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African Minerals starts shutdown of core Sierra Leone business as funds dry up

* Failed to fully repay debt due in November

* Has $790 mln gross debt vs $52 mln market capitalisation

* Says has enough funds to pay salaries in short term (Adds details on remaining funds)

By Silvia Antonioli

LONDON, Dec 1 (Reuters) - Iron ore mining company African Minerals has started to shut down its operation in Sierra Leone, the main focus of its business, because it does not have enough working capital, it said on Monday.

The miner (AML) is in a critical situation, battered by a 50 percent plunge in the iron ore price this year and the effects of the Ebola epidemic in West Africa.

It is struggling to shore up its depleted finances, and its London-listed shares have been suspended since Nov. 20 due to uncertainty about the company's future.

The company said it has sufficient funds to pay salaries in the short term and to pay for security, safety and evacuation of staff and contractors in Sierra Leone.

This should allow a prompt resumption of operations at the Tonkolili mine there when a financial solution is found, it said.

Its subsidiaries, however, have failed to make a repayment that was due to lenders at the end of November on a $250 million loan and the company is now in talks with its lenders about this and future obligations.

"In the absence of sufficient working capital African Minerals has commenced a temporary controlled shutdown of its operations in Sierra Leone," the company said in a statement.

"Without a significant injection of working capital, African Minerals is unable to initiate the cost-reduction strategies which would return the operations to cash flow positive status even at recent low iron ore prices."

In September the company outlined a recovery plan that it had hoped would boost revenue and help repay its hefty debt.

While its Tonkolili mine in Sierra Leone is burning cash, African Minerals is burdened by $790 million in gross debt.

The miner is now seeking to sell part of its 75 percent stake in the Tonkolili mine to raise funds, after it was unable to reach agreement for its Chinese partner in the mine, Shandong Iron and Steel, to release funds. Although it was in talks with "several groups" that have expressed an interest in buying a stake, there is no certainly that a deal will be forthcoming.

Shares (Frankfurt: DI6.F - news) in African Minerals have lost 95 percent of their value this year making its market capitalisation about $52 million currently. (Editing by Jason Neely/Keith Weir/Susan Fenton)

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