Guinea’s military junta will strive to keep miners on board

The new leaders will be “very keen to consolidate relationships with what are very significant contributors to fiscal income and foreign earnings in Guinea,” says Simon Hudson-Peacock, mining investment analyst at S2 Research in Cape Town. “It is possible that the tax regime may be revised but expropriation is unlikely.”

Financing large projects in the country will be harder in the short term as the country’s risk profile will be raised, Hudson-Peacock says. The country has few significant foreign currency earners outside of the mining sector, he adds. “The new leaders would be short-sighted not to take a financially pragmatic approach to the ‘golden goose’.”

• The new military government has kept the ports open for exports, lifted a curfew in mining areas and urged miners to continue operations.
• Mining majors in the country include Rio Tinto, Rusal, Alcoa and Chinalco.

Guinea supplies about a quarter of the world’s bauxite, which is used in aluminium. Along with gold and diamonds, it also has major untapped iron ore reserves in the Simandou range in the southeast interior of the country. Distance from port increases the difficulty of accessing the iron-ore reserves.

• A Chinese-backed consortium has said it will build a 650km railway and a deep-water port to export iron ore from Simandou, with a target of starting production in 2025.

Unconstitutional Junta

The fact remains that agreements negotiated by miners in Guinea are now at the whim of a new self-appointed government. Current holders of concessions are “certainly nervous that they might lose their rights,” says François Conradie, lead political economist at NKC African Economics in South Africa.

• Any deals done with Doumbouya’s National Committee for Reorientation and Development (CNRD), as an “unconstitutional junta”, will be more vulnerable to subsequent challenge than deals done with the ousted  government of Alpha Condé, Conradie says.
• He expects license holders to think “twice or more” about committing fresh capital until a new constitutional government is in place. Conradie expects this will take at least a year.

The new junta has tried to reassure miners, promising the continuation of contracts signed under the Condé administration. There’s no reason to think that contracts are about to be broken, says Indigo Ellis, associate director at Africa Matters in London. Still, she argues, “the Guinea that operators once considered a staid and stable operating environment, with relatively predictable leadership despite poor governance, has gone.”

• The replacement of provincial governors with military generals is the most worrying immediate development for mining, Ellis says.
• She expects an increase in low-level rent-seeking from military officials, including for mining-service vehicles, likely using roadblocks around bauxite mining areas.

Hudson-Peacock argues that the bargaining power lies with the miners.

• Bauxite and iron ore are amongst “the most ubiquitous minerals on earth,” he says. “Should countries choose to avoid Guinea then there will be plenty of other deposits to assess.”
• The impact of the coup will be on the timing of supply, he argues. It takes many years from exploration to production and this may have a marginal impact on supply in the short to medium term.
• Bauxite will be sensitive to this because Guinea ranks in the top three producer countries, Hudson-Peacock says.

Bottom Line

Guinea’s military government needs its miners more than vice-versa.