Exploration drill rig and crew on site in Guinea Conakry
Digging deep: miners drill an exploration shaft into Simandou mountain, one of the world’s richest deposits of iron ore, where contracts are under government scrutiny © FT

Mahmoud Thiam is convinced that someone has been going through his rubbish bins. His Manhattan residence is 4,000 miles from his native Guinea, where he was mining minister under the military junta that ruled until December 2010. A probe by Guinea’s elected government into mining deals struck by past dictatorships has restarted a tussle for some of the planet’s most coveted mineral stocks. Mr Thiam believes the hunt for any shady dealings, the latest twist in a 15-year saga of politics, business and bloodshed, has led all the way to his doorstep.

Tens of billions of dollars, as well as the future of a woebegone west African nation of 10m people, hang in the balance, as rivals from six continents vie for Guinea’s treasure. The showdown over the country’s minerals could prove a test case in a continent where natural resources make up two-thirds of exports but have tended to generate strife rather than prosperity. One prize glitters above the rest: Simandou, the mountain that sits on top of arguably the world’s best undeveloped iron ore deposit.

Supporters of Alpha Condé, the president whose high-profile advisers include billionaire investor George Soros and former UK Prime Minister Tony Blair, say his public commitment to transparency breaks with a past sullied by alleged corruption.

“Guinea has an opportunity to become an open, democratic society and to use its mineral wealth to help its citizens escape poverty,” says Mr Soros in a statement to the Financial Times. “But Condé faces an uphill battle; bribery and corruption are deeply ingrained in Guinea.”

Beny Steinmetz Group is the first to feel the government’s scrutiny. The business is owned by a foundation whose beneficiaries are the Steinmetz family, with Beny Steinmetz, the Israeli tycoon, as special adviser to its subsidiaries. Last week a government committee that has gathered allegations of corruption demanded answers about how a subsidiary had secured rights to half of Simandou in 2008.

Nestled among the tropical forests of the remote highlands, Simandou has few peers as a repository of the ore used to make steel, a core ingredient of industrial development.

Rio Tinto won the rights to mine the mountain in the 1990s, during the dictatorship of Lansana Conté. But in 2008 the regime stripped Rio of half of those rights, saying it had missed deadlines to start mining. It handed them to Beny Steinmetz Group Resources, the mining arm of the oil-to-real estate conglomerate, days before the dictator died.

What the company did next is described by one African mining veteran as the “best private mining deal of our generation”.

BSGR had paid nothing for its permits at Simandou, as is standard practice in the industry. After spending $160m on preliminary development work at Simandou and the nearby Zogota deposit, in April 2010 it announced an extraordinary return on its investment. Vale of Brazil, the world’s biggest iron ore miner, agreed to buy a 51 per cent stake in BSGR’s Guinea interests for $2.5bn, $500m of which was payable immediately.

According to allegations being examined by the government committee reviewing past mining contracts, BSGR’s success in Guinea may not have been the result of business acumen alone. It has sent BSGR and Vale a catalogue of graft allegations, including claims – denied by the Israeli group – that BSGR gave a diamond-encrusted gold miniature Formula One car to a minister and made payments to Conté’s fourth wife to help gain access to resources.

BSGR contests the allegations. “This is the fifth and most clumsy attempt by an already discredited government of Guinea in an ongoing campaign to illegally seize BSGR’s assets,” it said. “There is no substance to these ridiculous allegations.” Vale said it conducts “appropriate due diligence” before its investments.

Nava Touré, the committee’s chairman, said any suggestion – made by Mr Thiam and others – that the review is being used to seize assets for the benefit of government allies was “unjustified and absurd”.

BSGR, which said it would use “whatever legal means prove necessary” to defend its Guinean interests, has 60 days to respond to the committee or face the possible cancellation of the rights held by the joint venture between BSGR and Vale.

Days before the committee wrote to the companies, Vale revealed that it had put Simandou on ice. A person close to the Brazilian miner indicated that it had not abandoned its hopes of mining the mountain. But the stand-off threatens to delay once again the first shipment of Simandou’s ore.

Some industry experts say that Simandou may have become a pawn in the strategies of miners that perhaps see blocking their rivals from controlling the mountain as at least as important as actually starting to mine it.

Regardless, years of politicians’ wrangling amount to “a tragic story about the screwed-up development of natural resources,” says the African mining veteran. “They have taken a world-class asset and set it back 10 years.”

Another executive experienced in Guinean mining sees the lessons of the sector’s history differently. “There’s nothing to be gained [from corruption],” he says. Given the region’s explosive politics, “there’s more to be lost when power changes”.

If the government tries to annul the Steinmetz group’s rights in Guinea, the billionaire may trace the change in its fortunes to December 3 2009.

