Guinea rattles Rio on iron ore project

August 4, 2008

August 4th (The Age) – POLITICAL intrigue and rising resources nationalism has raised fresh doubts over Rio Tinto’s grip on its $US6 billion ($A6.46 billion) Simandou iron ore project in Guinea.

Rio has portrayed the proposed development of the huge iron ore deposit as a Pilbara in the making.

And because of its importance as a growth project, it is a key plank in Rio’s defence against BHP Billiton’s $170 billion takeover bid.

But a rattled Rio has revealed that it has received correspondence from Guinean President Lansana Conte purporting to rescind the Simandou mining concession.

Along with its partner in the project, the World Bank’s International Finance Corporation, Rio is studying the issues raised in the correspondence.

Rio said it was “confident that its arrangements are in all respects in conformity with Guinean laws and that it has complied with its obligations”.

It said it had negotiated and executed the mining concession in “full transparency with the Guinean Government”.

Rio’s potential loss of Simandou came as President Conte sacked Secretary-General Mamady Sam Soumah. State TV said Mr Soumah would be replaced by Alpha Ibrahima Keira, the president’s son-in-law.

It was Mr Soumah who first raised tenure concerns for Rio over Simandou in May when he said the Government would be reconsidering the concession because of irregularities in the original agreement. Just as ominous, Guinea’s latest threat to Rio’s Simandou ownership follows the return to Beijing of a Chinese trade delegation offering billions of dollars of investment in Guinea in return for Chinese ownership of resource projects.

There is long-running unease among foreign resource companies in Guinea because of a special committee set up to renegotiate all mining agreements, ostensibly to capture a bigger share of the boom in commodity prices.

Even so, Guinea’s Mines Minister, Ahmed Kante, said early last week that Rio’s Simandou iron ore mine was on track and would benefit Guinea and the company.

The question over Simandou ownership could not come at a worse time for Rio. In May, Rio called on the market to start ascribing some value for the project in valuations of the company — an effort to close the widening gap between the imputed value of BHP’s 3.4-for-1 conditional scrip bid and Rio’s share price.

But shortly after Rio’s call to the market, the first query on Simandou’s mining concession from the Guinean Government surfaced. Somewhat ironically, it was BHP managing director Marius Kloppers who some time later warned about getting too excited too early about projects subject to high levels of sovereign risk. He used BHP’s bauxite-alumina project plans in Guinea as an example.

Rio has spent or committed to spend $US300 million on Simandou.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: