Australia’s Fortescue Metals Group
(ASX:FMG) and Guinea’s Société Miniere de Boke (SMB) are the two companies
shortlisted to win mining rights to the northern blocks of the giant Simandou
iron ore deposit, given up by Israeli tycoon Beny Steinmetz earlier this year.
While the West African nation, which launched an international tender for blocks 1 and 2 in mid-July, confirmed the two miners as finalists this week, it has kept under wraps the amount of the bids.
For some analysts, such as Eric
Humphery-Smith from Verisk Maplecroft, the disclosure of the two competing
offers is a step towards transparency, but remains far from international best
practices standards.
“Although the transparency of the
Simandou North tendering process is questionable, the high threshold $300,000
fee for participation has meant the Guinean government reduced the risk of non-development,”
Humphery-Smith writes. “We expect that the small number of bidders is the
result of government efforts to ward off speculators, who would sit on the
deposit before selling it on.”
The expert notes that the
government’s failure to disclose the reason for rejecting a third offer, brought
forward by Singapore’s Winning, weakens further Guinea’s claims of running a process
open to scrutiny.
Regardless of the financial offer,
Guinea is likely to choose the company that can commit to build a 650km
trans-Guinean railway (TGR), to connect the mine to ports. President Alpha
Condé has insisted on the need for such railway, saying that the
two Simandou concessions (North and South) must use it.
“The reason for the Guinean
authorities’ intransigence on the TGR is the potential for additional rent seeking,
as development of the TGR would
make smaller mineral deposits lying along the route more
viable,” Humphery-Smith says.
“There
would also be ancillary benefits, such as a passenger transport service and
spare capacity for general cargo.”
Battle for riches
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 President 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.
New Blood
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.
Fortescue, the world’s fourth
largest iron ore miner, has a fair chance at Simandou, whose acquisition would
allow the miner to expand its global footprint.
Analysts, however, think that China-backed
SMB, which already operates one of the Guinea’s largest bauxite mines, will be
the likely winner of the tender.
“The company not only has access to
Chinese state financing, but its shareholders also have established shipping
capabilities and buyer networks in China,” writes Humphery-Smith.
More importantly, SMB is said to
have strong political ties in Guinea. “The company’s chairman Fadi Wazni is
rumoured to be close to the president’s son Mohamed Alpha Condé. In a country where
business and politics all too often overlap, more than one tender is needed to
change a deep-rooted culture,” Humphery-Smith says.
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%.
Both companies are said to be
trying to persuade authorities to let them use ArcelorMittal’s railway to a port
in neighbouring Liberia.