By Bate Felix and Clara Ferreira-Marques
CONAKRY/LONDON Dec 11 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
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 a hundred 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 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 Guinea's
10 million people, and wants to make Simandou pay.
But first the authorities must decide whether to honour
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 characterised by shadowy deals and uncertainty. This review
process aims to normalise the sector and put an end to those bad
practices," Mines Minister Mohamed Lamine Fofana told Reuters.
But the owners of the concession for the northern half of
Simandou, Brazil's Vale and the Israeli diamond
billionaire Beny Steinmetz's BSG Resources, 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 mines
minister 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
Guinea's mines ministry who now works with BSGR.
The government says it will finish reviewing BSGR's rights
over the concession in early 2013.
"IDIOTS, CRIMINALS OR BOTH?"
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 in the north of the
concession, teamed up with Steinmetz, and Anglo-Australian Rio
Tinto in the south, teamed up with China's Chinalco.
Rio was the first company to commit to Simandou, spending
about $350 million developing a project there until 2008, when
the government of long-ruling leader Lansana Conte revoked its
permit, arguing 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
would limit the economic benefits for Guinea.
In return, Steinmetz agreed to build a $1 billion passenger
and freight railway from the capital Conakry on the west coast
to Kerouane in the south east. He later sold 51 percent of the
project to Vale in a deal valued at $2.5 billion, of which $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.
But the terms have been widely criticised by advocates of
government transparency, who say the authorities should have
secured a better deal.
British telecoms 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
a 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 George Soros to help it determine how it
can win better deals from the mining firms.
Blair's Africa Governance Initiative and Soros-backed
Revenue Watch say they are helping Conde and his government
implement a new mining code which 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 which 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 $700 million and give the government the right
to up to 35 percent of the $10-$20 billion project.
Unlike Steinmetz and Vale, Rio pledged to build an export
route across Guinea for its ore. The route, to be built with the
government, will mean constructing almost 700 km (430 miles) of
rail, 35 bridges and a four-berth wharf 11 km 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 were 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 realisation that he can't
take investor confidence for granted," Alexandra Reza, analyst
at consultancy Africa Practice said.
But 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," 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
POVERTY AMIDST UNTAPPED RICHES
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 $1.50 per person per day.
During half a century of one-man rule, first by independence
leader 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 materialised.
The mines ministry, which oversees about 80 percent of the
country's mineral exports, is a four-storey 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," said Ahmed Kante, speaking through power cuts
that repeatedly plunged his corner office into darkness.
A former mines minister 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."