By John Helmer in Moscow
China has joined an English peer, a Bush Administration retiree, and a special Kremlin envoy in the attempt to persuade or pressure the Guinean Government into halting its court proceedings and fraud and tax audits of international mining companies, and restore concession rights, corruptly acquired, to Guinea’s resource treasure. At stake for China is access for Chinalco, the state-owned metals and mining company, to the Simandou iron-ore concession — one of the largest unmined reserves of iron-ore in the world.
The move by China’s Embassy in Conakry, the Guinean capital, on Chinalco’s behalf has been coordinated with Rio Tinto, the London-based miner, and the UK Embassy in Guinea. On March 19, Chinalco and Rio Tinto announced that they had signed a “non-binding agreement” to jointly develop Simandou, in the southernmost corner of Guinea, which is estimated to contain 2.5 billion tonnes of iron ore — the equal to Rio Tinto’s enormous Pilbara iron-ore mine in Australia. According to the company announcement, Chinalco would pay US$1.35 billion for a 47% in the project. “We have long believed that Rio Tinto and Chinalco could work together on major projects for mutual benefit,” Rio Tinto’s chief executive Tom Albanese said at the time. That announcement came just a fortnight before a Chinese court convicted and sent to prison four Chinese Rio Tinto employees on indictments for taking bribes, and for commercial espionage involving China’s iron-ore import business.
According to Xiong Weiping, Chinalco’s president, China needs Guinea’s iron-ore to increase global supply and reduce the power of Australian and Brazilian iron-ore miners to dictate rising prices for China’s import needs to feed its expanding steel industry, now the largest in the world. “A successful development of the Simandou project,” announced Xiong, “will effectively increase the global supply of iron ore, balance the global iron ore market structure and promote the long-term, stable and healthy development of the global iron ore mining industry.”
Not before has a Chinese magnate made so clear that China regards African resources as its secret weapon against Australian (and Brazilian) resource supply and pricing tactics. In this strategy of the new mandarins, African resources, including the bribes required to take them, must be priced at a deep discount to the global market price – or the mandarins will take their cash elsewhere.
The Simandou joint venture between Rio Tinto and Chinalco also follows the collapse of the much larger equity partnership between the two companies attempted last year, when Chinalco offered to invest $19.5 billion in Rio Tinto shares, only to be refused by the Rio Tinto board, backed by the Australian government and egged on by non-Chinese shareholders.
Undisclosed in the Rio Tinto-Chinalco announcement on Simandou, however, is the proviso that if the Guinea Government revokes the original concession rights awarded to Rio Tinto, Chinalco would withdraw from the deal. Until that happens, the Chinese have undertaken to back Rio Tinto’s campaign to lobby the Guineans to change their minds.
According to Fassine Fofana, the Guinean Minister of Mines and Energy between 1994 and 2000 — currently CEO of London-based Energy Equity Resources — “Rio converted the exploration licences, which I granted them in 1997, that have maximum seven-year duration, into a 25-year concession, without meeting the basic requirement for such conversion: submit a bankable feasibility study to the Ministry, according to Article 41 of the Guinea Mining Code. Having failed to present a bankable feasibility study, the conditions for securing a concession were not met. The former President [Lansana Conte died in December 2008], who had issued it, rescinded the concession decree and Rio’s Simandou titles reverted to being pure (but still exclusive) exploration licenses. As such, they were subject to the relinquishment provisions of the mining law — 50% at each renewal, until such time as a concession has been granted, if the concession conditions are met. What the law does not allow for is for anyone to take the asset off the market by securing a concession before meeting the conditions set out in the law. This is what happened with Rio.” Fofana also added the warning: “if Rio does not move fast, they may have to relinquish their remaining 50% of the Simando deposit, if the conditions are not met by the time the next license renewal comes up. There will be many takers for any portion of Simandou.”