Moussa “Dadis” Camara had seized power on Conté’s death. But not even the erratic young officer, a man so paranoid he would only conduct cabinet meetings in the dead of night at his barracks, could have foreseen what would transpire that day.

He had become an international pariah after his security forces massacred 157 opposition demonstrators at the national stadium in September 2009 and gang raped women in public. In the aftermath, Lieutenant Aboubacar “Toumba” Diakité, Capt Camara’s aide-de-camp, feared he was being set up to take sole blame for the stadium massacre. Striking first, he shot the president in the head.

Injured but alive, Capt Camara left the country. He did not return and the junta’s new leader pledged to hand power back to civilians.

Under the junta, BSGR’s claim to Simandou was reaffirmed and it struck its Vale deal – part of what Mr Thiam, the mining minister at the time, says were efforts finally to bring the mountain into swift and lucrative production. The former UBS banker, who denies allegations that he accepted and facilitated corrupt payments himself, says he too investigated BSGR’s acquisition of its rights to see whether they conformed to Guinea’s mining code: “Whether they [BSGR] used lobbying or the support of the wife of the former president, everybody used access in that sphere. It did not break the code.”

Rio’s position remained precarious during military rule. But the tables turned again in December 2010, when elections brought Alpha Condé to power. A Marxist intellectual who had spent years in exile, Mr Condé had few ties to past regimes.

He embarked on an overhaul of the mining code and launched the review of past contracts. Even before that review officially began, government investigators started probing BSGR’s acquisition of its Guinean rights and other deals struck under both Conté and the military.

At the same time, Mr Condé’s government struck a new deal with Rio.

The miner paid $700m last year – equivalent to one-seventh of Guinea’s gross domestic product – for “the resolution of all outstanding issues” at the half of Simandou that it still holds. The company told the FT this month that its agreement “exempts Rio Tinto from any further changes under the current review of the mining code or any future review”.

Mr Condé’s critics, including BSGR, have seized on the Rio settlement to support their argument that the review is being used to secure big payments from miners hoping to secure their claims in Guinea, rather than to address past injustices.

Some say the investigation is a ruse to extract a lump sum from BSGR or its Brazilian partner. One mining executive who has years of experience in Guinea says: “I have absolutely no doubt that if they paid $1bn, like Rio, then Vale would have no trouble [retaining its Guinean interests].”

Mr Touré, the mining committee chairman, insists that the Rio deal “is absolutely not a model for the review”. He says his committee “prioritises protecting long-term interests over obtaining immediate payments, as it is difficult to judge whether such payments represent just and equitable compensation”.

The government’s avowed drive for transparency in mining has also been called into question elsewhere.

In May 2011, according to the International Monetary Fund, Guinea’s government agreed a $25m loan to finance its newly formed state-owned mining company with Palladino, an investment vehicle of South African mining financier Walter Hennig.

The terms of the loan appeared to offer Palladino cut-price stakes in Guinea’s mineral resources should the government default, causing uproar in Guinea. Some critics perceived a political undertone to the deal, citing Mr Hennig’s connections to businessmen linked to South Africa’s ruling African National Congress, the continent’s strongest political force. The non-concessional loan also raised eyebrows among international creditors, led by the IMF and World Bank, which were negotiating $2.1bn of debt relief for Guinea.

People close to the government’s mining policy makers insist the episode was misrepresented. The loan has been repaid. Palladino says it would only have gained the minority stakes in the event of a default at the end of the loan’s 25-year maturity and that discussions about it securing rights of first refusal over certain Guinean mining assets came to nought.

Nonetheless, with BSGR’s permits to Simandou past their expiry date, there is little doubt that investors interested in a share in Simandou, or helping finance the project’s $10bn-plus infrastructure bill, are circling.

Would-be investors from China, Liberia, Europe and the Middle East are eyeing opportunities. This year Roger Agnelli, the former chief executive of Vale who signed the Brazilian miner’s agreement with BSGR, approached Guinea’s government offering the assistance of his new mining venture – a move that, once it appeared in the Brazilian press, prompted the threat of a lawsuit from the Steinmetz group, which claimed its interests were being jeopardised. Mr Agnelli declined to comment.

With parts of the army restive and parliamentary elections repeatedly delayed, Mr Condé’s attempt to challenge vested interests in mining comes at a delicate moment.

The history of Africa’s mineral and oil-rich nations is that their natural endowments often prove a curse, fomenting coups and conflict and undermining the rule of law.

“Like the rest of the region, it’s going to be a major challenge [for Guinea] to benefit from these resources,” says Harry Snoek, the IMF’s mission chief in Guinea. “But we hope that this time is the time it works.”

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