Remember the Mining Industry in Guinea? WSJ Updates Us- Never a Dull Moment

Wall Street Journal
By
Scott Patterson
March 19, 2015 5:52 p.m. ET
0 COMMENTS

A long-running corruption investigation involving a mining company controlled by one of Israel’s richest men could yield up to a half-dozen indictments in the U.S., according to people familiar with the matter.

In a briefing last month, U.S. prosecutors told Guinean government officials that senior executives at BSG Resources Ltd. were among some of the people who could be indicted, according to people familiar with the meeting.

BSGR is the mining arm of Israeli billionaire Beny Steinmetz’s family-owned conglomerate. The investigation involves allegations of bribery and obstruction of justice against people connected to BSGR and a deal the company struck in 2008 to win prized mining rights in Guinea’s Simandou mountain range, one of the world’s largest deposits of iron ore.

The company was later stripped of those rights.

In an email Friday, a BSG Resources spokesman said the company would continue to press the Guinean government to “explain the lack of credible evidence used to justify the expropriation of BSGR’s mining rights.”
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“[T]here is no evidence linking BSGR and its employees to corruption in Guinea,” the spokesman said. “Absolutely nothing has changed.”

The timing of the possible indictments is unclear, and investigators could still decide to drop the investigation. Spokesmen for the U.S. Justice Department and the Federal Bureau of Investigation declined to comment.

The February briefing followed the release from U.S. prison of a key individual in the investigation, Frédéric Cilins, in January. Mr. Cilins, a French citizen, had served two years for obstructing the federal investigation into bribery allegations related to BSGR and its mining operations in Guinea.

An attorney for Mr. Cilins, William Schwartz, declined to comment.

The U.S. investigation is one of several probes world-wide involving how the government of the West African nation awarded rights to Simandou. The entire block of iron-ore deposits was once run by Anglo-Australian miner Rio Tinto PLC, but in 2008 Guinea’s government awarded half of those rights to BSGR after the firm carried out a three-year, $165 million exploration program. Later, BSGR struck a $2.5 billion deal for Brazilian mining giant Vale SA, an iron-ore specialist, to buy a 51% stake of its Guinean assets.

Mr. Cilins had worked on behalf of BSGR in Guinea when it was pursuing mining rights there in the mid-2000s. A Guinean government report alleges that Mr. Cilins paid bribes to the wife of the now-deceased Guinean President Lansana Conté to help Mr. Steinmetz’s company win Simandou.

Mr. Cilins hasn’t been charged with bribery or other violations, and has denied the allegation.

The widow of Mr. Conté, Mamadie Touré, is cooperating with U.S. officials, a person familiar with the investigation said. An attorney representing Ms. Touré declined to comment.

In April 2013, Mr. Cilins was arrested in a federal sting operation in a Jacksonville, Fla., airport and charged with obstructing the U.S. investigation. Mr. Cilins pleaded guilty last year in a Manhattan federal court but didn’t agree to cooperate with investigators.

Since then, Guinea, now under a different regime, has stripped BSGR and Vale’s rights to Simandou after a government investigation found BSGR had engaged in corrupt activities. The probe cleared Vale of any wrongdoing. BSGR denies wrongdoing and has filed a formal arbitration request to win compensation from Guinea for stripping it of the iron-ore deposit.

Guinea’s Minister of Mines Kerfalla Yansané told The Wall Street Journal in February that the country plans to put the rights up for auction again in the next few months. However, new iron-ore projects aren’t as enticing as they once were, with the steelmaking ingredient prices hitting a six-year low.

In Switzerland, authorities in late 2013 opened a criminal probe in parallel with an investigation by officials in Guinea into whether BSGR paid bribes to secure the Simandou mining contract. In the U.K., the Serious Fraud Office is seeking information about the deal from two law firms that have acted on behalf of BSGR, including Skadden Arps Slate Meagher & Flom LLP, according to testimony by a BSGR official in a U.K. high-court proceeding. BSGR said in December that it had asked the court to review the lawfulness of the SFO’s alleged actions.

Skadden and the SFO declined to comment.

In a separate proceeding, Rio Tinto is suing BSGR, Vale and Ms. Touré, among others, in Manhattan federal court, alleging that they colluded to rob it of part of its Simandou rights.

Vale, which wrote off the $1.14 billion book value of Simandou in 2014, last Friday said it has transferred its stake to BSGR. Vale, which declined to comment, has denied any plot to rob Rio.

