Israeli police have arrested diamond tycoon Beny Steinmetz, the owner of BSG Resources, on suspicion of bribing government officials in Guinea in order to obtain mining rights over the vast Simandou iron ore project.
The billionaire and other Israeli businessmen, most of them living abroad, are suspected of paying tens of millions of dollars to senior state officials to secure a licence for Simandou, once one of the world’s most prized mineral assets, local police said.
“It is BSGR’s strong belief that these allegations of bribery by the Government of Guinea are not only baseless, but are a systematic attempt by the Government of Guinea to cover up the endemic corruption which has blighted this country for a number of years,” a BSGR spokesman replied in a statement.
According to BSGR, the investigations were initiated by the government of Guinea with support from international police bodies in the US, UK and Switzerland.
Steinmetz’s arrest is the latest and perhaps most dramatic twist in the Simandou case, which has also “shaken to the core” the world’s second largest mining company Rio Tinto (LON:RIO).
The Anglo-Australian miner recently unveiled e-mails sent by some of its executives in May 2011 related to a dubious payment made to an external consultant working on the firm’s Simandou project.
In just a month, the revelation has already triggered several probes as well as a couple of management shakeups, including the polemic dismissal of the company’s’ energy and minerals boss Alan Davies, who vowed to take the “strongest possible legal action” against Rio.
Rio Tinto had the licence for the entire Simandou deposit since the early 1990s, but was stripped of the northern blocks of it in 2008.
BSGR acquired such concession later that year after spending $160 million exploring the property. But in 2010, it sold 51% of its holdings to Vale (NYSE:VALE) for $2.5 billion. The Rio de Janeiro-based company stopped paying after the first $500 million after missing a number of development milestones. Then, the new Guinean government under Alpha Conde launched a review of all mining contracts awarded under previous regimes and launched an investigation into the Vale-BSGR joint venture.
Shortly after, authorities withdrew their mining permit and accused BSGR of obtaining its rights through corruption. BSGR has denied wrongdoing and filed an arbitration request in an attempt to win compensation from the Western African nation
BSGR claims Rio Tinto contributed to the loss of its mining rights in Simandou and last week it launched a fresh legal action on the matter.
In 2014, Rio filed a lawsuit against Vale (NYSE:VALE) and BSGR over an alleged conspiracy between the two competitors to steal its rights over the project. Rio alleged BSGR paid a $200 million bribe to Guinea’s former minister using funds from Vale’s initial payment.
The US district court threw out the case in November 2015, saying Rio “had waited too long to file the lawsuit” under the Racketeer Influence and Corrupt Organizations Act, which calls for a four year time limit.
Simandou, with over two billion tonnes of reserves and some of the highest grades in the industry (66% – 68% Fe which attracts premium pricing), one of the most easily exploitable iron ore fields outside of Australia’s Pilbara region and Brazil.
At full production, the concession would export up to 100 million tonnes per year – that’s a third of Rio’s total capacity at the moment – and would catapult Rio past Vale as world number one iron ore miner. Simandou would by itself be the world’s fifth-largest producer behind Australia’s Fortescue Metals and BHP Billiton.