Glencore Courts Guinea's Iron Ore Treasures

Maritime Activity Reports, Inc.

August 6, 2014

Miner and commodity trader Glencore has expressed interest in iron deposits in Guinea, a presentation obtained by Reuters shows, although the company said it had not pitched for a stake in Simandou, the country's largest deposit.

Glencore is the latest mining major looking to invest in iron ore assets in Guinea. Most interest is focused on Simandou, one of the world's biggest deposits.

Any potential investors in Simandou are treading carefully, however.

Israeli-owned BSG Resources, which was stripped of its license to develop part of Simandou following a Guinean corruption investigation, is seeking arbitration and has threatened to sue companies that invest in its former license area.

Three sources close to the government said London-listed Glencore had indicated its interest in investing in Simandou, in a meeting with government officials in Conakry in June.

A copy of a power point presentation, which the sources said a Glencore representative delivered at the meeting, includes a reference to Glencore having the financial and technical ability to develop big projects in the region and "the willingness to proceed very quickly together with the government to the exploitation phase of iron ore projects".

A spokesman for Glencore declined to say whether any presentation was made to officials or to comment on the document obtained by Reuters. But he said the company had not made any presentation expressing interest in the Simandou mine.

The presentation does say that Glencore would be well placed to cooperate with other companies that hold interests in Simandou, such as Vale and Rio Tinto and says that Glencore could push the majors to develop infrastructure in Guinea more quickly.

Glencore, whose exposure to iron ore is much smaller than that of rivals Vale, Rio Tinto and BHP Billiton , has in the past been critical of rivals for pursuing costly greenfield projects.

It has also criticised them for producing large additional volumes of iron ore, which have driven down prices by almost a third this year.

In the presentation, the Swiss-based company said it is keen to become one of the top five producers of iron ore through projects in Africa.

"Iron ore is an absolute priority for Glencore, because it is the only sector where the company wants to strengthen its position noticeably," the company said in the presentation.

"Glencore goes against the trend of the trio (BHP, Vale and Rio), because it wants to develop the Guinean projects quickly," it added.

In its presentation Glencore said Rio does not intend to move quickly to produce high volumes of iron ore from Africa before 2020, as its focus is on growth projects in Australia.

Rio Tinto, which declined to comment, only has the one iron ore project in Africa.

Simandou's Tangled History
Simandou has been known for over 100 years but political instability and rows among companies and governments meant its treasure remains untapped.

Its exploitation would boost dramatically the GDP of Guinea, one of the poorest countries in Africa. Exports from Simandou require an investment of about $20 billion, much of which relates to infrastructure.

Rio Tinto and China's Chinalco have the rights to develop the southern half of the deposit, which will take at least three more years to build.

The northern half is at the centre of a corruption case that has led the Guinean government to strip the rights to develop it from previous holders Vale, the world's largest iron ore producer, and BSGR, the mining branch of the business conglomerate of Israeli billionaire Beny Steinmetz.

An array of legal cases followed, with companies accusing each other and the government of wrongdoing.

As the government prepares for a new tender for the mining concessions on the northern half however, some companies have shown interest in the project, the sources said.

"Simandou is simply too big for a single miner to foot," one of the sources said. "It will end up being developed by a substantial consortium, I expect, that will include multiple majors, and a series of financial parties. However, Glencore is one of the more interesting prospects."

Among parties showing interest are also steelmaker ArcelorMittal, BHP Billiton and the Chinese government, willing to secure access to a strategic raw material for its industrial development.

BHP Billiton declined to comment while ArcelorMittal Chief Financial Officer Aditya Mittal played down its interest in Simandou last week saying it was far away from its existing Liberian iron ore mine.

Brazilian miner Vale, which hopes it can recover at least part of $1.2 billion it spent in Guinea before seeing its rights confiscated, could also be part of such a consortium. After taking a partial writedown on the Guinea investment, the company now hopes to be granted by the government a chunk of the money it spent, either as credit in a potential bid or paid to them by the winner of the bid.

(By Silvia Antonioli and Alexandra Reza, Additional reporting by Stephen Eisenhammer and Daniel Flynn; editing by Jane Baird and William Hardy)

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