Mahmoud Thiam, a U.S. citizen who took over Guinea’s mining ministry soon after BSGR won the concession, said he recently handed over roughly 10,000 documents related to Simandou to the Guinean government, which is reviewing the documents for potential publication. He had delayed handing over the documents for a time because he was seeking guidance from Guinea’s government about how they handle them, Mr. Thiam said.

Write to Scott Patterson at scott.patterson@wsj.com

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“High Noon at the Guinea Corral,” by David Gleason: Are Steinmetz and Soros at Each Other’s Throats? Did South African Backers Help Conde Steal 2010 Election? Did Rio Tinto Pay $700M Bribe to Guinea to Hold on to So. Simandou?

by David Gleason
IF THERE was a sliver of doubt, there cannot be any longer — George Soros and Beny Steinmetz are at each other’s throats and this isn’t going to end happily for one of them.

Of the two, Soros is better known. A multibillionaire (I’ve seen numbers like $30bn), he rose to international fame (and infamy in Britain) as the man who shorted more than $10bn in sterling, triggering the UK’s withdrawal from the European Exchange Rate Mechanism, prompting a devaluation of the pound and earning himself $1.1bn. A Hungarian nonpractising Jew, Soros, 83, has been married twice and is currently courting Tamiko Bolton, 40, a New York pharmacist.

Beny Steinmetz, 56, allegedly Israel’s richest man, is said to be worth about $6bn. He inherited the Geneva-based Steinmetz Diamond Group from his father and later formed Beny Steinmetz Group Resources, also Geneva-based but managed out of London.

The Steinmetz Diamond Group continues to be diamond giant De Beers’s largest sightholder.

Steinmetz is a commercial hurricane. He rarely stays in one place for long. He’s a legendary deal-maker and I’m sure he has been burnt frequently.

Of course, buying, polishing and selling diamonds isn’t at all the same as developing a major mining operation. I am not at all certain as to what it was that persuaded Steinmetz to shift gear so dramatically.

A long article in The New Yorker (July 8) quotes Paul Collier of the Centre for the Study of African Economies at Oxford as taking “a dim view of businessmen like Steinmetz who have secured rights to natural resources they may not actually have the expertise to develop.”

That’s such a crappy observation I cannot believe an adviser to UK Prime Minister David Cameron would make it. I can think offhand of many men who did exactly that — Cecil John Rhodes, Ernest Oppenheimer and others. The issue revolves around the Simandou iron ore deposits in south-central Guinea, a large area containing what may be the largest high-grade undeveloped continuous iron-ore body in the world.

It is where most miners would not want it to be. Guinea is grossly undeveloped, its peoples mired in poverty, probably worse off now than when its first president, the irrational Sekou Touré, gave the French the boot and then proceeded to lock away in concentration camps and murder all those he thought might oppose him.

Touré died in 1984 but nothing got any better.

Meanwhile, along came mining house Rio Tinto, which qualifies in Collier’s book as able to develop a project. Rio secured the mining rights to Simandou north and south in 1997. It did nothing with them, and probably deep-froze them to hold off competitors while it developed its operations in the Western Australian Pilbara.

Steinmetz was given two unconnected areas, one north of Simandou, the other south.

The northern site wasn’t worth persevering with, but the south revealed an entirely new deposit, henceforth called Zogota.

When Touré’s successor Lansana Conté died in 2008, a military junta led by Moussa Dadis Camara, an army captain, took power. Dadis brought technocrats into the cabinet, one of them Mahmoud Thiam, to serve as minister of mines.

Thiam and his sister were smuggled out of Guinea during Touré’s reign — his father died in one of Touré’s concentration camps. Thiam was educated in the US, obtained an economics degree from Cornell University and went on to work for Merrill Lynch and UBS.

Accused in The New Yorker of being a Steinmetz champion, it was Thiam who told Rio Tinto it wasn’t complying with the terms of its mining leases. He stripped the company of its northern Simandou licence and awarded it to Beny Steinmetz Group Resources on the grounds that it had discovered the Zogota deposit.

Predictably enough, Rio Tinto was enraged. It claims it invested heavily in Simandou, but the time frame belies that — it doesn’t take nearly 12 years to start developing an iron-ore deposit, or begin rebuilding a railway line, or begin developing a deep-water port, at least some of which would be undertaken with international financing.

A number of things then transpired. Not in any order, the Guineans finally held an allegedly open, free, election. Alpha Condé, 72, who had lived outside Guinea for 50 years, won 18% in the first round. His principal opponent Dalein Diallo won more than 45%. In the delayed second round, Condé suddenly appeared with 53% and Diallo with 47% — an about-term in fortunes that invites deep suspicion.