Fofana’s successor as Mines Minister, Mahmoud Thiam, was appointed by Guinean Army Captain Moussa Dadis Camara, who took power as Guinea’s president after Conte died in December 2008. Thiam was a US investment banker in New York before he agreed to return home and take over the resources portfolio. Last July, he issued Rio Tinto with a notice revoking 50% of the Simandou concession for failure to meet its obligations. When Rio Tinto began its counter-attack against Thiam and the government, Thiam hinted that the company was plotting to destabilize the government: “We regret to observe,” Thiam announced, “that Rio Tinto seems to ignore this sovereign decision from our Government with a doggedness verging on defiance of the authority of the State. Such activities come dangerously close to destabilising civil peace and weakening our socio-economic balance.” A few weeks later, on September 28, a political demonstration in Conakry was attacked by troops, and at least 150 people were killed, and many more wounded or raped. An attempt at assassinating Camara followed on December 4. He is still recuperating from head wounds in neighbouring Burkina Faso.
Ex-minister Fofana has blamed the western media for falling for “all the old clichés on Africa. Everything done by African governments is presented as an attempt to defraud ‘innocent and well meaning’ investors, and to scare off the companies allegedly best suited to develop the resources. The companies can do no wrong. As a former Minister of Mines from Guinea and as a leader of several resource projects across Africa, I beg to differ.”
Rio Tinto claims it has spent $450 million on exploration at Simandou, and has met its concession obligations. “Rio Tinto”, according to a company release, “has in all its actions, public statements and letters to the Government of Guinea indicated its desire to conduct good-faith discussions. Rio Tinto is confident of its strong legal standing as well as the win-win nature of our agreements with Guinea for the development of this project.” In a recent appearance at a London foreign policy think-tank in London, the UK Ambassador to Guinea Ian Felton reportedly said the Simandou revocation is unlawful; he also signaled the backing of the Foreign Office for a change of minister, or a change of Guinean government, if Rio Tinto’s concession rights are not restored.
Until now, it has been widely believed in Africa, as well as among China watchers around the world, that Chinese state policy favours African regimes, or regime change, if they agree to provide mining concessions and direct mineral export deals in return for cash, investments in local infrastructure, and political support. That has appeared to put the Chinese on a collision course with non-Chinese miners like Rio Tinto. Until now too, Minister Thiam had been accused of being pro-Chinese for his efforts at prosecuting the Russian aluminium monopoly Rusal, which operates bauxite and alumina concessions in Guinea. On Thiam’s initiative, backed by Camara, the Guinean courts are currently considering revocation of Rusal’s concessions, while international and Guinean government auditors have been examining Rusal’s records for evidence of alleged fraud and tax evasion. According to Rusal, it has done everything right, and Thiam is acting as someone’s puppet.
Rusal has despatched a former intelligence agent, now Rusal executive Victor Boyarkin, to negotiate a deal with Thiam; or failing that, with his opponents in the Guinean government. After an attempt to oust Thiam from his ministerial post failed in January, Rusal announced on February 19 that it had agreed “to establish a joint high level commission aimed at providing a stable basis for long-term and mutually beneficial cooperation in the country. The decision to establish this commission was reached during negotiations between the Guinean Government and RUSAL. Guinean Prime Minister Jean-Marie Dore and RUSAL’s Head of Alumina Division Pavel Ovchinnikov took part in the negotiations. The parties confirmed their strategic partnership and underscored the need to continue the cooperation between RUSAL and Guinea.”
With roughly 15% of Rusal’s capital at risk in Guinea, the Russian stakes are high. Rusal is the largest Russian company currently operating in Africa. In January, Rusal became the first Russian company to list its shares on the Hong Stock Exchange. BOCI Asia Limited was one of the initial Chinese subscribers to the placement; China Development Bank is one of the heavily indebted Rusal’s creditors; and Hong Kong investor Kuok Hock Nien, owner of the South China Morning Post, holds Rusal shares. All have an interest in boosting the share price, which has fallen as much as 30% off the listing level in the first weeks of trading. So too does the Kremlin, because the state bailout bank VEB, chaired by Prime Minister Vladimir Putin, is Rusal’s biggest creditor, and together with the state savings institution, Sberbank, they guaranteed the Hong Kong listing in January by buying the biggest bloc of shares on offer.
