Poverty in Guinea continues as wrangling stalls mining boom

The nation has the world’s largest untouched iron ore deposit, but decades of authoritarianism and a stagnant economy are stopping it from reaping any rewards

By Bate Felix and Clara Ferreira-Marques  /  Reuters, CONAKRY and LONDON

Mon, Dec 17, 2012 - Page 9

Hidden under the lush forests of southern Guinea is the world’s largest untapped deposit of iron ore, a resource so rich it covers dirt roads, trees and just about everything above it in a burnt, rust-red dust.

The Simandou deposit has some of world’s highest-grade, lowest-impurity ore, enough to satisfy 12 percent or more of global seaborne demand for steel-making iron ore and transform one of the world’s poorest countries into a major producer.

Yet in more than 100 years since it was first discovered, not a scrap of iron ore has been dug out. Decades of corruption and unrest have left it trapped in the ground.

The government of Guinean President Alpha Conde — elected in 2010 in Guinea’s first free vote after 50 years of one-man rule and two years of a military junta — has promised prosperity for the nation’s 10 million people and wants to make Simandou pay.

However, the authorities must first decide whether to honor deals negotiated by previous governments, or demand better terms. The government began a systematic review of mining contracts earlier this year, leaving Simandou’s future in limbo.

“For many years, the management of the Guinean mining sector was characterized by shadowy deals and uncertainty. This review process aims to normalize the sector and put an end to those bad practices,” Guinean Minister of Mines Mohammed Lamine Fofana said.

However, the owners of the concession for the northern half of Simandou, Brazil’s Vale and the Israeli diamond billionaire Beny Steinmetz’s BSG Resources (BSGR), say they have frozen their project because of the uncertainty.

“The issue is in the hands of the Guinean government,” Vale chief executive Murilo Ferreira said last week. “They set the rules; they tell us what rules govern a project and they have not communicated the rules for this project yet.”

Some industry and Guinean sources, including former Guinean minister of mines Mahmoud Thiam, believe the government’s review of mining licenses is targeting specific companies, including BSGR.

Some even suggest that the government’s plan may be to revoke the BSGR/Vale concession, a move the firms say would be a disaster for Guinea and could leave the iron ore trapped for many more years by legal battles and political uncertainty.

“We are getting to a critical state whereby if necessary, we’ll seek diplomatic protection from the Israeli government because this is beginning to look like an expropriation in another name,” said lawyer Momo Sakho, a former legal adviser to the Guineana Ministry of Mining who now works with BSGR.

The government says it will finish reviewing BSGR’s rights over the concession early next year.

Most of the world’s seaborne iron ore is produced in Brazil and Australia, and a handful of firms with roots in those two countries overwhelmingly dominate the sector. They now loom large in Guinea.

Permission to mine Simandou is split between the two biggest iron ore mining firms — Brazil’s Vale with Steinmetz in the north of the concession, and Anglo-Australian Rio Tinto with China’s Chinalco in the south.

Rio was the first company to commit to Simandou, spending about US$350 million developing a project there until 2008, when the government of long-ruling former Guinean president Lansana Conte revoked its permit, saying the firm had moved too slowly.

Then, with a global economic crisis hurting the price of iron ore and political tumult at home keeping many investors away, Conte’s government awarded the northern half of the former Rio concession to BSGR. It was a good deal for Steinmetz.

BSGR was not required to pay any cash up front and was given permission to export via Liberia, a much shorter and less expensive route than exporting across Guinea. Critics say that this would limit the economic benefits for Guinea.

In return, Steinmetz agreed to build a US$1 billion passenger and freight railway from the capital, Conakry, on the west coast to Kerouane in the southeast. He later sold 51 percent of the project to Vale in a deal valued at US$2.5 billion, of which US$500 million has been paid so far.

BSG and Vale say their concession represents a fair deal for Guineans, and the export route through Liberia makes better economic sense than shipping ore across Guinea.