It was at this juncture that stories began to emerge that South Africa had provided financial support (said to be about $18m) to Condé, used to help finance a South African company, Waymark Infotech, which provided election management. Stories circulated that Soros and South African companies were providing “advice” and, in one case (Palladino) $25m to Condé’s new government and that organisations financed by Soros had become prominent.

The latest twist in a story that is fast providing a slew of plots for thriller novelists is that Steinmetz’s group allegedly prevailed on Mamadie Touré, the fourth wife of the dying previous president, Lansana Conté, to procure the mining licence for Simandou. They allegedly provided her with money, diamonds and a guaranteed 5% stake in Simandou. She revealed all this to a curiously and conveniently unnamed cabinet minister.

A wire worn by Mamadie Touré recorded a damaging discussion in Jacksonville, Florida, between her and Frédéric Cilins, said to have orchestrated the bribes, and to have been close to Steinmetz. The FBI was listening. Cilins was arrested and released on $15m bail.

Meanwhile, Rio Tinto sold a portion of its southern Simandou licence to the Aluminium Company of China for $1.7bn and then paid $700m to the Guinean government in return for a guarantee that no further action would be taken against it.

What will happen now? Did Condé steal the election with help from backers in South Africa? Did Beny Steinmetz Group Resources bribe Guineans to get the licence? Did Rio Tinto pay an effective $700m bribe to hold on to southern Simandou? There’s lots more — but no space.

Who is your money on — Soros or Steinmetz?

Rio Backs $21bn Guinea Play Despite Soaring Costs

RIO Tinto appears committed to building the $US20 billion ($21bn) Simandou iron ore project in Guinea if it can iron out some issues with government, despite its pledge to rein in capital spending and pay down debt.

The company is also giving investors the impression it will not be exporting from the project in 2015, which is in line with what Guinea’s Mining Minster said recently but contradicts comments from the country’s President, Alpha Conde.

In a presentation to investors, Rio’s head of minerals and diamonds, Alan Davies, said if an investment framework and financing agreement could be secured, Rio would add to $US3bn already invested in Simandou, where estimated costs are said to have blown out to double previous $US10bn expectations. “Investment will proceed once a robust investment framework is finalised (and) partner and project financing strategy is secured,” Mr Davies told investors this week. Continue reading “Rio Backs $21bn Guinea Play Despite Soaring Costs”

Guinea to award Simandou iron ore project to Chinalco

Guinea to award Simandou iron ore project to Chinalco

By: SEM Contributor on May 5, 2013.

It seems the government of the West African state of Guinea may be prepared to give a big stake of its iron ore reserves to Chinalco after reports of falling out with Rio Tinto. Senior politicians in the country are with the view that Rio Tinto have been in Simandou for many years and have done nothing but dish out money to expatriates with little or nothing to show for the time spent on the mines. The government has privately expressed dissatisfaction at how Rio Tinto has conducted its operation in the country and are seriously considering other options.

 The iron ore project is vital to the Guinean economy and authorities are keen on handing over operations to a reputable company with a proven track record in the mining industry. Chinalco had been a minority shareholder in the project, but have demonstrated immense interest in taking the project to another level, with intent to create jobs and wealth to boost the economy.

The Guinean government has been encouraged by how a smaller company like African Minerals Limited, operating in Sierra Leone, and driven by the Romanian businessman Frank Timis, could build such a huge operation at the Tonkolili mine with only $2 billion investment, including a port and rail network facility in just under 3 years, something that has enhanced the GDP of neighbouring Sierra Leone.

 Pressure continues to be piled on Rio Tinto to give a major stake to Chinalco, as Guinea’s president believes the only company capable of building Simandou is Chinalco with the assistance of the Chinese. African Minerals continues to be a major force in the African mining industry and has made head waves in its contribution to the socio-economic development of the communities around its operations.

By Ahmed Kamara

Guinea’s Newly Amended Mining Code Gives Incentives for Miners to Do More Than Dig

Mines Minister Fofana states that corruption by mining companies will not be tolerated by the Guinean government. Guinean citizens would probably be glad to hear that the government is equally vigilant about preventing corruption within its own ranks.

Guinea says new code encourages miners to do more than dig

By: Reuters

10th April 2013

LONDON – Guinea’s amended mining code, brought in this week to improve a bruised investment record, will use the government’s entitlement to a stake in mining projects to encourage companies to process minerals locally, its mines minister said on Wednesday.

