NEWS ANALYSIS: Mining companies not cheering on Guinea’s president anymore

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Catégorie : Actualités

Mis à jour le mardi 23 octobre 2012 12:10

Publié le samedi 20 octobre 2012 01:22

Écrit par Saliou Samb

INVESTORS cheered when Guinea’s President Alpha Conde took office nearly two years ago, vowing to revamp its mining sector and end the West African state’s decades of investment-curbing turmoil. They’re not cheering any more.

Their hopes have been replaced by the harsh reality of a review of existing mining deals and permits, renewed political chaos, and rising security concerns that have put billions of dollars of bauxite, iron, gold and diamond deals on ice.

The government of Guinea — the world’s top bauxite supplier and burgeoning iron-ore exporter — is now locked in disputes with mining companies over control, ownership and financing of projects, including the giant Simandou development reputed to be the world’s biggest untapped iron-ore deposit.

While the government says it is simply seeking to fund development and combat poverty in a country that has been riven by decades of coups and conflict since independence from France in 1958, insiders say the push is backfiring.

"The government should come back to reality and avoid unnecessary problems which could complicate the equation in Guinea’s mining sector," says Lancei Traore, a Conakry-based mining expert. "The government’s current thinking is not aligned with the hard realities of the mining world."

Pushing through with the reforms could be particularly risky for Guinea because uncertainty over commodity demand and a slump in iron-ore prices has already led many miners to slow or cut back investment worldwide.

Losing investors would be a blow for the country, which depends on mining for more than a quarter of its gross domestic product and more than 80% of its foreign-exchange revenues, although firms that leave now also run a risk of burning their bridges to Guinea’s rich deposits once the market recovers.

The Simandou project, which needs billions of dollars in infrastructure spending, is in the spotlight at a time when big producers such as Rio Tinto and BHP Billiton are nervous about spending.

In a bid to boost the state’s share of the country’s mineral wealth, Mr Conde last year decided to revise Guinea’s mining code, inserting a provision to take the government’s share in mines from 15% up to 35%, the first 15% of which is free.

Duties on imports have also increased under the new code, from 5.6% to 6%-8%, while mining firms now need to secure investment financing of about $1bn from $50m previously, in order to obtain a mining concession.

Of nearly $20bn of investments that were announced for projects over the past few years, only about $300m has been injected to date, with only one iron-ore operation, a Bellzone-China International Fund venture, starting up production.

In a high-profile departure since the new policies were introduced, Guinea said in July that BHP Billiton, the world’s largest mining company, planned to pull out of its Mount Nimba iron-ore project, one of the country’s biggest.

While officials explain Mr Conde’s decision to increase the state’s stake in Guinea’s mineral wealth as necessary to raise funds for depleted state coffers, some insiders have criticised the push as too far, too fast.

"Initiating a review of all mining contracts signed by previous governments is futile," says former Guinea minister Mahmoud Thiam, who held among others, the mines portfolio during the rule of the military junta that Mr Conde replaced in November 2010. "The (reviews) cause too many delays and uncertainties, and countries that embark on this route do not always have the means to follow through with it," Mr Thiam, now a consultant, says.

Mr Thiam was head of the mines ministry when the country signed a controversial mining and oil deal with China International Fund worth about $7bn. The deal has since been cancelled.

Guinea says it has no choice but to try to change the terms of deals that are unfavourable. "We are in real disadvantage when you look at some of the deals signed with mining firms in the past," says Guillaume Curtis, secretary-general of Guinea’s mines ministry.

The government has also launched a major audit of its mining registry, which could mean the cancellation of hundreds of permits that were issued in the past but have not been used. A senior official at the mines ministry, who asked not to be named, said as many as 1,200 of the roughly 1,500 mining permits granted in recent years will be cancelled after the audit, including some held by major mining players.

Another former mines minister, Ibrahima Soumah, said Guinea had failed to reassure investors, a task crucial to the country’s development after years of instability.

"I do not think that BHP Billiton’s departure is related to a change in the company’s business strategy only," says Mr Soumah, who is now a consultant in the private sector.

While mining companies have largely been silent on the issue, analysts have said a key sticking point is whether Guinea should be able to have a 15% free stake in projects.

"There is also contract uncertainty for some of the major players as the government conducts reviews, so the potential for contracts to be renegotiated or even abrogated is there," says Kissy Agyeman-Togobo, analyst at Songhai Advisory.

She says that BHP’s departure "will most likely undermine confidence in the business environment as investors weigh up Guinea’s internal challenges with the reality of a decline in mineral prices over the medium to long term".

Adding to investor worries is a deteriorating political impasse that has delayed legislative elections and triggered violent security crackdowns on opposition protesters.

Demonstrations around mine sites have also led to the temporary shutdown of three mining operations. Security forces killed at least five villagers near the Vale-BSGR iron-ore joint venture in Zogota last month after the villagers, demanding jobs, attacked the project in late July and brought its operations to a standstill.

A Vale official said the company would still move ahead with the project, once employees evacuated from the site have returned, but suggested the project’s future depended in part on the outcome of negotiations over the mining code.

Gold miner Semafo, meanwhile, abandoned its Kiniero plant in Guinea for months after a protest in September last year led it to evacuate all its expatriate workers.

According to the world’s top aluminium producer, Rusal, political risks in Guinea have risen sharply.

Rusal reported a $167m impairment loss related to its 640,000 tons per year Friguia alumina refinery in Guinea, where production has been suspended since April following a strike over wage demands.

Still, miners appear to be taking a wait-and-see approach for now, instead of packing up, in hopes the rich potential locked for decades beneath Guinea’s soil will open up once the investment climate improves.

Saliou Samb

Reuters

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