However, the terms have been widely criticized by advocates of government transparency, who say the authorities should have secured a better deal.

British telecommunications billionaire Mo Ibrahim, who set up a philanthropic foundation to promote good governance in Africa, asked at a forum in Senegal last month whether “the Guineans who did that deal” were “idiots, or criminals, or both?”

Conte died at the end of 2008 after ruling Guinea for nearly one-quarter of a century. A junta led by an army captain seized power and ruled violently until Conde was elected in 2010.

Since then, Conde’s new government has summoned international advisers like former British prime minister Tony Blair and billionaire Soros Fund Management founder George Soros to help it determine how it can win better deals from the mining firms.

Blair’s Africa Governance Initiative and the Soros-backed Revenue Watch say they are helping Conde and his government implement a new mining code that will increase economic benefits to ordinary Guineans from mining deals.

Steinmetz’s firm complains about meddling by the advisers.

“The intentions may be good, but it isn’t helping Guinea and gives legitimacy to a discredited regime that has become embroiled in a large number of scandals including charges of corruption,” said Dag Cramer, chief executive of the conglomerate that owns BSGR.

Last year, Rio — ousted from the north of Simandou in 2008 — secured permission to mine the southern half of the deposit, agreeing to pay US$700 million and give the government the right to up to 35 percent of the project, which is worth between US$10 billion and US$20 billion.

Unlike Steinmetz and Vale, Rio pledged to build an export route across Guinea for its ore. The route, to be built in conjunction with the government, will mean constructing almost 700km of rail, 35 bridges and a four-berth wharf 11km offshore.

Rio says commercial production will start in 2015, though it is still awaiting government decisions on logistics.

That leaves the Steinmetz half of the concession stalled. Work on the Conakry-Kerouane railway that Steinmetz pledged to build stopped last year, after a disagreement over contractors.

If the government was to revoke the Steinmetz permit, mining executives say it would frighten off investors and delay production even further. Demand for iron ore has been soft and mining companies are cutting spending.

“I think Conde is being pulled between his nationalist development agenda and the growing realization that he can’t take investor confidence for granted,” said Alexandra Reza, an analyst at consultancy Africa Practice.

However, international advisers say Guinea still stands to benefit by repudiating bad deals made under the “big man” rule of Conte, who seized power in a 1984 coup and died 24 years later, leaving an already impoverished Guinea even poorer per capita than he found it.

“By cleaning up, the government will gain credibility with reputable companies,” said Paul Collier, director of the Centre for the Study of African Economies at Oxford University and an occasional adviser in Guinean affairs. “The objective is not to get as much ore out of the ground as fast as possible. The Republic of Guinea’s objective is to ensure that when it does come out, it provides as much benefit as possible.”

Meanwhile, Guinea, with one of Africa’s richest natural endowments of iron ore, gold, bauxite and diamonds, remains shockingly poor, its treasures still mostly buried and its entire economy producing only about US$1.50 per person per day.

During half a century of one-man rule, first by former Guinean president Ahmed Sekou Toure and then by Conte, the authorities issued hundreds of overlapping mining permits, covering 110 percent of Guinea’s territory. Few of those projects ever materialized.

The Guinean Ministry of Mines, which oversees about 80 percent of the country’s mineral exports, is a four-story block decaying in the tropical heat along one of Conakry’s main avenues. On the street outside, scores of young people eke out a living hawking everything from batteries to bread.

Surrounded by piles of paperwork in one of Conakry’s rare high rise blocks, the head of Guinea’s newly formed state mining company does not hide his frustration.

“Over 1,500 firms have permits in this country to carry out mining activity in one form or another, but only about seven are in production,” former Guinean minister of mines Ahmed Kante said, speaking through power cuts that repeatedly plunged his corner office into darkness.

Appointed last year to head Soguipami, a holding company for state mining assets, Kante said only six mines had begun operating since Guinea became independent from France in 1958.

“We will not succeed if things continue like this, especially if only one mine comes onstream every decade,” he said.