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“Mining Turbulence” Raging in Guinea

April 23, 2011

Bracing for Changes in Mining and Infrastructure Codes in Guinea

April 23, 2011

Summary

A “mining turbulence” is raging in Guinea as sweeping changes to mining & infrastructure laws are planned for the first time in 16 years. A 33% “blocking minority” state ownership and cleaning up decades of corruption and bureaucratic nationalism are souring relations between government and miners scrambling to reassure the market their Guinean assets are safe. A new market-friendly regime that helps miners build social licence to operate & protect shareholder value will be mutually beneficial.

Analysis

Guinea is the world’s largest supplier of bauxite (between 25 & 40bn tons, spread across much of the country), the raw material refined into alumina that is then smelted into aluminum metal. Tragically, much of this wealth has been frittered away in corruption and bureaucratic nationalism for decades while mining companies smiled to the bank.

In January, newly elected President Alpha Conde announced plans for a 30% state participation rate. Under current law, the government does not have a right to participate in bauxite and iron ore, let alone share in the profits; instead, it has to pay mining companies to take the ore. It’s only in gold and diamond mining that the government has a right to a 15% share in the assets. The new regime will bring all mineral resources under one participation rate. All current mining contracts would be renegotiated, just as the government will become more rigorous in its application of licensing terms. Significantly, the new mining code will punish companies caught bribing officials and would retroactively punish current license holders if it was established that they were involved in any bribery. Remarkably, George Soros is assisting with these reforms “because Guinea could not afford to pay international consultants.”

The January announcement alarmed the market, hitherto used to back-rubbing between massively corrupt past regimes and mining multinationals, namely Vale SA, Rio Tinto, Global Alumina, Rusal, Chinalco, South Africa’s BSG Resources, and Bellzone Mining. Since then the government has tried to calm nerves by saying that its quest for “blocking minority” stake was not a hard and fast plan.

Last week’, the government canceled the 640 km Kankan-to-Conakry railway project targeting Rio Tinto’s Simandou iron-ore project under construction. Simandou has been dubbed “the largest integrated mine-and-infrastructure project ever developed in Africa” expected to top the $10bn mark. Vale’s Zogota mine at Simandou, scheduled to begin production in 2012 is expected to reach 95mn ton a year within five years. The project is being built in partnership with the Chinese State-owned company Chinalco, the World Bank’s International Finance Corporation (IFC) and Rio Tinto.  Simandou alone will make West Africa one of the world’s foremost iron-ore exporters, comparable with established producers like Brazil and Australia.

Analyses are solely the work of the authors and have not been edited or endorsed by GLG.

Contributed by a Member of the GLG Legal, Economic & Regulatory Affairs Councils

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