Guinea approved changes to its mining code earlier this week bringing in provisions including some tax cuts, as it tries to woo investors in a sector that has become increasingly wary of projects in so-called frontier regions like West Africa.

The code retains a controversial clause giving the state a free 15% stake in mining projects, but Minister Mohamed Lamine Fofana said the aim of the measure was to boost the amount of processing, refining and smelting done in Guinea and to cut back the amount of raw material simply shipped out.

“We do not want our country to continue to be just the place minerals are removed from – we want to encourage the transformation of minerals for the creation of added value,” Fofana told Reuters by telephone.

“So if the operation is just above removing ore, the government demands 15%. If, for example, bauxite is turned into alumina, the holding drops to 7.5 percent. We want to encourage integrated production.”

If companies go all the way up the chain and produce aluminium, the state’s free stake could be as little as 2%, Fofana said, adding a similar scale applied to iron ore, a steelmaking ingredient Guinea’s south is rich in.

“The idea is to penalise those who remove the raw product and simply export it.”

Many resource-rich nations in Africa and elsewhere are attempting to push what is known as “beneficiation” – avoiding the export of minerals as ores or semi-processed materials, instead of as higher value intermediate or finished products.

Countries like South Africa have actively promoted the push in order to improve local employment and drive economic growth.

Guinea, however, is facing the challenge of encouraging ever higher investment and overhauling its regulation during a prolonged and difficult transition after a military coup in 2008. The push also coincides with weaker commodity prices and pressure on companies like Rio Tinto and BHP Billiton to trim back spending.

The two majors have, respectively, slowed investment in Guinea and virtually pulled out.

Fofana said the code, promised by President Alpha Conde more than two years ago, would also help the country’s push to clean up a sector plagued by corruption and mismanagement.

“We have extremely tough position on corruption. The promotion of transparency is our priority,” he said.

“If a company is caught on corruption charges, it will lose its licence or at least pay a fine that will discourage it from repeating the move.”

Guinea is currently reviewing mining contracts, particularly those signed during the 2009/10 period when the country was ruled by a military junta.

Contracts currently under review include BSG Resources’ deal to obtain half of the giant Simandou iron ore concession.

Edited by: Reuters

As Guinea’s Mining World Turns: RUSAL’s Deripaska Makes Secret Deal with Conde

POSTCARD FROM GUINEA – DERIPASKA MAKES SECRET DEAL WITH PRESIDENT CONDE

John Helmer, Dances With Bears| Sep. 1, 2011, 2:41 AM

Moscow

Oleg Deripaska has reached an agreement with President Alpha Conde to end the claims of the Guinean Government against United Company Rusal, Guinean sources report from Conakry. The terms of settlement remain secret; some of them are expected to be announced publicly soon.

The claims amounting to more than a billion dollars in tax and customs duties, penalties for transfer pricing, plus interest, along with threatened revocation of Rusal’s bauxite mining concessions in the west African republic, were initiated in court action in Conakry, the Guinean capital, in September of 2009. The court ruled in favour of the government; Rusal has been challenging the judgement and the jurisdiction of the Guinean courts to regulate disputes over its Guinean mine concessions ever since.

The Guinean government’s claims were then expanded in a report commissioned from a Washington, DC-based consultant, Alex Stewart International (ASI). That report, dated January 13, 2010, charged Rusal with violating its operating and mine concession agreements with the Guinean Government, underpaying for its assets, breaking conservation regulations, failing to pay mine lease fees, violating mine production targets, and “illegal possession and sale” of bauxite. The ASI report summary can be read here.

ASI estimated that Rusal had generated $830 million in gross proceeds between 2006 and 2010 when it was acting unlawfully at its Friguia mine. The failure to pay for mine leases amounted, ASI auditors claimed, to $10 million. The production contract violation cost another $120 million. And the environmental damage was assessed at “hundreds of millions of dollars”. According to ASI, the minimum liability owed by Rusal to the Guinean Government should be “from US$960 million…to possibly more than $1 billion.”

Rusal’s responses over the past two years, as the conflict with the Guineans, led by then Mining Minister Mahmoud Thiam, escalated, has been chronicled here. Before Thiam retired and returned to his home in the US last January, and then in April of this year, the newly elected President Conde announced publicly that he intended to pursue Rusal for violation of the conditions of its Dian-Dian bauxite mine concession agreement.

American legal advisors to Conde, engaged and paid for by George Soros, appeared to substantiate the earlier claims; they began laying the groundwork for retrocession of a number of mining rights issued to international companies by earlier Guinean governments and auctioning them anew in an international bidding contest.

