Rio Tinto Group (RIO) is unlikely to develop its $10 billion iron ore project in Guinea in the foreseeable future as the African state struggles to fund transport links, the country’s former mines minister said.
The Simandou project has been “effectively frozen,” Mahmoud Thiam, Guinea mines minister between 2009 and 2010, said in an interview from New York yesterday. “I see it being frozen for the foreseeable future,” he said. The London-based mining company said plans for mining were proceeding.
Rio has spent $2.3 billion on Simandou, which will be one of the largest mines in Africa, Chief Executive Officer Sam Walsh said in London last week. Progress in the venture relies on the West African country’s government coming up with $5 billion to fund half of the planned infrastructure, which it said last month said it would succeed in doing.
Thiam said he doubted Guinea’s ability to make the investment. “They’ve been trying to get funding for the past two and a half years.”
Guinea’s $5.1 billion economy is forecast to grow 5 percent this year as it seeks to put two years of military rule until November 2010 behind it, Budget Minister Mohamed Diare said on Dec. 6. In September, the country got $2.1 billion in debt relief from the International Monetary Fund and the World Bank after it reached the so-called completion point of the Heavily Indebted Poor Countries Initiative.
Simandou is due to start production in 2015 and Rio in June allocated $501 million to building railways and ports for the project.
“The current priority is finalizing the investment framework and for the government of Guinea to secure its financing,” Illtud Harri, a spokesman for Rio, said in an e- mailed response to questions yesterday.
The rights to part of Simandou are at the heart of a U.S. probe into whether BSG Resources Ltd., the mining company controlled by Israel’s richest person Beny Steinmetz, paid bribes to win licenses. Thiam is tied to the investigation, a person familiar with the matter said last week. That link discredits the former minister’s views on the project, a Guinea government spokesman said.
“Thiam is not a good source,” Moussa Cisse, the director for press affairs at the office of Guinea’s president, said in a phone interview yesterday. “He has also been identified in this probe. He no longer has any credibility.”
Thiam said he hasn’t been contacted by U.S. or Guinean authorities in connection with the investigation.
BSGR acquired rights to part of the Simandou project, one of the world’s richest iron-ore deposits, in 2008 after Rio Tinto was ordered by the government to give up a section of its license area. BSGR subsequently sold 51 percent of its Simandou stake to Brazil’s Vale SA (VALE:US) in 2010 for $2.5 billion.
After a military junta took control of Guinea following the death of Lansana Conte in 2008, BSGR regularly made payments to senior members of the military through Thiam, the Guinea government alleged in an Oct. 30 letter to BSGR’s local joint venture. BSGR denies any wrongdoing, as does Thiam.
A former Merrill Lynch and UBS AG (UBS:US) adviser, Thiam said he wasn’t in Guinea when BSGR obtained its rights.
“I don’t know how physically I would have been involved,” Thiam said.
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