And so next into the breach in Guinea, the Russians have sent a Kremlin emissary. Alexey Vasiliev, a Russian professor specializing in the history of Saudi Arabia, flew to Conakry last week. mission was also to make it appear that the Kremlin wants Guinea to take its teeth out of Rusal. According to a resume posted on the website of the Institute for African Studies in Moscow, “since 2006 Prof. Vasiliev is a Special Representative of the President of the Russian Federation for the Relations with African Leaders.” The resume also reports several books Vasiliev has authored, including History of Saudi Arabia, Russia in the Near and Middle East: from Messianism to Pragma¬tism, and Egypt and Egyptians.
Vasiliev was in Guinea from March 21 to 27, his spokesman at the Institute for African Studies confirmed today. Vasiliev is also director of the institute.
A Guinean source, in whom Vasiliev confided in Conakry, says Vasiliev told him that he was on a mission for Prime Minister Vladimir Putin. Vasiliev’s spokesman denies this, saying he was representing the “presidential administration”. Vasiliev’s office declined to say what the purpose of his mission to the Guinean government has been, and what he told Prime Minister Dore at their meeting.
Sources privy to the meetings Dore have had with foreign emissaries in the past month say that there is a concerted international effort to convince the Guineans that what is good for the foreign mining companies ought to be good for the government – or else there will be international sanctions. Lord David Owen, the former UK Foreign Secretary, is a member of the board of a US-based oil junior called Hyperdynamics. It is trying to pressure Dore into agreeing to terms of an offshore oil concession agreement, which have been rejected as unfair by Minister Thiam. Thiam’s opposition is based on a legal opinion of the Hyperdynamics proposal commissioned from the Paris-based international lawfirm, Gide Loyrette Nouel.
Lord Owen has told Dore that Guinea’s future relations with the UK and US governments depend on its meeting Hyperdynamics’ terms. The same message was conveyed in Conakry by Herman (Hank) Cohen, a former US Assistant Secretary of State during the Bush Administration. Cohen is also a board member of Hyperdynamics.
The objective of Vasiliev’s visit to Conakry was to join the other foreign emissaries in pressing Dore to agree that Guinea’s future relations with the Kremlin are dependent on how the Russian commercial interest in Guinea is treated. This linkage with Rusal’s interests in Guinea has been denied by the Russian Foreign Ministry in an official statement to Business Day; and by the Kremlin’s special emissary and troubleshooter in Africa, Senator Mikhail Margelov. Margelov has been particularly acerbic in his criticism of Rusal’s owner, Oleg Deripaska.
Dore was appointed prime minister by the head of state, Captain Camara, in January. According to the terms agreed with Camara, Dore has a limited mandate to prepare for a new presidential election scheduled in October. Sources close to Dore acknowledge that he has little time to achieve what he wants from his post. Dore has also publicly claimed he is not bound by the terms of his deal with Camara. The latter has backed Thiam to remain in his post, and the campaign to enforce Guinean concession agreements with the foreign mining and energy companies.
Vasiliev, sources in Conakry say, lobbied for Dore to halt litigation by the government in the Guinean courts against Rusal, and to drop claims for concession violations, fraud, and tax evasion by Rusal. A claim by Rusal that it had succeeded in its appeal against last September’s court revocation of its Friguia concession appeared in print on March 22, the day before the Guinean appellate court issued its ruling; that in turn followed the surprise withdrawal of the judge hearing the case.
Rusal has announced that the “appellate court held that the Guinean courts lack jurisdiction over the case regarding the RUSAL’s asset in Guinea and therefore reversed the ruling issued by the Guinean lower court in September 2009….RUSAL views this decision as providing a favourable step toward expanding the long-term and mutually beneficial cooperation between RUSAL and the Republic of Guinea.”
Guinean government sources have told Business Day they believe the latest ruling will be rejected by the highest court, to which the government is now appealing. The sources also say that the compensation claims are an entirely different issue, and are unaffected by the appeal proceeding.