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Posts Tagged ‘Liberia’

Vale woos Guinea with social projects

July 11, 2011 Comments off

“Vale’s finance chief said the Brazilian miner would invest in development programmes in Guinea in an attempt to safeguard a $2.5bn mining concession and avoid making a large pay-out to the African country’s new government. In spite of still being vulnerable to a review of mining licenses in Guinea, Guilherme Cavalcanti said that Vale could win the government’s approval for its Simandou iron ore project that it shares with rival Rio Tinto by paying for education and agriculture in the communities where it mines.

‘Our approach to Africa in Guinea is not to become only a mining extraction [company] but bring country co-operation,’ he said. ‘So, as we do in Mozambique, we can help people in agriculture, we can help in education, we can train local people … So it’s more an approach to communities as well, not only mining extraction.’

Rio Tinto only gained clear tenure in Guinea in April after promising the government $700m in cash as well as rights to take up to a 35 per cent stake in Simandou. Simandou, one of the highest-quality untapped iron ore resources in the world, has attracted the two largest iron ore miners to Guinea despite the country’s history of volatile dictatorship, weak rule of law, and recurring threats of licence renegotiations.”

Source: Financial Times, July 6 2011

Observations:

  • The Simandou deposit is divided into 4 blocks: Vale controls blocks 1 and 2 with the Benny Steinmetz Group (BSG) as minority shareholder; Rio Tinto controls blocks 3 and 4 of the Simandou deposit, working together with Chalco. In an earlier stage Rio Tinto held title to the full deposit, but the Guinean government cancelled this deal.
  • In a review of mining licenses announced in March the Guinean government requires a minimum of 33% of ownership of strategic mining projects in the country to increase government control.
  • Rio Tinto struck a deal on the redistribution of ownership at the end of April, setting up a long term phased process of acquisition of ownership by the government. Furthermore the company agreed to a conditional one time $700mln payment to the government and promised to develop a railway to export the ore via a Guinean port.

Implications:

  • The social projects promised by Vale are a mere hygiene factor in the negotiations about transfer of ownership. The government will clearly expect any operating partner to take an active role in community development. However, Vale’s experience with large scale operations in developing areas in Brazil and Mozambique might help to gain trust.
  • Most likely Vale will agree on a conditional and phased deal similar to Rio Tinto’s agreement with the government. The agreement will be designed to make any payments or ownership deals conditional on crucial milestones and actions by the government. Vale will still need to decide on a way to export the ore, either negotiating to use the railway build by Rio Tinto, or setting up the infrastructure to export via Liberia.

©2011 | Wilfred Visser | thebusinessofmining.com

Rio Tinto signs agreement with Guinean government

April 25, 2011 Comments off

“Rio Tinto’s most troubled mining project appears poised for multibillion-dollar development after the company agreed to pay $700m to the government of Guinea and grant it a 35 per cent stake in its iron ore mine. The deal was reached on Friday ahead of plans by Guinea, a west African country rich in iron ore and bauxite, to review all mining licences as part of its push to secure bigger returns from its mineral wealth.

Vale and other multinational miners active in Guinea now have a precedent for their negotiations with the government. Vale, the Brazilian company that is the biggest iron ore miner, paid $2.5bn for a stake in a Guinean deposit last year. Rio’s deal allows Guinea to move towards a 35 per cent stake in Simandou, the iron ore deposit – located in a remote corner of the country – that is thought to be one of the world’s best untapped lodes of the ore.”

Source: Financial Times, April 23 2011

Observations:

  • Last month Guinea announced a review of mining licenses, including the demand to get minority stakes in all major mining projects in the country.
  • Rio Tinto controls blocks 3 and 4 of the Simandou deposit, with Brazil’s Vale controlling blocks 1 and 2. First shipment of iron ore by Rio Tinto is expected by mid-2015.

Implications:

  • The agreement of Rio Tinto to construct a railway through is a major blow for the government of Liberia, which hoped to convince the miners to export the ore with a shorter route via Liberia. The decision on the export route will further trigger challenging negotiations with Vale about using the same infrastructure to export ore from the area.
  • The 35% government stake can be build up over time, with the final 10% to be bought at market value in 15-20 years time. Tax rate is set at 30% after the first 8 years, with additional 3.5% royalties. The $700mln payment is only made conditional on granting the concession and approving the Rio Tinto / Chalco joint venture. Based on these conditions it appears Guinea intends to be a friendly host to international mining companies in the long term, but requires strict payment and infrastructure development contribution in the short term.

©2011 | Wilfred Visser | thebusinessofmining.com

Liberia says signs $3 bln iron deal with BHP

June 14, 2010 Comments off

“Mining giant BHP Billiton has signed a deal with the government of liberia to go ahead with a $3 billion iron ore project, an official in the west african country said on monday.

The mineral development agreement (MDA) will allow BHP Billiton to continue exploring for iron ore at Goe Fantro, Kintoma, St. John River South and the Tolo Range, National Investment Commission chairman Richard Tolbert said.”

Source: Reuters, June 14 2010

Observations:

  • According to the newspaper the Australian the mineral-development agreement covers taxes, duties and other trade terms to develop four iron-ore deposits.
  • BHP’s announcement comes days after announcing $12 bln investments in the Canadian potash business. However, for both announcements the actual cash to be spend is still very much uncertain.
  • BHP has not yet confirmed the deal on its own website.

Implications:

  • Iron ore miners are stepping up there efforts to gain access to deposits outside Australia, which is threatening to significantly increase mining taxes.
  • Liberia and neighbouring Guinea host some of the best iron ore deposits yet to be mined. The unstable political situation in the countries have long kept the large diversified miners from pursuing investments in the area. However, current government seems to be willing and able to close long term deals.

©2010 – thebusinessofmining.com

Bellzone Mining confirms MOU with China International Fund (CIF)

May 26, 2010 Comments off

“Shares in Bellzone Mining surged 60 percent yesterday morning on London’s AIM market, following the announcement of a 50/50 joint venture with CIF for the 2.4 billion ton JORC magnetite Kalia Iron Project in Guinea, West Africa.

CIF will fund the entire infrastructure required for the project, which will include the rail system, bulk storage facilities, port, port loading facilities, port services and power development required to produce and transport a minimum of 50 million tons per annum of iron ore.

Nik Zuks, Managing Director of Bellzone Mining, commented: ‘I am delighted to announce this binding MOU with China International Fund Limited. Under the terms of the Binding MOU, CIF will fund and construct the 286km rail and port facilities for our Kalia Iron Project in return for the right to purchase 100 percent of the off take from Kalia.'”

Source: African Business Review, May 25 2010
Related Financial Times article: CIF to fund Guinea iron ore venture

Observations:

  • CIF earlier designed the oil-for-infrastructure deal in Angola. Promising the poor governments of resource-rich countries proves to be an effective way of securing access to the resources.
  • Production from the Kalia deposit is expected to start in 2014, setting a clear deadline for the execution of the infrastructure projects.
  • Kalia is the only project Bellzone is running, share price has therefore increased sharply after the announcement of the agreement with CIF.

Implications:

  • As Vale and Rio Tinto and Chinalco will start producing in the Simandou area, close to Kalia, these companies will be interested in exploring cooperative agreements with CIF. Huge synergies could be achieved by avoiding competing infrastructure projects to be run to bring the ore to the coast.
  • Transportation of ore via Liberia, as Vale is planning to do, is certainly not in the best interest of the Guinean government. Vale will therefore have to find ways to please the government in order to secure fruitful cooperation.