The curse of Simandou

By | 2019-01-17T05:09:27+00:00 January 17th, 2019|Global|
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Corruption has sterilised one of the greatest iron ore deposits on earth, writes Leon Louw.

One of the most tainted projects in African mining history has made the headlines again after Rio Tinto and Chinese company Chinalco failed to pull off a sales agreement signed in October 2016. Simandou’s history reads like the script of a Hollywood movie: Corruption, deceit, intimidation, threats, insults, and accusations involving some of the most controversial business characters and political heavyweights around, have dominated the discourse on what should be the most prolific iron ore mine in the world. The announcement by Rio Tinto is the latest in a long list of statements by several entities, media houses, individuals, governments, and companies; and yet, it appears that there is still no clarity on who should legally own what.

The hills of Simandou in Guinea, which became a huge point of dispute between several stakeholders. Image credit: Rio Tinto

The hills of Simandou in Guinea, which became a huge point of dispute between several stakeholders. Image credit: Rio Tinto

In 2014, this decade-long saga was placed on the agenda of the International Centre for the Settlement of Investment Disputes, an international tribunal based in Paris, France. At the end of a two-week-long hearing, during which infamous Israeli business billionaire Beny Steinmetz attempted to clear his name, Guinea lawyers said Simandou is an “exceptional case of exceptional importance with evidence of corruption which is equally exceptional”.

Steinmetz was detained for four days in Israel last year and placed under house arrest while police investigated allegations of fraud, forgery, and money laundering. According to reports, Steinmetz had arranged for bribes to be paid to the government of Guinea to secure his company’s — Beny Steinmetz Group Resources (BSGR) — mining rights at Simandou. Steinmetz has made millions from questionable mining deals in Africa, mostly in the diamond fields of West Africa.

Simandou’s tainted history

Rio Tinto first acquired the exploration rights at Simandou in 1997, with the intention of developing what is probably the richest iron ore deposit on the continent. Though, after a decade of dragging its feet, the then president of Guinea, Lansana Conté, lost his patience and stripped the Anglo-Australian miner of half its rights in July 2008. Enter Steinmetz and BSGR, who six months later, shortly before Conté’s untimely death, received mining rights to blocks one and two of Simandou.

Then, in 2010, with the iron ore price hovering close to its highest levels ever, Brazilian mining giant Vale acquired a chunk of Simandou by making an upfront payment of USD500-million to BSGR, in what became known as the ‘deal of the century’.

When Alpha Condé (not related to Lansana) took over as the president of Guinea in 2010, he demanded that the holders of Simandou’s mining rights pay the new government for the claims he said were illegally awarded by his predecessors. In 2011, Rio Tinto settled the matter by paying USD711-million for blocks three and four, but Steinmetz refused to fork out a whopping USD1.25-billion for blocks one and two and called it extortion. This, of course, put him on a collision course with Condé, who eventually, in 2014, evicted BSGR from Guinea.

In the meantime, Vale pulled out of Guinea in 2012, blaming a slump in the iron ore price. Since then, numerous court cases involving Rio Tinto, Vale, Steinmetz, and the Guinea government have further blighted a project which was once hailed as the saviour of Guinea.

Victims of corruption

Besides Steinmetz, who is still being investigated, several other people involved at Simandou have been convicted of corruption and/or other related charges. Frederic Cilins, a BSGR associate, served two years in prison in the US for obstructing an FBI investigation, while Mahmoud Thiam, Guinea’s former minister of mines, who backed BSGR’s deal with Vale, was found guilty of laundering USD8.5-million in bribes he allegedly took in exchange for helping a Chinese company secure mining rights. Asher Avidan, the former head of BSGR in Guinea, is, like Steinmetz, restricted in his travels, while the Israeli police and prosecutors in the US and Switzerland continue to circle.

In October 2016, Rio Tinto agreed to sell its remaining stake in the Simandou projects to Chinalco. However, in November 2016, a few weeks after the signing, two former employees were found to have paid USD14.8-million to French banker François Polge de Combret — who shares a personal relationship with Guinea’s president Alpha Condé — for consultancy services related to the project.

In addition, Rio Tinto’s former energy and minerals chief executive Alan Davis was suspended, and regulatory affairs group executive Debra Valentine stepped down after Rio conducted an internal investigation that discovered emails from 2011 containing information related to the consultant.

According to the statement, the agreement between Rio Tinto and Chinalco was, at the time, worth about USD1.3-billion. The deal would have seen Chinalco become the majority owner of Simandou, increasing its stake from 39.95% to 85%. The Government of Guinea holds a 15% stake in the project.

Almost 20 years after Simandou was first discovered, the curse that has plagued it from the very beginning, is still hampering its progress. Simandou was always going to be difficult to develop considering its remote location, but it remains one of the greatest iron ore deposits in the world. Yet, its development seems as far off as what it was 20 years ago.

On its website, Rio Tinto describes the Simandou Project as the largest planned integrated mining and infrastructure development contemplated in Africa.

It states that the project includes three key components: the mine, the infrastructure, and the ancillary infrastructure. The mine would be located towards the southern end of the 110km-long Simandou mountain range, 550km south-east of Guinea’s capital city Conakry. According to Rio Tinto, it is one of the largest undeveloped high-grade iron ore deposits in the world and the mine will be a conventional opencast mine with an expected capacity of 100 million metric tonnes of iron ore per annum. The infrastructure would include a new 650km trans-Guinean railway line to transport iron ore from the Simandou mine to a new deep-sea port, located south of Conakry on the Morebaya River. Both rail and port will be available for use by third parties, on prescribed terms. Lastly, the ancillary infrastructure includes access roads, accommodation, power generation, and water systems to directly support the Simandou project.

Rio Tinto further states on their website that a third-party infrastructure consortium will fund, build, and own multipurpose, multi-user rail and port infrastructure. Rio Tinto’s investment will be in the mine only, and as such, will not be an investor in the infrastructure consortium. Simfer S.A. is a joint venture ultimately owned by the Government of Guinea (15%), Rio Tinto (45.05%), and a consortium of Chinese state-owned enterprises led by Chinalco (39.5%). Simfer S.A. is the holder of the Simandou South mining concession (blocks three and four) located in south-eastern Guinea.