African states play tough with iron ore investors

By Daniel Magnowski - Analysis

DAKAR (Reuters) - African countries are trying to convert their reserves of iron ore into big mining projects in the hope of cashing in on high world prices.

But they are making it clear they won't be pushed around by resource-hungry corporate mining giants.

With world-class ore deposits few and far between and resource quality key to corporate valuation if not survival, African governments are now dictating terms to mining companies.

The Simandou iron ore project in poor West African state Guinea has been touted by majority owner Rio Tinto as the world's best unexploited resource, big enough and rich enough for Rio to lean on as a defense against a hostile takeover bid from bigger rival BHP Billiton.

Guinea, sensitive to this, has started exerting pressure on Rio.

"Rio will go further than they otherwise would to control this asset," said Nick Day, Chief Executive of Diligence, a London-based firm which advises corporations on political risk.

"For Rio, the balance is ensuring profitability of the project, and for (Guinean President Lansana) Conte, it's about extracting as much money as possible."

Investors in Rio should look out for similar behavior from the Guinean government as oil major BP experienced with its troubled Russian oil venture TNK-BP, Day said.

"You'll see warning signs. If it starts to get accused of pollution, there are labor disputes, health and safety issues -- that's when Rio is about to lose control," he added.

Guinea has repeatedly voiced frustration with Rio, saying in August it was rescinding its concession, while Rio's public statements have kept a positive tone. Chief Executive Tom Albanese said he was encouraged this month by talks with the government.

Even if Rio or any other firm running a big African iron ore project loses control, the chances are someone else will step in.

South African miner Kumba Iron Ore is taking Senegal to the International Court of Arbitration after the government ordered it to stop exploration at a key mine in which ArcelorMittal has said it wants to invest $2.2 billion.

Kumba would not comment on the progress of the arbitration case, but has not been deterred from working in West Africa. It plans to open an office in Guinea this month.

DIFFERENT APPROACHES

But whereas Guinea is pushing for the best deal it can get, neighboring Liberia wants to be a stickler for transparency.