Guinea inquiry finds Steinmetz unit won mining rights corruptly
We’ll send you a myFT Daily Digest email rounding up the latest Rio Tinto PLC news every morning.
The mining arm of Beny Steinmetz’s business empire won its rights to a multibillion-dollar iron-ore prospect in Guinea through a bribery scheme involving the wife of the late dictator, according to a two-year government inquiry in the west African nation that published its findings on Wednesday.
Six years after BSG Resources, the mining arm of the Israeli tycoon’s family conglomerate, pulled off one of the great coups of modern African mining by winning rights to the giant Simandou iron-ore deposit, the government is expected swiftly to act on the inquiry’s recommendation that the company’s rights be cancelled.
That would leave BSGR’s 2010 agreement to sell a 51 per cent stake in its Guinean assets to Brazil’s Vale, the world’s biggest iron ore miner, for $2.5bn – a deal hailed by an industry insider at the time as “the jackpot” – in tatters. The bribery allegations have also triggered corruption investigations in Switzerland, where Mr Steinmetz lives, and the US, where one BSGR intermediary is facing years in jail. Neither investigation has brought charges against Mr Steinmetz nor Guernsey-registered BSGR.
“BSGR will prove these allegations are false,” the company said. “The Guinean government is relying on fabricated claims, compromised witnesses and illegitimate processes. BSGR demands the opportunity to defend itself in a forum that plays by the rules and follows internationally recognised conventions, such as allowing cross-examination of witnesses.”
BSGR has denied allegations of corruption in its Guinean dealings since they were first revealed in the Financial Times in November 2012. The company has threatened to seek international arbitration if the government proceeds with what it calls an “illegal” move to seize its assets based on “incredible and unsupported” claims.
But the Guinean inquiry, part of a review of mining contracts struck under past dictatorships, concluded in its 33-page report that there was “precise and consistent evidence establishing with sufficient certainty the existence of corrupt practices” in the way BSGR won its mining rights. A committee of ministers endorsed the inquiry’s recommendations last week, according to a person familiar with the matter, and they are expected to be enacted by the cabinet forthwith. BSGR’s only recourse would be through the courts.
BSGR won the jewel of its Guinean prospects – rights to half of Simandou, a remote mountain that ranks among the world’s richest untapped iron-ore deposits – in late 2008, days before the 24-year dictatorship of Lansana Conté ended with his death.
According to the inquiry’s findings, beginning in 2006 BSGR’s representatives offered millions of dollars in cash and shares to Mamadie Touré, the dictator’s fourth wife, to help ensure that those rights were stripped from rival Anglo-Australian miner Rio Tinto and then granted to BSGR.
After spending $160m on preliminary development of its Guinea assets, BSGR in April 2010 struck its $2.5bn deal with Vale, of which $500m was payable immediately. The balance was to be paid if targets were met but Vale halted payments last year, after the corruption allegations surfaced.
The inquiry concluded that, although payments to Ms Touré allegedly continued following the Vale transaction, it was “likely” that the Brazilian group “has not participated in corrupt practices”. Nonetheless, it said the Vale-BSGR joint venture – which BSGR says has spent $1bn at Simandou – should be stripped of its rights to that and other prospects.
Vale, which is under new leadership since the departure in 2011 of Roger Agnelli, chief executive at the time of the BSGR deal, maintains that it “conducts appropriate due diligence prior to its investments”. But last week it warned that it might lose its entire investment in Guinea if the government cancelled the Vale-BSGR joint venture’s rights. It declined to comment on Wednesday.
The likely loss of Vale’s Simandou rights marks the latest setback for Brazilian groups’ thrust into Africa, although the inquiry recommended only that BSGR – not Vale – should be banned from bidding for the rights when they are issued anew.
Rio Tinto has signalled that it would be among the big mining groups expected to be interested in any fresh tender for the Simandou rights. The inquiry called on the government to demand that the Vale-BSGR joint venture hand over all its exploration work to the state.
Chaired by Nava Touré, a veteran mining official who is not related to Ms Touré, the inquiry said it had repeatedly asked BSGR for its responses to the allegations. It said BSGR had “systematically refused . . . constructive dialogue”, deeming the company’s responses “imprecise and stalling”.
BSGR said it had “sought to co-operate fully with the committee despite the fundamental unfairness, procedural irregularities and false claims inherent in its review process”.
The inquiry dismissed BSGR’s denials of the corruption allegations and concluded that “no other coherent and complete interpretation of the evidence . . . is plausible”. It said BSGR had failed to support its claim that contracts which appear to detail the bribery scheme– and which formed part of the evidence cited by the inquiry – were fakes.
BSGR also questioned the legitimacy of the government of Alpha Condé, who launched the probe into past deals after winning 2010s presidential election but has faced corruption scandals on his own watch.
“BSGR has a track record of performance spanning more than three decades and has never before been accused of any wrongdoing nor been embroiled in any controversy,” said BSGR, which recently battled anti-corruption campaigners in London’s high court. “President Condé has manipulated the process through unconditional technical and financial support from activists like [billionaire transparency advocate] George Soros and the NGOs that function as his personal advocacy groups. BSGR calls on these groups to demonstrate their independence by supporting an investigation into the long-time and unresolved allegations of government corruption in Guinea.”
BSGR maintains that the corruption allegations are based on “a wholly incredible and unsupported version of events related by a witness who has sought to extort money from BSGR in the past”.
BSGR declined to expand on the alleged extortion. The inquiry’s report cited an affidavit by Ms Touré, who now lives in Florida and is a co-operating witness in a US grand jury investigation into the corruption allegations. She has not responded to a request for comment.
Last month Frederic Cilins, a former BSGR intermediary in Guinea whom the inquiry says helped to orchestrate the bribery scheme, pleaded guilty to obstructing the US investigation. The Frenchman was arrested at a Florida airport a year earlier, after the FBI recorded him offering up to $6m to Ms Touré to destroy the BSGR contracts before they fell into the hands of US investigators who were seeking them.
Get alerts on when a new story is published