Investor cheers fade as Guinea tightens grip on mining

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Alpha Conde

(Reuters) - 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Their hopes have been replaced by the harsh reality of a review of existing mining deals and permits, renewed political chaos, and rising security concerns that have put billions of dollars of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 firms 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 state 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," said 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 rife uncertainty over commodity demand and a slump in iron ore prices has already led many miners to slow or cut back investments worldwide.

 

Losing investors would be a blow for the country, which depends on mining for more than a quarter of its GDP and over 80 percent of its foreign exchange revenues, though firms that leave now also run a risk of burning their bridges to Guinea's rich deposits once the market recovers.

 

Guinea's flagship Simandou project, which needs billions in infrastructure spending, is in the spotlight at a time when major producers like Rio Tinto (RIO.AX) and BHP (BHP.AX) (BLT.L) are nervous about spending.

 

BIGGER PROFIT SHARE

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

 

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

 

Of nearly $20 billion of investments that were announced for various projects over the last few years, only about $300 million has been injected to date, with only one iron ore operation, a Bellzone (BZM.L) - 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 projects.

 

While officials explain Conde's decision to increase the state's stake in Guinea's mineral wealth as necessary to raise funds for depleted state coffers after years of misrule, some insiders have criticized the push as too far, too fast.

 

"Initiating a review of all mining contracts signed by previous governments is futile," said former Guinea minister Mahmoud Thiam, who held among others, the mines portfolio during the military junta that Conde replaced in November 2010.

 

"The (reviews) causes too many delays and uncertainties, and countries that embark on this route do not always have the means to follow through with it," Thiam, who now works as a consultant, told Reuters.

 

Thiam was head of the mines ministry at the time when the country signed a controversial mining and oil deal with China International Fund worth about $7 billion. The deal has since been cancelled by Conde's administration.

 

DISADVANTAGED

While miners and major commodities actors are trying to push back on resurgent resource nationalism around the globe[ID:nL5E8G4FX3], Guinea says it has no choice but to try and change the terms of deals that are unfavorable.

 

"We are in real disadvantage when you look at some of the deals signed with mining companies in the past. We are obliged to review them," Guillaume Curtis, Secretary General of Guinea's mines ministry, told Reuters.

 

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