Getting iron ore out of Guinea – who’s on the right track?
Allegations of corruption involving mining contracts have catapulted Guinea, an impoverished but mineral-rich West African nation, into the headlines.
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While allegations of contract fraud have been levelled by government agencies in the USA and Guinea against employees of Israeli diamond billionaire Beny Steinmetz’s mining group, BSGR, the governments of Guinea and neighbouring Liberia have been quietly working on a key decree that will be fundamental to unlocking the potential of the region’s iron ore resources.
Deep in Guinea’s south-eastern province of Nzérékoré, vast tracts of almost impenetrable rainforest hide the Simandou mountain, one of the world’s largest untapped reserves of iron ore.
Cracks in the soaring green hills of Simandou show dark red earth, signalling the presence of billions of tonnes of high-grade haematite iron ore beneath the forest.
Key to prosperity
Three successive Guinean regimes have tipped the development of Simandou as the key to the country’s future prosperity.
Not only will the development of the resource deliver long-term royalty and tax revenues to the government, but the associated port and rail infrastructure will provide a vital development corridor through the largely undeveloped country.
Agriculture, telecommunications and associated infrastructure are all expected to follow the development of a 650km rail line, an economic artery connecting the two halves of country for the first time since the colonial-era Conakry-Kankan line fell into disrepair in the early 1990s.
Anglo-Australian mining major Rio Tinto has held the rights to explore Simandou since 1997. Until 2008, it held these rights for the whole deposit. But in December 2008, days before his death, long-serving military ruler Lansana Conte stripped Rio Tinto of half the concession and handed it to BSGR.
Two years and two military dictators later, Guinea went to the polls in its first-ever democratic presidential election.
Long-time opposition leader Alpha Condé won the 2010 election and vowed to clean up Guinea’s mining sector, reduce the country’s debt and deliver its vast mineral wealth to his electorate.
As part of Condé’s sweeping mining sector reforms, a technical mining review committee was set up to investigate existing contracts. It turned its focus to BSGR’s acquisition of the Simandou licence.
But Simandou is not the only licence that BSGR holds in Guinea. Between 2006 and 2009, the miner discovered, explored and drilled the Zogota project, south of Simandou and close to the Liberian border.
Across the border
BSGR signed an agreement with the government of military dictator Dadis Camarra in December 2009, which gave it the right to export iron ore through Liberia.
As part of this agreement, BSGR and its project partner, Brazilian mining major Vale, agreed to put $1 billion into refurbishment of the passenger rail line from Kankan to Conakry.
“We submitted full feasibility studies in September 2011, giving an overall logistical solution for the project, which includes the building of a passenger line,” BSGR president Asher Avidan told Steel First.
“We signed a memorandum of understanding with the Liberian government in July 2010. We were in ongoing negotiations with the government in Liberia for the railway from Zogota,” he added.
According to the 2011 plans, BSGR planned to export its Simandou ore via Liberia by building a cross-border rail line to the port of Didia in Liberia.
BSGR said on May 9, 2013, that the Guinean government had changed its policy regarding its proposed iron ore export corridor via Liberia.
Exit via Liberia
In a presentation to potential investors at a major African industry meeting in February this year, Guinea’s mining ministry quietly confirmed plans to allow at least three major projects in the south-east of the country to export iron ore via Liberia.
BHP and Newmont Gold’s Euronimba project, Zogota, West Africa Exploration and Sable Mining were named as the companies and projects that would move iron ore through Liberia.
The BHP-Newmont joint venture and Sable Mining are both developing high-grade direct shipping ore projects on the Nimba mountain, which straddles the border between Liberia and Guinea.
On the Liberian side of the mountain is Yekepa, steel major ArcelorMittal’s iron ore project, which started production in mid-2011. To transport ore from the mountain to Liberia’s Port Buchanan, ArcelorMittal rehabilitated a 260km rail line, dilapidated by years of civil war, that links the mine to the coast.
ArcelorMittal’s 2006 agreement with the Liberian government states that if the company does not use infrastructure to full capacity, the government has the right to grant third-party access to the line.
Yekepa line benefits
The route is the key to the development of all the Nimba projects. With Sable and Euronimba located 30-50km from the Yekepa-to-Port Buchanan line, gaining access to spare capacity on the line means that their infrastructure construction costs would be limited to the building of short stretches of connecting road to allow them to truck ore from their mines to the railway.
ArcelorMittal, however, has plans to ramp up its capacity to 15 million tpy in 2015 and said it is difficult to gauge how much of the rail capacity it will use until the expansion of the mine is complete.
“ArcelorMittal has had discussions with strategic third parties to utilise capacity on the rail that is surplus to ArcelorMittal’s needs,” a spokesman for the steel major said.
“We will only have better visibility on surplus rail and port capacity after completion of the current phase 2 construction, which will see production capacity increase from 4 million tpy to 15 million tpy in 2015,” he added.
Talks are under way between Guinea and Liberia over an export decree that would allow a number of miners to transport ore through Liberia.
For the Guinean Nimba projects, the signing of the decree is essential – a secured route to market will allow these smaller projects, which boast high-quality ore that needs little or no beneficiation – to accelerate development.
Funding the Trans-Guinean railway
Rio Tinto retains control of two blocks of Simandou through its joint-venture company Simfer. Of these two blocks, Chinese aluminium major Chalco owns 44.65% and IFC the remaining 5%.
The Guinean government says that infrastructure sharing has been identified as a major opportunity for all parties to achieve low capital and operating costs for ore transit, and to provide broad development benefits in the country.
IMIC, a privately held company based in Switzerland, with ambitious aims to become a major pan-African integrated iron ore company with mining and infrastructure projects, stepped onto the scene in December 2011 when it signed an agreement with the Guinean government and joint-venture partner African Iron Ore Group (AIOG) for the development and financing of its share of the Trans-Guinean railway.
Under the terms of the agreement, the Guinean government must fully fund its 51% share of Simfer, the company created to develop the mines’ associated rail and port infrastructure. Rio Tinto and Chalco own the remaining 49%.
AOIG was appointed by the government to help raise the financing for its share of Simfer, with a specific mandate to raise cash through equity.
AIOG said it was “self-evident” that it would need to use its shareholding in Simfer to raise equity, in a statement printed in UK business daily The Financial Times in July last year.
A joint-venture company called IMG was created, which owns the government’s Simfer stake. AIOG holds a 40% stake in IMG and the government the remaining 60%.
IMG’s promise to negotiate offtake agreements with iron ore companies in China, in return for providing infrastructure, is on hold until Rio Tinto delivers a definitive feasibility study for the rail project.
IMIC told Steel First that Chinese investors were “ready”, but that it was waiting for Rio Tinto to submit a feasibility study.
Rio Tinto, however, says it cannot deliver the feasibility study until the long-awaited investment agreement is ratified by the Guinean parliament.
Many moving parts
On June 30 this year, Guineans will go to the polls to vote for a democratically elected legislature, the first in the country’s history.
Political unrest around the polls and issues around the BSGR case may prove distracting to the government in the short term, but miners remain hopeful that the export decree will be signed in the next few months.
If a Liberian export route is secured, the smaller and nimbler of Guinea’s putative iron ore miners could find themselves in a position to ramp up into production within relatively short timeframes.
However, untangling the interests of the many parties involved in the Trans-Guinean rail project is likely to take a bit longer.