Australia’s Fortescue Metals Group
(ASX:FMG) has confirmed its interest in a slice of the giant Simandou iron ore deposit,
handed back this year to the Guinean government by billionaire Beny Steinmetz’s
BSG Resources.
The committee in charge of an international tender for the project’s blocks 1 and 2, launched in mid-July, should come to a final decision in November, sources close to the matter told Reuters.
Both the consortium of Société Miniere de Boke (SMB) and Singapore’s Winning, which is Guinea’s biggest bauxite exporter, have already acknowledged they submitted an offer.
Brazil’s Vale (NYSE: VALE), the
world’s largest producer of iron ore, is also said to have paid for documents needed
to submit an offer, but decided not to do so.
Simandou is one of the world’s richest reserves of high-grade iron ore, holding an estimated 2 billion tonnes of the steelmaking ingredient
At two billion tonnes of iron ore
with some of the highest grades in the industry, Simandou is one of the world’s
biggest and richest reserves of the steelmaking material, but it has a
controversial past.
For more than a decade, it was the
centre of a bitter dispute that involved Rio Tinto, Brazil’s Vale SA and
Israeli diamond mining tycoon Beny Steinmetz.
In 2008, one of Guinea’s former
dictators stripped Rio’s rights over two of the four blocks the deposit had
been divided on and handed them BSG Resources, Steinmetz’s mining arm. Rio was
able keep to the two southern blocks, but only after paying $700 million to the
government in 2011. That guaranteed the miner tenure for the lifetime of the
Simandou mine.
That deal came under scrutiny in
2016, forcing Rio to fire two senior managers over a questionable $10.5
million payment made to a consultant who helped the company secure the two
blocks and alerted authorities, including the US Department of Justice and
the UK’s Serious Fraud Office.
BSG Resources and Steinmetz were also subject of several investigations over bribery and corruption accusations, but it was able to put an end to all that in February this year, through a deal with Guinean President Alpha Conde.
As part of the agreement with
Guinea, BSGR agreed to walk away from blocks 1 and 2 of the Simandou project,
but retained the right to mine the smaller Zogota deposit.
A few weeks later, a London
arbitral court told BSGR to pay $1.2 billion to Vale, its former partner
Guinea, due to “fraud and breaches of warranty” in inducing the Brazilian miner
to enter the joint venture. The tribunal based its decision partly on the fact
that the government revoked the concession in 2014 after finding that BSGR
had obtained it by bribing officials.
Tender transparency questioned
Strong iron ore prices and the
resolution of Steinmetz-related issues increased Guinea’s chances of finding
companies interested in acquiring the rights for the vacant blocks, pushing it
to launch a tender.
But analysts, including Eric Humphery-Smith from Verisk Maplecroft, have called the transparency of the process into question.
One of the main reasons, argues
Eric Humphery-Smith, an analyst at Verisk Maplecroft in London, is that
prospective developers must pay $300,000 to access tender specification
documents.
“Such pay-to-play terms undermine
the Minister’s claims of transparency,” Humphery-Smith says.
The experts notes that while it’s
true that the current process is more transparent than the first-come,
first-served method, bidders may still be exposed to reputation risks:
“There are indications that the British law firm Phanar Legal Ltd, selected as the third-party transaction adviser for the tender, may have a conflict of interest. The firm’s director Philip Rogers is a co-director of Guinea Bauxite Corporation Ltd (GBC), a mining company established in January 2019 by Alexander Zotov, a Russian businessman. Zotov holds an active production licence for a bauxite mine in coastal Guinea through his mining company Eurasian Resources (EAR).
“Even if Rogers acts only as a secretary for these companies, his active interest in the Guinean mining sector leads one to question his law firm’s impartiality in the Simandou tendering process. In other words, Phanar’s management of the tender could lead the contracting authorities to look favourably on a prospective bid by one of Zotov’s companies for another mine concession.”
Rio Tinto holds a 45% stake in
blocks three and four of Simandou, which it is actively planning to develop. State-controlled
Chinalco owns 40% and the Guinea government 15%.
Fortescue Metals Group is the world’s No. 4 iron ore
miner.