March 31, 2014 6:44 pm

Brazil’s Vale fears it could lose all of Guinea mine investment

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Brazil’s Vale has warned for the first time that it may lose its entire investment in the ill-fated Simandou iron ore mine in Guinea pending a review by the government of the west African country.

BSG Resources, the mining arm of Israeli tycoon Beny Steinmetz’s family conglomerate, sold a 51 per cent stake in its Guinean assets to Vale in 2010 in a $2.5bn deal, under which $500m was paid upfront by the Brazilian miner.

Since then, the venture has been thwarted by logistical obstacles and later accusations that BSGR used bribes to acquire the mining rights it now shares with Vale.

BSGR, which has denied wrongdoing, declined to comment. Vale, which has not been accused of any wrongdoing itself, announced it would put the project on hold in October 2012 but has been silent on the issue ever since.

However, in Vale’s annual report filed to the US Securities and Exchange Commission at the end of last week, the miner said for the first time that it is bracing itself to lose all its investment in the mine.

“If the technical committee [reviewing past mining deals] recommends revocation and the government decides to accept that recommendation, Vale may lose its entire investment in the Simandou project subject to any rights to recourse Vale may have,” the company said.

Vale declined to comment on whether its losses could amount to more than the $500m paid upfront to BSGR. BSGR said the two groups’ joint venture in Guinea had invested about $1bn on pre-mining work.

The controversy comes at a particularly delicate moment for the Brazilian miner, which is under pressure from shareholders and Brazil’s government to cut costs and focus on less risky domestic mining ventures. In February, Vale posted its biggest quarterly loss since it went public in 1997.

Guinea is expected shortly to publish the results of a two-year investigation into how BSGR won the mining rights, as part of a probe into mining deals struck under the country’s former dictatorships.

Vale said the government’s technical committee, which is running the investigation, had already recommended revoking the rights held by VBG, its joint venture with BSGR.

“We do not have access to the full report of the technical committee, but we understand that its determination is based on corrupt practices in relation to the award of the VBG mining rights, before Vale acquired its interests in VBG,” Vale said in its annual report.

Guinean officials have been tight-lipped about whether the Brazilian group would be able to bid for the rights anew if they were subsequently put out to tender, a process that may be complicated by the prospect of legal challenges by BSGR if the government cancels the mining rights.

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