LOKO CREEK LOGISTICS: ELEGANT SOLUTIONS TO COMPLEX CHALLENGES

Loko Creek Logistics

elegant solutions to complex challenges

Founded in 2019 by the former Partner of Marine Energie Louis Pensivy and the ex-VP of Principal Investments for the Gerald Group Herwin Yip, Loko Creek Logistics took its name from the very sinuous Port Loko Creek River located in the Western-African country of Sierra Leone. The company’s first major contract award was the management of barging and transshipment operations for the Marampa Iron Ore Mine in the Port Loko District, Sierra Leone, a project with over a billion tonnes of high-grade ore. Over the course of the contract, the principals exported over four million tonnes of iron ore concentrate via over 1,600 barge trips and loaded 56 OGVs (oceangoing vessels).

The genesis of the company came from the principals’ experience operating in Marampa and advising other bulk mining clients. Logistics was always held as an afterthought after operations for mining and processing have been put in place. A strange proposition considering logistics can easily be 50–70% of total operating costs, and for some commodities, the majority of CIF China sale price. There clearly lies an opportunity for Loko Creek to arbitrage this disconnect and add significant value to its clients, especially in bulk commodities where every dollar counts.

The challenge for iron ore miners, or bulk commodity miners in general, is the desire to over-spec its logistics assets from the start, understandably so, given benefit derived from the economies of scale. The common mistake is using desktop analysis and simulation analysis to arrive at a decision point. This is a fatal flaw, given the numerous variables (i.e. weather, environmental factors) which cannot be forecasted.

Using Marampa as an example, the former owners started exports using towed dumb barges with LOA greater than 200m, a traditional export solution used in bulk mining, which was certainly unsuitable given the draught constraint and narrow river bends of the Loko River.

Corrective actions were subsequently implemented to use smaller 2,500 DWCC river coasters. While smaller in carrying capacity, the improved navigability of the river coasters and improved cycle time resulted in greater export capacity compared to towed barges. From an economic standpoint, analysis shows, the river coasters may seem more expensive but after adjusting for improved export capacity, reduced OGV demurrage costs and laytime, river coasters are actually significantly cheaper on dollar per tonne, when compared to a traditional towedbarge.

Such tradeoff analysis is unfortunately an afterthought by the miners, which Loko Creek intends to change by getting involved with its clients at the early stages of their development.

Another area which can be further optimized is in the chartering of OGVs — by far the largest cost component in bulk commodities. Most mining companies do not have an inhouse freight or trading desk, and are typically reliant on offtakers/ traders to arrange and provide OGV services. In the absence of a COA, most miners are held captive to the spot OGV freight market and not monetizing the inherent volatility in the freight market. Loko Creek’s analysis shows a 2mtpa (million tonnes per annum) West African iron ore miner, exporting one Capesize vessel per month, would have saved ~$10m YTD if they had simply hedged their 2021 freight. Said differently, miners are leaving

dollars on the table by treating ocean freight as unavoidable costs instead of a tradable commodity.

As a brand-new participant in the sector of dry-bulk shipping operating in Africa, Loko Creek overcame the odds of being a smaller player in the space by leading on its three strong pillars of core values: v Independence: unlike most dry-bulk shipping companies, Loko Creek

Logistics promotes an asset-free business model which allows it to always look for the most suitable assets for its

clients’ needs and not impose a portfolio of vessels, which might not be suitable for the client. v Think like a miner and act like a trader: with over four decades of combined experience in shipping, trading and mining, the principals utilize the mindset of a miner and thought process of a trader to introduce flexibility, and creative thinking to bring elegant solutions to complex logistical challenges. v High-touch service: Loko Creek Logistics offers much more than the average shipping contractor. The company prefers to partner with its clients early in the process at the development stages of a project to provide its full range of expertise. From river and tidal studies, to the technical review of shiploader designs at export facilities, to offtaker prospection, clients can rely on Loko Creek’s thorough knowledge of the dry-bulk commodities market to deliver value-added services and performance.

In August 2019, when all mining prospects were on the decline in Sierra Leone, Loko Creek Logistics opened a new office in the neighbouring Republic of Guinea. Thanks to its core values, it managed within a few months to set itself apart from other marine logistics providers by bringing the ability to offer customized solutions on-demand without heavy contractual and financial requirements burdening its clients.

Loko Creek Logistics operated barging services for Emirates Global Aluminium’s Guinean bauxite mining company Global Alumina Corporation (GAC) in order to bump up its bauxite export volumes for the year. The addition of Loko Creek’s fleet and operations team allowed GAC to increase its export capacity as it continues to ramp up its operations.

In 2020, the company was also chosen by the Indian miner Ashapura Minechem Limited in order to restart iron ore export operations in Guinea. Iron ore export had been halted in Guinea since 2015 due to political instability and a very deadly Ebola outbreak which had sent most expatriate mining operations teams out of the country.

Today, the Covid-19 global pandemic has completely reshaped economic outlooks and the way businesses are run. Despite this uncertain environment, Loko Creek Logistics is showing its resiliency and keeps a very positive view on the West-African dry-bulk shipping market, more specifically on iron ore and bauxite. With Chinese demand remaining strong and prices near record-highs, top-tier iron ore projects looking to invest into the world’s largest untapped iron ore reserves in Guinea are gaining critical mass and momentum. Although the current bauxite market has seen better price points, global demand has been stable. With Guinea becoming the second worldwide producer of bauxite in 2020, investors in the commodity are now betting on this little African country to soon become a serious alternative to Australian bauxite. The Guinean government’s focus on providing cheaper energy, and improving the country’s transport infrastructure has convinced several investors to put their money on bauxite mining projects that are due to come online within the next two years.

For West Africa, whether clients are at the stage of prospection for a mining concession, of completion of their export infrastructure, or considering expanding their transshipment operations, Loko Creek Logistics is an ideal logistics partner to help towards a successful outcome.

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