Very recently, however, Conakry sources claim that Conde has authorized an agreement with Rusal at a fraction of the loss, penalty and damage assessment of the ASI report.

The innuendo has been launched in Conakry that the 2010 ASI report had been procured corruptly by Chinese interests seeking to oust Rusal from Friguia and Dian-Dian, and substitute themselves. London and African media have been running reports charging the Chinese with corrupting the Guineans to a degree never heard of before, when the French, Russians, British and Americans ruled the roost in Conakry.

New mine concession agreements which Thiam and his government had negotiated for iron-ore with Vale (Brazil), Beny Steinmetz (Israel), Bellzone (Australia) and China International Fund (CIF) have been threatened. An agreement for Rio Tinto to compensate the Guinean Government with $780 million has been suspended, the money so far unpaid. The South African Minister of Human Settlements and mine entrepreneur Tokyo Sexwale has been identified as seeking business through joint ventures with members of the Conde circle and family.

These are the claims of the postcards. No official corroboration or announcement has been issued by either the Conde administration or by Rusal.

Rusal’s last official announcement from Conakry unveiled a scholarship programme for Guinean university students, on which the company says it plans to spend $5.5 million over five years, starting next month, when the first of 2,700 Guinean applicants will start their studies. “Conakry, 26 May 2011 — UC RUSAL, the world’s largest aluminium producer, is pleased to announce the launch of a unique education programme the “RUSAL Scholarship-2011”. The RUSAL Scholarship will provide 100 talented young Guineans aged between 18 and 25 the opportunity to be educated in Russia’s best universities. All accommodation, transportation costs and tuition fees will be covered by UC RUSAL. The “RUSAL Scholarship-2011” program aims to educate highly-qualified staff for the Republic of Guinea and to strengthen the ties of friendship between the Russian Federation and Guinea. Guinean students will be able to study for degrees in mining, railroad operations, economics, building and construction, agriculture, water supply, medicine and human resources. After graduation, there is the opportunity for many of the students to work for RUSAL in their subsidiaries in Guinea.

Vale Woos Guinea with Social Projects

July 6, 2011 7:38 pm

Vale woos Guinea with social projects

By Jack Farchy and William MacNamara in London and Samantha Pearson in São Paulo

Vale’s finance chief said the Brazilian miner would invest in development programmes in Guinea in an attempt to safeguard a $2.5bn mining concession and avoid making a large pay-out to the African country’s new government.

In spite of still being vulnerable to a review of mining licenses in Guinea, Guilherme Cavalcanti said that Vale could win the government’s approval for its Simandou iron ore project that it shares with rival Rio Tinto by paying for education and agriculture in the communities where it mines.

“Our approach to Africa in Guinea is not to become only a mining extraction [company] but bring country co-operation,” he said. “So, as we do in Mozambique, we can help people in agriculture, we can help in education, we can train local people … So it’s more an approach to communities as well, not only mining extraction.”

Rio Tinto only gained clear tenure in Guinea in April after promising the government $700m in cash as well as rights to take up to a 35 per cent stake in Simandou.

Simandou, one of the highest-quality untapped iron ore resources in the world, has attracted the two largest iron ore miners to Guinea despite the country’s history of volatile dictatorship, weak rule of law, and recurring threats of licence renegotiations.

Rio controls the southern half and Vale the northern half.

In addition to giving cash and equity to the government, Rio agreed to build a railway from one side of the country to the other. It granted rights for the government to take a 51 per cent stake in the railway.

However, Mr Cavalcanti did not mention national infrastructure funding or cash payments.

Since Alpha Conde was elected Guinea’s president last November, the new government has sought to overhaul mining contracts to return more benefits to the desperately poor population.

The government is seeking to take a minimum 33 per cent stake in all mining projects, a percentage that Vale has not granted.

The stakes should be “enough to block any decisions and take part in the big decisions the mining sector makes”, according to Mohamed Fofana, minister of mines.

The economics of Vale’s Simandou investment could be threatened by a cash-and-equity deal similar to Rio. Unlike Rio, Vale controls only 51 per cent of its concession. The remainder is held by Beny Steinmetz Group Resources.

Brazil’s status as a fellow emerging market power and former colony might help Vale cut a better deal with the Guinean government than Rio Tinto, analysts said. “Vale is at an advantage in this respect but nevertheless, it will probably still have to pay something,” said Pedro Galdi, an analyst at SLW Corretora in São Paulo.