UPDATE 3-Guinea cancels BSGR, Vale iron ore mining permits

Thu Apr 17, 2014 5:57pm EDT

* Report says BSGR obtained mining rights through corruption

* Recommends BSGR and Vale be stripped of concessions

* Concessions awarded in "fraudulent" conditions-govt. (Recasts, adds government confirmation, background)

By Saliou Samb

CONAKRY, April 17 (Reuters) - Guinea's government has accepted a report recommending the cancellation of two iron ore concessions held by BSG Resources and its joint venture partner, Brazilian miner Vale, a spokesman said on state television on Thursday.

A technical committee charged with reviewing the West African nation's mining deals released a report last week accusing BSGR, the mining branch of Israeli billionaire Beny Steinmetz's conglomerate, of obtaining the rights through corruption.

The committee's report recommended that Guinea withdraw the mining permit held by VBG, the joint venture of BSGR and Vale, in the giant Simandou iron ore deposit and cancel its Zogota mining concession.

"The cabinet approves the recommendations of the technical committee," government spokesman Damantang Albert Camara said, adding that the decision was linked to the "fraudulent nature of the conditions in which the permits were granted."

Reuters reported earlier on Thursday that the committee's recommendations would be approved, citing a senior government source. The same source said the contracts would be officially cancelled via a presidential decree late on Thursday evening.

BSGR has denied the allegations and said it would seek international arbitration.

"BSGR obtained the mining rights lawfully and will mount a vigorous effort to overturn this decision, which is as predictable as it is unlawful," BSGR said in a statement sent to Reuters.

Officials for Vale, the majority shareholder in the VBG venture, were not immediately available for comment.

Vale, the world's largest iron ore producer, did not participate in the corrupt practices, the report found, as it was not involved in acquiring the licences.

While the committee called for the government to exclude VBG from any future process to re-allocate the licences, Vale may be able to bid for the permits on its own.

According to a source close to the Brazilian miner, the company had spent more than $1 billion on its Guinean venture when it put the project on hold at the end of 2012.

With reserves of iron ore, gold, bauxite and diamonds, Guinea is one of Africa's richest countries in terms of resources, but it remains one of the world's poorest in terms of development, ranking 178th out of 187 countries in the U.N. Human Development Index last year. (Additional reporting by Silvia Antonioli in London and Jeb Blount in Rio de Janeiro; Writing by Joe Bavier and Emma Farge; Editing by Daniel Flynn and Steve Orlofsky)

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