Vale might find $1 billion in investments at the Simandou iron ore deposit wiped out if the Guinean government accepts and implements the recommendations of a technical committee. This committee had been set up to review mining concessions awarded under previous administrations.
It has recommended that Vale and its partner BSGR should be stripped of the rights to exploit Simandou because BSGR obtained the concession allegedly through corruption. The committee wants the tendering process for the northern part of Simandou to be conducted again. The committee will submit its recommendations to a strategic committee which will take a final decision.
If the recommendations are accepted, Vale’s investments worth $1 billion will have to be written off. It is not clear whether the company will be compensated for the amount it has already paid to BSGR for acquiring a 51% stake in northern Simandou in the first place. A re-tendering process will also witness Vale’s competitors like Rio Tinto and BHP Billiton competing for the deposit.
However, a more immediate concern would be the possibility of international arbitration because BSGR has threatened to take this route if stripped of its ownership. This would mean a lengthy and protracted legal battle which will simply delay progress with mining the disputed deposit.
A Recap On The Simandou Project
It is widely acknowledged in the mining industry that Simandou holds one of the world’s best undeveloped iron ore deposits. The iron content in the ore is so high that experts say it requires very little processing. The problem is that the mine is located 700 km from Guinea’s coast, which means that it will cost at least $10 billion to exploit. A lot of transportation infrastructure will have to be put in place before the ore can be monetized.
Rio Tinto was granted rights to mine Simandou in the 1990′s by the then dictatorial regime. In 2008, the regime of the day stripped Rio of rights to half the concession saying that it had missed deadlines to start mining. The half taken away was given to Beny Steinmetz Group Resources, which in turn sold a 51% stake to Vale in 2010 for $2.5 billion.
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