June 22, 2010 11:46 pm

Guinea threat over Rio dispute

The government of Guinea has raised the stakes in a dispute with Rio Tinto by threatening to strip the Anglo-Australian mining group of more of its rights to one of the world’s biggest undeveloped iron ore deposits.

Officials in the military-backed government of Guinea have been angered by what they see as Rio’s failure to acknowledge an earlier administration’s 2008 decision to reclaim the rights to half the Simandou deposit.

The warning follows a flurry of multibillion-dollar deals in the volatile mineral-rich west African nation as miners seek to capitalise on the soaring price for iron ore.

A letter sent on Monday from the office of General Sékouba Konaté, the outgoing president, a copy of which was obtained by the Financial Times, warns Rio: “If you persist in not respecting decisions legally taken by the public authorities of our country, we
will regrettably have to apply the full force of the law.”

In 2008 Guinea stripped Rio of Simandou blocks one and two, accusing the group of taking too long to develop a mine and violating the terms of its exploration rights at least twice.

Rio retained rights to blocks three and four but the letter accuses the company of further “delaying tactics” and warns that the government could use the mining code to reclaim block three as well.

Rio declined to comment.

The group has been careful in recent statements to discuss Simandou without stating which blocks are involved.

In March, Rio signed a $2.9bn agreement with ­Chinalco, a Chinese state-owned mining group, to develop Simandou jointly. Rio holds relatively secure rights to blocks three and four, but there are minor technical problems with those rights as well, and the company requires a government sign-off to proceed to the mine development phase with full ­confidence.

Rio says that it has clear rights to blocks one and two and has been pressing for a restoration since the rights were awarded to a group controlled by Beny Steinmetz, a billionaire Israeli diamond trader.

In April, Vale of Brazil, the world’s biggest iron ore miner, spent $2.5bn to buy into a Steinmetz venture expected to export iron ore through Liberia.

Vale agreed to spend $5bn-$8bn by 2020 on ­building mines, ports and railways in Guinea and Liberia.

Mahmoud Thiam, the outgoing mining minister and an important participant in the recent deals, said the government wanted a written public acknowledgement from Rio that it had given up any claim to blocks one and two.

“As a country it’s in our interest that whoever has [blocks] one and two can develop them without the threat of future legal action,” Mr Thiam said, in reference to Vale’s plans.

Guinea, which has been independent for 52 years, goes to the polls on Sunday. Industry insiders and mining officials expect whoever emerges as the winner to review some of the recent mining agreements, although few predict radical changes.

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