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Page last updated at 12:51 GMT, Wednesday, 6 August 2008 13:51 UK

Guinea turmoil threatens mine deal

A view of Guinea's lush landscape

By Will Ross
BBC West Africa correspondent

Mining company, Rio Tinto, must be worried. They have received a letter from Guinean President Lansana Conte rescinding their iron ore mining concession in Simandou, near the Liberian border.

No reason was given and as Rio Tinto tries to resolve the issue, its multi-billion dollar project hangs in the balance.

Women walking with baskets on their heads in Guinea's capital, Conakry
Most Guineans have not benefited from the country's vast mineral wealth

The company will be keen to hold on tight to the world's largest known undeveloped iron ore reserve - 2.25 billion tonnes of ore.

Rio Tinto says it has already spent $300m (153m) on the project, which has the potential to produce 170 million tonnes of iron ore a year.

It is widely believed that the decision to call off the deal is linked to an extraordinary saga of ministerial snakes and ladders, and is a sign of the potential risk of doing big business in a country that has an appalling record of governance.

As Rio Tinto received its ominous letter, a newsreader appeared on state television to announce that one of Guinea's most powerful ministers, Mamady Sam Soumah, had been sacked.

He was the secretary-general of the presidency and had been a long-term ally of President Conte.

A few eyebrows were raised when Mr Soumah was replaced by the president's son-in-law, but no official reason was given for the sacking.

He had however played a role in the government's relationship with Rio Tinto. In June he signed a letter from the presidency querying the validity of the mining project.

As if to prove just how chaotic government is run in Guinea, two days later Mr Soumah was appointed minister of state for presidential activities.

But just 48 hours into that job the newsreader pops back up on state television and tells the nation that Mr Soumah has been sacked again. Again no clear reason was given.

'Transparent'

As Guineans try to figure out what is going on in government circles, Rio Tinto officials are talking to the ministry of mines and government in an attempt to receive an explanation for the U-turn on their mining concession.

I have 2,000 people on the ground
Sam Walsh
Rio Tinto

Along with its partner in the project, the World Bank's International Finance Corporation, Rio Tinto says the deal was carried out within the law and in full transparency with the Guinean government.

"I have 2,000 people on the ground. I have a range of drill rigs and other equipment on the ground," says Rio Tinto's iron ore chief executive, Sam Walsh, adding that his team had to keep going if it was to achieve the first production planned for late 2013.

There will be speculation that calling off the Rio Tinto deal is an attempt to drive a harder bargain especially as production and therefore royalties for the government are still five years away.

There is plenty of money to be made - as the world's demand for steel has soared, iron ore prices have increased 500% since 2002.

Transparency International regularly features Guinea as one of the most corrupt countries in the world.

In recent years government has barely functioned partly because President Conte has been in poor health.

Several ministers have learnt of their own sacking over the radio and then tuned in the next day to find out they have been reappointed.

Whilst there is no doubt that Guinea's government has a poor record, the country has great potential due to the vast mineral wealth.

Handful of aces

In addition to the iron ore, the country has the world's largest bauxite reserves - an aluminium refinery is being built at Sangaredi.

Guinea's President Lansana Conte - file photo
Political analysts say there is a power-struggle going around the president

In January, China agreed to fund a $1bn hydropower dam in return for rights to mine bauxite.

And China has only just started shopping. A delegation including officials from the Chinese Development Bank recently spent a week in Guinea and discussing a deal which could see billions of dollars of Chinese investment in return for mining rights.

The decision to annul the contract with Rio Tinto could also have something to do with the fact that China has woken up to Guinea's riches and the government suddenly finds it is holding a handful of aces.

But so far Guineans have seen little benefit from the mineral wealth, and that is one of the reasons why they are so fed up with the political elite.

In January 2007 Guineans finally said they had endured enough. A general strike was called which was violently suppressed and about 100 protesters were shot dead.

The protests forced the country's ailing president to hand some power to a prime minister but he has since been sacked as politicians maneuver for power.

Whilst Rio Tinto hopes to ride out the storm with the government, Guineans wonder when they will see a change of weather and some sign of hope that better governance is on the way.

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