Why genuine miners avoid Guinea
THE two stories in this column about Guinea’s mining assets and Mvelaphanda Holdings’ involvement have generated an unusual amount of international interest. I am told project developers in Guinea, elements of civil society and opposition parties are planning legal action in the US (under the Foreign Corrupt Practices Act) and the UK (under new foreign investment anticorruption legislation).
Last weekend, in response to stories about Palladino and its $25m loan to Guinea, businessman and Mvela associate Walter Hennig categorically denied the company had the right to a 30% stake in active private sector mining projects if repayment of the loan is defaulted.
It was a smart move. But the contract was actually between Palladino 2 and the Guinean government, not with Palladino. I understand Palladino 2 was created in 2010 for the specific purpose of entering into the agreement; Palladino was incorporated in 2003 and the use of Palladino 2 does seem strange.
Given that the holdup in the Rio Tinto iron ore project was resolved last year after Rio agreed to pay $700m once the settlement agreement and presidential decrees are promulgated, quite why it needs a $25m loan from Palladino 2 is curious. Hennig has insisted the consortium which is involved in Palladino and Florus Bell, the other BVI company, was asked by the Guinean government to assist in cleaning up the mess in the mining sector.
Maybe so, but I cannot be persuaded that the consortium’s efforts will go unrewarded.
I identified some of those involved, in this column on Friday, and they are not individuals who take on tasks of this kind with no reward at the other end. I have to guess that mining developers will take all the initial risks (geological, technical, geopolitical). Once those risks are off the table and financing is about to start, Soguipami, the Guinean government’s investment vehicle, may then exercise the provisions under the new mining code. These are for a 15% free ride for the government with an entitlement to buy up to another 20% in any mining project.
But where does all this put the consortium? A contact in Conakry says tales are circulating that some mining projects may be seized and handed on to other parties.
How will foreign mining companies respond? The Rio iron ore project is unlikely to be threatened. But BHP Billiton announced last week it might sell its 33,33% stake in Guinea Alumina and is working with investment bank Lazard to find a buyer. And Russian aluminium producer Rusal, which has operated in Guinea for years, described the new mining code as “senseless”. It added: “Any investor of good sense will look for investment opportunities somewhere outside Guinea.”
Guinea is described by the International Monetary Fund (IMF) and World Bank as a highly indebted poor country. It is seeking debt relief from both commercial and official lenders, and a three-year extended credit facility and an allocation of interim poor-country assistance is under consideration by the IMF. Questions are being asked about the terms of the loan agreement, which includes interest at Libor plus 3%. If Guinea is so poor it has to beg debt relief, why is it borrowing money at such high interest payments?
The longer-term problem for Guinea is what effect this uncertainty and rumour might have on international investment. The country is awash with mineral resources, but many mining companies may be discouraged by political developments that leave them baffled.
WE FIRST asked Congress of South African Trade Unions (Cosatu) spokesman Patrick Craven to make the past year’s financial statements available a week ago. He sent us off to talk to someone else, who sent us back to Craven, who said he’d let us know.
He didn’t, so we called again. Maybe they’ll sort this out today. I’m not holding my breath. Presuming the response is no, the next question is: what does it have to hide?
In any event, surely a federation as big as Cosatu owes it to the public to show us what it does with its members’ money? The Labour Relations Act should be amended to require trade unions and federations to publish their financial statements in full and make them easily available.
E-mail: david@gleason.co.za Twitter: @TheTorqueColumn