April 10, 2013 / 11:51 AM / 6 years ago

REFILE-Guinea says new code encourages miners to do more than dig

* Amends Guinea mining code to woo investors

* State gets free stake in mines, option of purchasing more

* Guinea rich in iron ore, world’s top supplier of bauxite

By Clara Ferreira-Marques

LONDON, April 10 (Reuters) - 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 percent 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 about removing ore, the government demands 15 percent. 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 percent, 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 2009-2010 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.

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