China closer to control of Guinea’s Simandou North

Simandou mountains
The Simandou mountains in Beyla, Guinea

The two shortlisted companies are Fortescue Metals Group (FMG), the Australian iron ore giant, and Société Minière de Boké (SMB), a Chinese state-backed vehicle that
already operates one of the Guinea’s largest bauxite mines.

The workings of the tender remain “far from best practice”, Verisk Maplecroft analyst Eric Humphery-Smith argues in a note.

  • While the participation fee of $300,000 has reduced the risk of non-development, the relative sizes of the FMG and SMB bids are likely to remain unknown, as is the reason for ruling out the third bid.

SMB benefits from access to Chinese state financing, as well as established shipping capabilities and buyer networks in China. It’s also thought to have strong political ties in Guinea, with chairman Fadi Wazni said to be close to the president’s son Mohamed Alpha Condé.

  • “In a country where business and politics all too often overlap, more than one tender is needed to change a deep-rooted culture,” Humphery-Smith says.

Simandou is one of the world’s richest reserves of high-grade iron ore, with an estimated 2 billion tonnes. Beijing needs high grades, which reduce pollution from processing.

  • Rio Tinto, which first acquired the exploration rights at Simandou in 1997 and retains a stake in the Simandou South deposit, has so far failed to either develop or sell the resource.

Domestic export route

Willingness to export through Guinea, as opposed to the more commercially viable Liberian route, will be a key in determining the winner of the North tender, Humphery-Smith says.

  • It’s likely that government will hold a minority stake in the project to ensure that the 650km trans-Guinean railway project will not be abandoned, he argues.
  • The railway would make smaller mineral deposits along the route more viable, and there would also be spinoffs such as passenger transport and spare capacity for cargo, he says.
  • Chinese finance can afford to overlook short-term commercial considerations, but FMG’s preference for the Liberian export route is a further factor that’s likely to count against it.

China’s resource dependence on Guinea has increased in recent years. Beijing in 2017 agreed to loan Guinea $20 billion over almost 20 years in exchange for bauxite concessions. But Guinea’s population has so far seen little benefit from Chinese investment.

  • Riots in the northwestern mining region of Boké in 2017 due to shortages of water and electricity were supressed by government forces.
  • SMB and other mining companies say they take steps to mitigate their impact on water sources through building boreholes and wells.

But according to Human Rights Watch (HRW), the absence of public government or company data on the impact of mining on water makes it difficult to assess those responses.

  • Guinea’s government institutions still have nowhere near the personnel, resources and political will to effectively oversee mining projects, HRW says.

Bottom Line: Chinese state backing and opaque politics means that dice are loaded against competing mining majors in Guinea.