Billionaires and big companies have come a cropper in one of the world’s poorest contries
ON THE flanks of the Simandou mountains in south-eastern Guinea live remote colonies of West African chimpanzees. They alone should be grinning over the fate of those who have sought to turn their tropical habitat into Africa’s biggest iron-ore mine. No one else is laughing. Rarely has such a group of billionaires, hedge-fund barons, mining firms, government officials and go-betweens been snagged in such a woeful saga.
In theory, the prospect of digging up 2bn tonnes of ore from a country that is among the poorest on Earth should be encouraging, if corruption is kept in check. The government of Alpha Condé promised to do so upon taking office in 2010. But in reality the line between paying go-betweens to help win concessions and lining officials’ pockets is so blurry that it can cause mining firms endless trouble.
In recent months the plotline has shifted. During the past half-decade the businessman painted as the saga’s pantomime villain has been Beny Steinmetz, a globe-trotting Israeli diamond merchant, worth billions, whose lurid battles over Simandou with Rio Tinto, one of the world’s biggest mining companies, have involved volleys of accusations about bribery.
Mr Steinmetz was briefly put under house arrest in Israel on December 19th last year in connection with the Guinea case. He denies wrongdoing. His backers allege that a “conspiracy” robbed him of his rights to Simandou. His office in London, as well as having a picture of Simandou’s red-streaked mountain top in the lobby, has a sign saying “All bullshit stories” that is lit up when a journalist visits.
But now Rio Tinto is also on the back foot. In November it sacked two of its top executives upon discovering a payment to a go-between in Guinea from 2011 that it says failed to meet its code-of-conduct standards. Jean-Sébastien Jacques, the firm’s new chief executive, appears to be in a hurry to draw a line under the whole affair, which is proving difficult.
It was two decades ago that Rio Tinto won a concession to explore the world’s largest untapped iron-ore deposit in Simandou. At the time, Guinea was ruled by a dictatorship that, in 2008, suddenly stripped Rio of half its blocks and transferred them to the Guinean arm of BSGR, a foundation whose main beneficiary is Mr Steinmetz. BSGR then sold a 51% stake in the blocks to Vale, Rio’s Brazilian rival, which incensed Rio.
Then Rio recovered its footing somewhat. In 2011, after Guinea’s first democratic elections, the new Condé government granted it the right to develop its remaining blocks in partnership with Chinalco, China’s state-owned aluminium firm, in return for a (disclosed) $700m payment. Even sweeter for Rio, in 2014 the Condé government stripped BSGR/Vale of their Simandou assets, alleging they had been obtained through bribery. Rio then sought (unsuccessfully) to sue BSGR and Vale in America on racketeering charges.
The backdrop for this battle was the high price of iron ore as China hungered for steel. The irrational exuberance of the times helps explain why Rio incorporated into the $20bn development plan for its blocks the construction of a trans-Guinean railway to ship the ore, as well as Guinea’s first deepwater port. These ideas came a cropper once the price of iron ore crashed.
As a result, the allure of the project for Mr Jacques has waned. He had sought to wash his hands of it by agreeing to transfer Rio’s Simandou stake to Chinalco last October for a song. But it was the following month that the board sacked its two officials, including Alan Davies, its minerals chief, after leaked e-mails revealed a $10.5m payment to a French consultant who was close to President Condé and helped guarantee Rio’s mineral rights at Simandou. Rio also handed over a trove of related e-mails and other data to authorities in America, Britain and Australia.
Rio pointed out that the sackings did not prejudge the results of any investigation, but they jolted many employees, some of whom thought them overhasty. Mr Davies said his dismissal lacked due process and vowed to fight it. Some suspected the draconian measures reflected Mr Jacques’s impatience to put Simandou quickly behind him and move on.
But that has proved tough. Mr Steinmetz has seized on the dismissals to make two accusations: that Rio paid a “facilitation fee/bribe” which contributed to the withdrawal of BSGR’s mining rights in Guinea; and that it launched a public-relations campaign that criticised the firm. Last month BSGR threatened legal action unless Rio settles a damages claim first. Both sides expect Rio to respond in the coming weeks. For all except the Chinese (and the chimps), the fallout from Simandou persists. And it has yet to produce an ounce of commercial iron ore for any of them.
Source: The Economist