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Behind the Wrangle for Guinea’s Minerals

July 6, 2010

Behind the wrangle for Guinea’s minerals

By Tom Burgis in Conakry

Published: July 5 2010 18:04 | Last updated: July 5 2010 18:04

Guinea mapReclining in his ministerial penthouse above Conakry, Guinea’s ramshackle capital, Mahmoud Thiam exudes satisfaction.

In the 18 months since the west African nation’s military-backed government invited the former UBS banker to return home and become mining minister, Mr Thiam has been at the centre of a scramble for Guinea’s mineral riches.

“Nothing that we have done is reversible,” says Mr Thiam, on whose watch Brazilian and Israeli investors and a Hong Kong fund have outflanked big western miners including Rio Tinto.

Some investors – Rio and a Russian oligarch among them – will be hoping that he is wrong and that their fortunes will change after Guinea’s ongoing elections, which should see the military hand power to a civilian president.

Whoever wins will be expected to take a fresh look at recent deals, although some of the front-runners also concur with the departing authorities that their destitute country has long had a raw deal from foreign miners.

At stake are promised investments valued at $30bn-$40bn – equivalent to 10 times Guinea’s annual economic output – as well as future supplies of metals that are used in everything from the manufacture of aircraft and drinks cans to pylons and cutlery.

Late last month the outgoing government set Rio a 60-day deadline to produce a feasibility study for a mine at Simandou or risk losing what remains of its rights to one of the world’s biggest untapped iron ore deposits, according to correspondence obtained by the Financial Times.

Last year the government had confirmed an earlier administration’s decision to strip Rio of the rights to half of Simandou, on the grounds that the company had sat on it for too long.

CIF expands Africa portfolio

A substantial cake decorated in the livery of Air Guinea International feted the world’s newest airline last week, writes Tom Burgis.

The ceremony at a hotel in Conakry, Guinea’s capital, marked the latest addition to a remarkable portfolio of investments by China International Fund.

CIF came to prominence as one of the main Chinese investors in Angola, where China pioneered its model of swapping infrastructure and billions of dollars of cheap finance for African resources.

But CIF is a different beast from the state-owned energy groups and banks that have spearheaded Beijing’s international investment.

It is ostensibly private and Chinese officials have been quoted distancing Beijing from CIF, which is one of a number of companies known as the 88 Queensway Group after their Hong Kong address.

A report for the US Congress last year said that “key personnel” among CIF’s owners “have ties to Chinese state-owned enterprises”.

CIF’s owners came to US attention in 2008 when Lev Leviev, an Israeli diamond magnate with Angolan interests, sold the former JPMorgan building in Manhattan to China Sonangol, a joint venture between CIF’s owners and Angola’s national oil company.

CIF’s plans for $7bn of investments in mining, infrastructure and oil prospecting in Guinea attracted criticism because they were announced shortly after security forces loyal to the then military dictator massacred 156 opposition protesters.

Allies say the company – which routinely declines to comment – is misrepresented by western rivals, jealous of its expanding presence in African resources.

Rio has maintained it has complied with its obligations and has rights to the whole concession. In March it signed a $2.9bn agreement with Chinalco, a Chinese state-owned mining group, to develop the deposit jointly.

But a government whose officials bristle at what they see as western condescension demands that Rio publicly accept its decision.

“We are considering our options and will respond in a timely manner,” Rio says of the new deadline.

Rio’s pain has been a gain for Beny Steinmetz, the Israeli diamond magnate. A company controlled by Mr Steinmetz a veteran of African mining, snapped up the half of Simandou taken from Rio, and says it has spent more than $150m working on it.

In April, the company, which also holds other Guinean rights, sold a 51 per cent stake of its own shares to Vale of Brazil, the world’s biggest iron ore miner, for $2.5bn.

At the heart of the wrangling are Guinea’s efforts to chivvy mining companies into building much-needed infrastructure.

While Rio has hesitated to commit billions to build a railway to traverse Guinea’s mountainous terrain, China International Fund has shown no such compunction.

The publicity shy Hong Kong-based group finalised last month plans to spend $2.7bn building a port on the Guinean coast and a railway to a planned mine at Kalia, another sizeable iron ore deposit, in partnership with Bellzone, a London-listed junior that has been exploring the site.

The CIF announced its arrival in Guinea last year with plans for a $7bn package of infrastructure and mining ventures.

In a sign of the interwoven rivalries in the tussle for Guinea’s minerals, documents obtained by the FT show that CIF loaned the government $3.3m to fund an audit of mining operations, including those of UC Rusal, the aluminium group controlled by the Russian oligarch Oleg Deripaska.

Guinea is a leading producer of bauxite, the ore used to make aluminium, and has challenged the validity of the Russian group’s 2006 purchase of a Friguia mine and refinery in the country.

Armed with the audit by consultants Alex Stewart International which gave ballast to claims of environmental damage, the government sprang a surprise in January on the eve of the Russian group’s debut on the Hong Kong stock exchange. It demanded that some of the proceeds from the initial public offering go towards paying $860m in damages it claims Rusal owes.

Rusal declines to comment on the allegations of environmental damage. It says it is “committed to continuing its activity” in Guinea, adding that a recent “productive visit” to the country yielded an agreement on future plans – a claim Mr Thiam disputes. The Guinean official who brokered the agreement has been dismissed.

Some insiders suggest Mr Thiam will continue to wield influence even if he returns to private life in New York as planned.

For all the uproar, Guinea’s first iron ore mine is still at least four years away and Rusal continues to churn out bauxite.

“There’s been a lot of quarrelling but there is nothing concrete,” says one mining ministry official.

Talk of a civilian government ripping up the recent accords is overdone, too, he says.

“People overdramatise. There are billions in play.”

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