Guinean Election Result May Lead to Review of Mining Deals, Eurasia Says
Guinean Election Result May Lead to a Review of Mining Deals, Eurasia Says
By Colin McClelland – Jul 8, 2010
The election of a new president in Guinea, the world’s biggest bauxite exporter, may lead to reviews of multibillion-dollar deals with companies including Rio Tinto Group and United Co. Rusal Plc, Eurasia Group said.
Cellou Dalein Diallo of the Union of Democratic Forces of Guinea is favored to beat Alpha Conde of the Rally of the Guinean People in a run-off vote in the West African country on July 18, Rolake Akinola, Africa analyst at New York-based Eurasia, said in an e-mailed research note yesterday.
Twenty-four candidates competed in the first round of elections on June 27, a year and a half after army Captain Moussa Dadis Camara seized power following the death of former President Lansana Conte, who ruled for two decades. Guinea hasn’t had a democratic transfer of power since it gained independence from France in 1958.
The winner of the second round of voting, whether Diallo or Conde, will probably stop the practice of “arbitrary and erratic presidential decrees enacting and annulling contracts,” seek to normalize relations with mining investors, institutionalize mining laws and scrutinize existing deals, Akinola said.
“A planned review of contracts is likely to create some initial losers, as deals that may have benefitted from opaque decision-making under previous regimes face the risk of renegotiation,” she said.
Deals being reviewed include Rio’s $2.9 billion accord with Chinalco, China’s biggest producer of aluminum, to develop the Simandou iron-ore project in southeast Guinea. In December 2008, the Guinean government told London-based Rio to hand over part of Simandou to Guernsey-based BSG Resources Ltd.
Vale SA, the world’s largest iron-ore producer, bought a $2.5 billion stake at Simandou from Israeli-owned BSG Resources. Rio maintains it owns the rights to the entire concession and the transitional government of President Sekouba Konate last month threatened to strip Rio of its remaining rights to the concession.
“It is likely that the company believes it can gain a fairer hearing under a new administration,” Akinola said. “This could create problems for Brazilian mining giant Vale.”
Last year, Moscow-based United Co. Rusal, the world’s largest aluminum producer, was ordered by the government to return a bauxite and aluminum complex at Friguia, in central Guinea, after a court ruled that its purchase was invalid.
“The potential for a new configuration of political power after polls could undo recent attempts by Rusal to soften Guinea’s stance,” Akinola said. Guinea alleges Rusal owes $860 million in taxes, she said.
Guinea holds as much as half of the world’s reserves of bauxite, used to make aluminum, more than 4 billion tons of “high-grade” iron ore, “significant” diamond and gold deposits, and uranium, according to the U.S. State Department’s website.
A more stable mining environment in the wake of the elections may help double bauxite exports to 20 million metric tons next year, Akinola said.
Guinea has about 10.3 million people, according to the African Development Bank. Per capita income is less than half the sub-Saharan African average of $861, according to the World Bank, and the country ranks 170th out of 182 countries on the UN’s Human Development Index, which measures life expectancy, literacy and gross domestic product per capita.
To contact the reporter on this story: Colin McClelland in Toronto email@example.com.