Event

Guinea holds one of the biggest and most lucrative iron ore deposits of the world. Thanks to the unusual size and quality of the Simandou deposits, it is expected to dominate the global iron ore market. Simandou is capable of meeting 12% of the current annual global iron ore demand and could be mined for at least 50 years. The required infrastructure investments are projected around USD 20 billion, comprising a 650-km railway, a new deep-water port and more than 1,000 km of new and improved roads. After almost a decade of bickering and legal actions, Guinea finally struck a deal with British-Australian Rio Tinto to exploit the southern half of Simandou, which in time is expected to double Guinea’s GDP and create almost 50,000 jobs. The Guinean parliament voted on the adoption of the new investment framework in June 2014, permitting the start of infrastructure projects and bolstering an anticipated production start in 2018.

Impact on country risk

Until recently, there was little hope for Guinea to gain from its abundant resources as corruption made it a textbook case ‘resource-curse’ country. In 2008, under dictator Lansana Conté (only a couple of days before he died), Rio Tinto was stripped of its rights to Simandou’s northern half. After it had been confiscated, it was handed over to BSG Resources, who soon sold a 51% share to the Brazilian mining company Vale. In April 2014, the present-day government under President Alpha Condé cancelled BSGR’s mining rights after a two-year inquiry found it had won its concession through corruption. Consequently, the government seems determined to finally get the crucial Simandou project under way after years of delay.
However, as the opposition boycotted the Rio Tinto vote and is alleged of sympathising with the accused BSGR, Simandou is getting more and more politicised, exposing foreign investors once again to probes and contract revisions in the event of an opposition victory in the 2015 presidential elections.

Analyst: Louise Van Cauwenbergh, l.vancauwenbergh@credendogroup.com