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Conde, Soros and Guinea’s Swirling World of Mining

April 21, 2011

Barry Fitzgerald

April 22, 2011

Rio Tinto is to pay as much as $US700 million to the Guinean government to secure development rights to its Simandou iron ore project- an early stage West African version of its Pilbara interests.

The yet-to-be announced payment is a budget boost for the impoverished nation. The deal was struck with the help of US multibillionaire investor George Soros, called in by Guinea’s new government earlier this year as an adviser on how a new mining code could extract better returns for the nation, as well as stamp out corruption.

Mr Soros said he had agreed to lend his support to Guinea following its holding of democratic elections and the transition to civilian rule last year.

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”Guinea is currently experiencing a new era,” Mr Soros said. ”Its natural resources have in the past not been used to benefit the people. Guinea now has an opportunity to change this.”

But the payment could draw criticism as a ”facilitation” or ”compensation” payment, which would be against transparency best practice for mining companies operating in developing countries.

Rio is expected to prefer to dub the deal as a ”settlement” payment for the indecision in its rate of expenditure at Simandou, caused by the September 2008 onset of the global financial crisis.

Rio acknowledged in February that it was under pressure to convince the Guinean government it should be allowed to retain its stake in a half-share of the Simandou iron ore deposit.

Rio said that the Guinean government had flagged its intention to capture a 33 per cent stake in all mining projects, up from the 20 per cent previously agreed with Rio.

Rio said at the time that the three-month extension to its hold on the stake would give the government more time to examine an application for a replacement mining concession that Rio subsidiary Simfer had lodged.

”This enables the government of Guinea and Rio Tinto to continue the positive discussions under way between them, aimed at resolving all outstanding matters regarding the Simandou project,” Rio said yesterday.

That has now been resolved with the $US700 million payment, according to industry speculation.

Rio has been on the back foot with its hold on the Simandou deposit since 2008. Guinea’s then military government transferred half of Rio’s coverage in the deposit to an Israeli diamond dealer, BSGR Group, because Rio had missed investment deadlines.

Brazil’s Vale – arch enemy of both Rio and BHP Billiton in the world of major iron ore exporters – then cut itself into Simandou when it paid $US2.5 billion for a 51 per cent interest in the BSGR side of Simandou.

But doubt has been thrown on that deal with this week’s confused reports from Guinea that the government had scrapped the Vale/BSGR deal. That has raised speculation that a Rio-type ”settlement” payment might be required to get Vale back into Simandou, the world’s biggest and highest-grade undeveloped iron ore deposit.

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