The Simandou mountains in Guinea holds some of the richest iron ore deposits in the world and has the potential to transform the fortunes of the impoverished West African nation.
World number two miner 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 at the earliest.
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), , the world’s top iron ore producer.
All work on the section awarded to BSGR by a former Guinea dictator in 2008 and 50%-sold to Vale has been halted as the government of Guinea revisits all mining contracts entered into under previous regimes.
Businessweek reports the technical committee set up by Guinea said it found evidence of corruption in the award of the licenses for Simandou’s blocks 1 and 2 and the Zogota project and that both BSGR and Vale be stripped of their rights:
“These corrupt practices tarnish and thus void the mining titles and the mining convention,” it said.”
Although the committee found no evidence that Vale was involved in corruption, in the latest annual report filed to the US Securities and Exchange Commission by Vale the miner said it is bracing itself to lose all its investment in the project.
Vale acquired the interest in Simandou from BSGR for $2.5 billion in 2010, but stopped payments after the first $500 million was forked over because certain progress milestones were not met.
BSGR pegs the money spent on Simandou with Vale so far at about $1 billion.
Vale was not accused of any wrongdoing and BSGR has all along denied the claims maintaining that the review was a pretext to illegally seize the company’s assets in Guinea.
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 the Anglo-Australian company’s failure to develop the deposits.
The awarding of the rights are also the subject of a separate Swiss, UK and US anti-corruption and fraud investigations.
