania, the internationally
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owned company, MIFERMA, plans to invest about $26.6 million in
production facilities and $5 million to enlarge port facilities at Csnsado.
A joint Portuguese and West German venture to invest $70 million in a
pelletizing plant near low-grade iron ore deposits in Angola's Cassala xegion,
east of Luanda, is under study. The British-owned company DE',CO is
spending more than $7 million to expand production at Sierra Leone's
Marampa mine and to enlarge port facilities at Pepel.
21. Similar development projfos are planned for other iron ore areas
of Africa where conditions a;e considered favorable. In Guinea, where
.production ceased in 1967,,an agreement was signed in 1970 between the
government and an international consortium comprising 12 firms, including
US Steel, Finsider of Italy, DCS of Spain, and the Binshi Steel Co. of
Japan to exploit the large and rich Nimba-Simandou deposits in southeast
Guinea near the Liberian border. Investment in the Nimba project, including
transport, may reach $100 million. In Mozambique, the Portuguese
government is studying the feasibility of a $7 million steel producing
operation in the Villa Pery district near the Rhodesian border, where an
estimated 200 million tons of high-grade iron ore have, been proved.
Additionally, the Sumitomo group of Japan will prospect jointly with
Mozambique interests for iron ore in Namapa, in the Mirrote area. The
US Pickands-Mather Corp. is considering investing more than $200 million
in iron ore mining and pelletizing facilities in the. western part of Ivory
Coast.
Conclusions
22. Africa increased iron ore production from about 9 million tons
in 1960 to more than 35 million tons in 1969. This rapid growth, contrasted
with stagnating iron ore production in the steel producing nations, has
resulted in African countries increasing their share of total world iron ore
exports from about 13% in 1960 to more than 23% in 1969. Important
mining projects under way in Sub-Saharan Africa are expected to increase
production further to more than 70 million tons annually within the next
10 years. Africa's iron ore resources are tremendous, and ores are
comparatively high grade.
'23. Built almost entirely with foreign capital, the iron mining
industries continue to rely on outside financing for projects involving
substantial capital outlays. Since World War II, iron ore producers have
invested more than $800 million, nearly all financed externally. Much of
Africa's iron ore industry is owned in whole or in part by steel companies
that consume most of the output. Developments under way and planned
by foreign enterprises in the Sub-Saharan mining areas will require an
additional investment of about $1.5 billion.
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24, Politic-0 and economic stability will be the principal factors
influencing the role of African countries in world iron ore trade, The
Liberian industry has perhaps the greatest expansion potential, but prospects
are also favorable for Mauritania, Angola, Sierra Leone, and Swaziland,
whose markets are established and growing. South African and Rhodesian
production is adapted primarily to meet the needs of domestic steel
industries, but the South African industry has great potential for expansion,
and Japan has shown co,isiderable interest in buying increasing quantities
of South African iron ores. Guinea, Gabon, and Ivory Coast have the
resources to support substantial iron ore Industries, and the favorable
investment climate in the latter two has encouraged extensive financing by
foreign companies for their development.
25. Long-range market projections anticipate continued growth in
world trade in iron ore, with much of the increase coming from Africa,
South America, and Australia. World iron ore trade rose from 33 million
tons J in 1950 (out of a total output of 244 million tons) to 208 million
tons by 1967 (world output 631 million tons), and this tonnage is expected
to be doubled by 1980 with 75% being moved by sea. The recent rapid
growth in the development of high-grade iron ore resources in Sub-Saharan
Africa, combined with the decline in ore production in the more developed
countries, undoubtedly will lead to a larger share of the world's iron ore
market for the African areas.
3. In terms of total tannage.
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