Vale very much still in the running for Simandou

Guinean President Alpha Condé and Brazilian President Dilma Rousseff on friendly terms

The Simandou mountains in Guinea groan under some of the richest iron ore anywhere on the planet and winning the licence to mine the steelmaking raw material brings with it billions of dollars for decades to come.

Rio Tinto is developing the southern part of the vast mountain deposit with first production from the massive $20 billion project not expected until late 2018.

The northern part of the Simandou concession is held by BSG Resources, a company in the stable of billionaire diamond magnate Beny Steinmetz, and Brazilian giant Vale (NYSE:VALE).

All work on the BSGR-Vale section has been halted as the government of Guinea under democratically elected president Alpha Condé revisits all mining contracts entered into under previous military regimes and dictatorships.

BSGR was awarded the rights days before the death of Guinea dictator Lansana Conté in 2008 after spending more than $160 million exploring the prospect.

Conté had not long before stripped the Simandou blocks from Rio Tinto which had held the exploration rights since the late 1990, ostensibly over its failure to develop the deposits.

In 2010 BSGR sold a controlling half of its concession to Vale for $2.5 billion. But after forking over the first half a billion dollars the Rio de Janeiro company halted payments, following the opening of a grand jury investigation in the US into BSGR.

The Guinean committee reviewing the agreements and the corruption probe into BSGR is set to hold hearings and make a decision on December 10 when it is widely thought that BSGR would be stripped of its rights.

An article by Ana Mano from The Policy and Regulatory Report in Forbes on Monday argues that “while the death knell may be tolling for BSGR, Vale appears to be still in the race” to develop Simandou:

One way for Vale to remain active in the project and circumvent any legal challenge by Steinmetz could be to buy out BSGR’s stake in the joint venture – VBG—Vale BSGR Limited – according to a Brazil-based industry source, who added that the parties are currently “discussing price.”

The forthcoming decision on BSGR comes on the heels of a visit by Condé to Brazil last week. Despite having the appearance of a state visit, Condé did not officially meet Brazilian President Dilma Rousseff, according to her official presidential schedule.

Yet Condé met with Vale’s director of corporate affairs Rafael Benker for 30 minutes on November 18, according to the person familiar with the matter.

Vale is not the only Brazilian company interested in Guinea’s billions of dollars worth of iron ore and related infrastructure projects including a 750 kilometre rail line which could end up attracting more investment than the mine complex itself.

According to the The Policy and Regulatory Report, Condé was invited to Brazil by the Lula Institute, an NGO founded by former president Luiz Inacio Lula da Silva “to foster cooperation with Africa and Latin America”.

Lula is said to have close ties to B&A Mineração, an infrastructure and mining investment company set up by Roger Agnelli, former boss of Vale and a large Brazilian bank. Late last year BHP Billiton (ASX, NYSE:BHP) sold its 40% stake in its massive Nimba project in the same district as Simandou to B&A.

Image source: Roussef Flickr Stream

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