11 August 2008
The International Finance Corporation's (IFC) $35 million investment in a Guinea iron mine is in jeopardy after the government rescinded a deal with mining company, Rio Tinto. At the same time, the IFC is exploring the possibility of a $500 million stake in a massive aluminum project in the West African country.
A deal with the world’s third largest mining company, Rio Tinto, has been rescinded by the Government of Guinea, which had previously cited irregularities in the agreement granting the company mining permits. According to Rio Tinto, a letter sent by the president’s office “purports to transfer the deposits back to an exploration lease” in Guinea’s iron-rich Simandou mountain range, which could become a major new source of iron ore at a time of record prices.
The International Finance Corporation (IFC) – the World Bank’s private sector lending arm – has invested $35 million in the project for a 5 percent share. It is yet to respond publicly to these latest developments, but Rio Tinto has stated that it and the IFC “remain committed to the project.”
The outcome of the dispute is critical for Rio Tinto, which has cited the huge potential value of its Simandou claim – estimated at $6 billion – in fending off a hostile takeover bid by its rival, BHP Billiton.
The media has by and large attributed the dispute to the wiles of Guinea’s ailing and increasingly erratic president, Lansana Conté, who has ruled the country for the last 24 years. Indeed, within the space of a week, Conté fired the official responsible for questioning the Simandou agreement in the first place, promoted him, and then sacked him again.
However, the letter to Rio Tinto rescinding the Simandou mining permit came just days after the government announced the prospect of an agreement with Chinese investors granting rights to Guinea’s mineral resources in exchange for billions of dollars in investments. Australia’s The Age suggests these events may not be unconnected, describing this development as “Guinea’s latest threat to Rio’s Simandou ownership.”
Transparency International's Greg Thompson has come out on the side of Rio Tinto, telling AFP that the country “would miss out on all the benefits” and that “the big losers would be Guinea’s impoverished people if the project was cancelled.” Still, it remains unclear how much Guinea’s poor would stand to gain from the project, and what all of those benefits would be. In 2007, an International Crisis Group report suggested that mining revenues have been captured by President Conté and have helped sustain his grip on the country during his decades in power. Transparency International also ranks Guinea as one of the world’s most corrupt countries.
In addition, the environmental and social consequences of mining in Guinea have also led to deepening poverty for local communities. Despite assurances from the IFC that it will help develop the Simandou project “in an environmentally and socially sustainable way,” the institution has a poor track record of ensuring that its involvement in mining projects mitigates negative impacts and improves the lives of people on the ground.
At the same time that the future of the Simandou project is in doubt, the IFC is also reportedly considering investing $500 million in the Guinea Aluminum Corporation joint venture, a megaproject that would entail the establishment of a bauxite mine, alumina refinery, power plant, and port facilities. The project would be operated and partially owned by BHP. If approved, it would represent one of the IFC’s largest commitments ever and, with a $4.7 billion price tag, the total project cost would surpass even that of the disastrous Chad-Cameroon Pipeline – to date the single largest on-shore investment in Africa.
Resources
- Guinea rattles Rio on iron ore project by Barry Fitzgerald, The Age, August 4, 2008
- Guinea, China study mines-for-infrastructure deal, Reuters, July 31, 2008
- Rio Tinto vows to fight for Guinea mining rights, Reuters, August 4, 2008
- Guinea confusion grows as Conte sacks ally again by Saliou Samb, Reuters, August 5, 2008
- Watchdog says Guinea to lose if cancels Rio Tinto concession, Agence France-Presse, August 3, 2008
- IFC increases investment in Guinean iron ore project to support sustainable mine development and local economic benefits, IFC, September 24, 2007
- Simandou Iron Ore project documents, IFC
- Guinea: Change or Chaos, International Crisis Group, February 14, 2007