Guinea’s Simandou deal opens new opportunities in the mining boom

By Christophe Le Bec, in Conakry
Posted on Monday, 18 March 2019 10:25

Steinmetz is seen during a business event in Tel Aviv - Photo: Reuters

The shock reconciliation between the government and Israeli mining magnate Beny Steinmetz announced on 21 February seems to be good news for the already buzzing Guinean mining sector.

What was the conflict between Steinmetz and Guinea about?

  • Steinmetz is the subject of several court cases in several jurisdictions about claims that his company bribed government officials to get the rights to Blocks 1 and 2 of the huge Simandou iron ore mine.
  • Before Steinmetz got an interest in the Simandou mine, it was wholly owned by Rio Tino.

What the reconciliation means

  • Thanks to the intervention of France’s former president Nicolas Sarkozy, Steinmetz agreed to drop its claims to the mining rights and Guinea said it would drop its court cases.
  • The Simandou project is one of the world’s largest unexploited iron ore mines, and it might now attract more interest since the ownership fight has been settled. Rio Tinto and Chinalco, which own the rights to Blocks 3 and 4, are also looking to sell off their stakes.
  • The government estimates that it will take $20bn to develop the mine and its associated infrastructure, include a port and railroad. But Rio Tinto predicts that the mine could produce 100m tonnes per year for 40 years. That much iron ore would fetch $7bn at current prices.

Bauxite is leading Guinea’s current mining growth, with production of gold and diamonds stagnant. Government mining revenue rose from $293m in 2015 to $355m in 2018 on the back of rising bauxite production.

Inside Guinea’s bauxite boom

The production of bauxite, which is used to produce aluminium tripled in Guinea from 20m tonnes in 2015 to 60m tonnes in 2018. Even though the TBEA and Chinalco mines are slow to take off, the government is targeting the place of top bauxite exporter. Mines minister Abdoulaye Magassouba told Jeune Afrique: “In bauxite, we are going to see the same growth in production in 2019 and 2020. Our goal is to become the top exporter in the world. We are already neck and neck with China and just behind Australia, the world leader.”

Chinese players and logistics solutions

  • Société Minière de Boké, a Chinese-Guinean joint venture, is responsible for most of the recent production growth. It started production in 2016 and produced 41m tonnes in 2018, thanks in large part to its use of barges on the Nunez River.
  • Transport solutions are helping out other producers. The Compagnie des Bauxites de Guinée (owned by Rio Tinto and Alcan) is now allowing other companies to use its rail line. Rusal’s Dian-Dian project, launched in 2018, is now using the line. The Guinea Alumina Corporation, which will begin exports this year, will be using it too.

Not blue skies for everyone

  • It is not so easy to just mint money by mining in Guinea. Australian miner Bellzone collapsed last year after it was unable to raise the funds needed for investment and continuing its operations.
  • And mining activity is not improving the lives of locals very much. The population in and around Boké launched several protests in 2017 and 2018 to complain about the lack of jobs and electricity. The government recently launched a couple of programmes to direct more mining revenue to local communities living near mines.

What next?

  • Be on the lookout for investor moves on Simandou. But with the price of iron ore dropping from a high of more than $90 per tonne in late 2018 on concerns about demand in China, Guinean officials might have to remain patient in order to find investors with the long-term vision and deep pockets to develop Simandou.

This article first appeared in Jeune Afrique.

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